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Notice2025-11526

Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing of Amendment No. 3 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 3, To Introduce an Enhanced RPI Order and Expand Its Retail Price Improvement Program To Include Securities Priced Below $1.00

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Published

June 24, 2025

Issuing agencies

Securities and Exchange Commission

Full Text

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[Federal Register Volume 90, Number 119 (Tuesday, June 24, 2025)]
[Notices]
[Pages 26843-26864]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-11526]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-103291; File No. SR-CboeBYX-2025-007]

Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing of Amendment No. 3 and Order Instituting Proceedings To
Determine Whether To Approve or Disapprove a Proposed Rule Change, as
Modified by Amendment No. 3, To Introduce an Enhanced RPI Order and
Expand Its Retail Price Improvement Program To Include Securities
Priced Below $1.00

June 18, 2025.
On March 13, 2025, Cboe BYX Exchange, Inc. (``BYX'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to modify BYX Rule 11.24 to introduce an Enhanced
RPI Order and expand its Retail Price Improvement Program to include
securities priced below $1.00. The proposed rule change was published
for comment in the Federal Register on March 20, 2025.\3\ On April 29,
2025, pursuant to Section 19(b)(2) of the Act,\4\ the Commission
designated a longer period within which to approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to disapprove the proposed rule change.\5\ On May
6, 2025, the Exchange submitted Amendment No. 1 to the proposed rule
change. On June 16, 2025, the Exchange submitted Amendment No. 2. On
June 17, 2025, the Exchange

[[Page 26844]]

withdrew Amendment Nos. 1 and 2 and submitted Amendment No. 3 to the
proposed rule change, as described in Items I and II below, which Items
have been prepared by the Exchange.\6\ To date, the Commission has
received no comments on the proposed rule change. The Commission is
publishing this notice and order to solicit comment on the proposed
rule change, as modified by Amendment No. 3, from interested persons
and to institute proceedings under Section 19(b)(2)(B) of the Act \7\
to determine whether to approve or disapprove the proposed rule change,
as modified by Amendment No. 3.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 102681 (Mar. 14,
2025), 90 FR 13240.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 102956, 90 FR 19013
(May 5, 2025). The Commission designated June 18, 2025 as the date
by which the Commission shall approve or disapprove, or institute
proceedings to determine whether to disapprove, the proposed rule
change.
\6\ Amendment No. 3 amends and supersedes the original filing in
its entirety. In Amendment No. 3, the Exchange clarifies certain
points, adds additional detail to the proposal, and introduces an
amendment to Exchange Rule 11.12 (Priority of Orders). The full text
of Amendment No. 3 is available on the Commission's website at
<a href="https://www.sec.gov/comments/sr-cboebyx-2025-007/srcboebyx2025007-613767-1798914.pdf">https://www.sec.gov/comments/sr-cboebyx-2025-007/srcboebyx2025007-613767-1798914.pdf</a>.
\7\ 15 U.S.C. 78s(b)(2)(B).
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I. Exchange's Description of the Proposed Rule Change, as Modified by
Amendment No. 3

Cboe BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') is filing
with the Securities and Exchange Commission (``Commission'') a proposal
to modify Rule 11.24 to introduce an Enhanced RPI Order and expand its
Retail Price Improvement program to include securities priced below
$1.00. 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.

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
This Amendment No. 3 to SR-CboeBYX-2025-007 amends and replaces in
entirety Amendment No. 2 to SR-CboeBYX-2025-007, which was filed on
June 16, 2025, and withdrawn on June 17, 2025. The Exchange originally
filed Amendment No. 1 to SR-CboeBYX-2025-007 on May 6, 2025, and
withdrew Amendment No. 1 on June 17, 2025. The Exchange submits this
Amendment No. 3 in order to clarify certain points, add additional
detail to the proposal, and introduce an amendment to Rule 11.12
(Priority of Orders).
The Exchange proposes to amend Rule 11.24 to enhance the Exchange's
Retail Price Improvement Program (the ``Program'') for the benefit of
retail investors. Specifically, the Exchange proposes to introduce a
new type of RPI Interest \8\ to be known as an ``Enhanced RPI Order.''
The proposed Enhanced RPI Order will allow retail liquidity providers
to post orders at their limit price but have the opportunity to provide
a greater amount of price improvement as compared to other resting
orders on the same side of the BYX Book with higher price-time priority
in order to execute with an incoming Retail Order \9\ by executing at a
price within their established Step-Up Range instruction.\10\ The
proposed change is designed to provide retail investors with
opportunities for additional price improvement by introducing a new
order type that will ``step-up'' its price against orders with a higher
priority resting on the BYX Book.\11\ Additionally, the Exchange
proposes to expand the Program to securities priced below $1.00.\12\
Further, the Exchange proposes to amend Rule 11.12 in order to
introduce a new priority band applicable to the proposed Step-Up Range
instruction of an Enhanced RPI Order.
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\8\ See proposed Rule 11.24(e). RPI Interest means an order
submitted to the Exchange that is designated as either an RPI Order
or an Enhanced RPI Order. See also Rule 11.24(a)(3) (``Retail Price
Improvement Order'').
\9\ See Rule 11.24(a)(2) (``Retail Order'').
\10\ See proposed Rule 11.24(a)(4).
\11\ See Rule 1.5(e) (``BYX Book''). The ``BYX Book'' is the
System's electronic file of orders. The ``System'' shall mean the
electronic communications and trading facility designated by the
Board through which securities orders of Users are consolidated for
ranking, execution, and when applicable, routing away. See Rule
1.5(aa) (``System'').
\12\ See Rule 11.24(h). The Program is currently limited to
trades occurring at prices equal to or greater than $1.00 per share.
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Background
In November 2012, the Exchange received approval to operate its
Program on a pilot basis.\13\ The Program operated under a pilot basis
until September 30, 2019, when the Program was approved on a permanent
basis.\14\ In addition, the Exchange was granted a limited exemption
from the Sub-Penny Rule, as well as Regulation NMS Rule 602 (Quote
Rule) No Action relief \15\ to operate the Program.\16\ The Program is
currently designed to attract Retail Orders 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.\17\ Under the Program, a class of market
participant called a Retail Member Organization (``RMO'') \18\ is
eligible to submit certain retail order flow (``Retail Orders'') to the
Exchange. Users \19\ are permitted to provide potential price
improvement for Retail Orders \20\ 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'').\21\
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\13\ See Securities Exchange Act Release No. 68303 (November 27,
2012), 77 FR 71652 (December 3, 2012), SR-BYX-2012-019 (``Pilot
Approval Order'').
\14\ See Securities Exchange Act Release No. 87154 (September
30, 2019), 84 FR 53183 (October 4, 2019), SR-CboeBYX-2019-014 (``RPI
Approval Order'').
\15\ See Letter from David Shillman to Eric Swanson (November
27, 2012) (``No Action Letter''), available at <a href="https://www.sec.gov/divisions/marketreg/mr-noaction/byx-112712-602.pdf">https://www.sec.gov/divisions/marketreg/mr-noaction/byx-112712-602.pdf</a>.
\16\ Supra note 14 at 53185.
\17\ Supra note 12. The Exchange will periodically notify the
membership regarding the securities included in the Program through
an information circular. The Exchange is proposing to make the
Program available to all securities (discussed infra).
\18\ See Rule 11.24(a)(1). A ``Retail Member Organization'' or
``RMO'' is a Member (or a division thereof) that has been approved
by the Exchange under Rule 11.24 to submit Retail Orders.
\19\ See Rule 1.5(cc). A ``User'' is defined as any member or
sponsored participant of the Exchange who is authorized to obtain
access to the System.
\20\ Supra note 9. A ``Retail Order'' is defined as an agency or
riskless principal order 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 the order with respect to price or side of
market and the order does not originate from a trading algorithm or
any computerized methodology.
\21\ See Rule 1.5(t). The term ``Protected Quotation'' has the
same meaning as is set forth in Regulation NMS Rule 600(b)(71). 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 26845]]

The Exchange developed this Program with the goal of incentivizing
RMOs to execute their Retail Orders on the Exchange, rather than off-
exchange venues, by providing Retail Orders with greater access to
potential opportunities for price improvement on the Exchange. However,
as noted by the Commission, even with the presence of retail liquidity
programs (``RLPs'') offered by Cboe and other national securities
exchanges,\22\ the great majority of marketable orders of retail
investors continue to be sent to wholesalers.\23\ Indeed, as noted in
the Commission's recent rule proposal related to minimum pricing
increments, RLPs have not yet attracted a significant volume of retail
order flow.\24\ In fact, since RLPs have been adopted, the percentage
of on-exchange share volume has continued to decrease from
approximately 71% to approximately 49% as of December 2024.\25\
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\22\ See, e.g., NYSE Retail Liquidity program, which promotes
cost savings through price improvement for individual investors
provided by retail liquidity providers that submit non-displayed
interest priced better than the best protected best bid or protected
best offer. See also NYSE National Retail Liquidity program, which
seeks to attract retail order flow to the Exchange through the
potential of price improvement at the midpoint or better. Available
at <a href="https://www.nyse.com/markets/liquidity-programs">https://www.nyse.com/markets/liquidity-programs</a>. See also IEX
Retail Program, which incentivizes midpoint liquidity for retail
orders through the use of retail liquidity provider orders.
Available at <a href="https://www.iexexchange.io/products/retail-program">https://www.iexexchange.io/products/retail-program</a>. See
also Nasdaq BX Retail Price Improvement, which allows retail orders
to interact with price-improving liquidity. Available at <a href="https://www.nasdaqtrader.com/content/BXRPIfs.pdf">https://www.nasdaqtrader.com/content/BXRPIfs.pdf</a>.
\23\ See Securities Exchange Act Release No. 96495 (December 14,
2022), 88 FR 128 (January 3, 2023) (``Order Competition Rule'') at
144.
\24\ See Securities Exchange Act Release No. 96494 (December 14,
2022), 87 FR 80266 (December 29, 2022) (``Tick Size Proposal'') at
80273.
\25\ Source: Cboe internal data.
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Accordingly, the Exchange believes further enhancements to the
Program are necessary in order to attract a meaningful volume of
marketable retail order flow to the Exchange. In considering how to
accomplish the goals of the Program, the Exchange determined to design
an enhancement to provide more meaningful levels of price improvement
provided to Retail Orders relative to the price improvement currently
provided by both the Program as well as off-exchange venues.
As noted by the Commission, there are reasonable concerns with the
price improvement provided to retail orders executed off-exchange by
wholesale broker-dealers. In short, the Commission itself has stated
that ``the current isolation of individual investor orders from order-
by-order competition results in suboptimal price improvement for such
orders.'' \26\ The Commission believes that the lack of order
competition for retail orders leads to ``foregone price improvement''
or ``competitive shortfall,'' \27\ which for the first quarter of 2022,
the Commission quantified to be as much as $1.5 billion.\28\
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\26\ Supra note 23 at 130.
\27\ Id.
\28\ Id.
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In determining how to better design its Program in order to attract
retail order flow back to the Exchange, the Exchange conducted research
into the amount of price improvement provided to Retail Orders on BYX.
The Exchange found that RPI Orders under its current Program provided
an average of $0.0013 per share of price improvement to Retail Orders
in 2024, as compared to the BYX Book. A more thorough review of BYX
data found that the amount of price improvement provided to Retail
Orders solely by RPI Orders under the current Program on BYX is lower
than the amount of price improvement provided to Retail Orders by all
hidden liquidity on BYX (including RPI Orders). An analysis of BYX data
found that Retail Orders received an average of $0.0033 per share of
price improvement and a total amount of approximately $1.68 million in
2024 when executing against all hidden liquidity on BYX (including RPI
Orders), as compared to the BYX Book.\29\ The Exchange's analysis of
price improvement statistics found that its current RPI Orders provide,
on average, less price improvement to Retail Orders than other hidden
liquidity on BYX. As such, the Exchange believes that revising its
Program to include an optional order instruction (discussed infra)
designed to potentially provide a higher amount price improvement to
Retail Orders as compared to the price improvement both currently
received under the existing Program as well as through hidden, non-
displayed liquidity available on the Exchange against which Retail
Orders currently trade with today, will encourage retail order flow to
execute on a regulated market as opposed to off-exchange venues.
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\29\ Supra note 25.
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Accordingly, the Exchange now seeks to enhance its current Program
by offering retail liquidity providers an optional Enhanced RPI Order.
The Exchange believes the Enhanced RPI Order will incentivize
additional retail liquidity provision by enabling RPI liquidity
providers to submit an order that is ranked at a lower (for buy orders)
or higher (for sell orders) price than the maximum price at which the
provider is willing to execute, but have the opportunity to ``step up''
to provide a greater amount of price improvement as compared to other
higher priority resting orders on the same side of the BYX Book in
order to execute with an incoming contra-side Retail Order. As
discussed in more detail below, the Enhanced RPI Order will have the
ability to gain price priority over same-side resting orders on the BYX
Book in exchange for offering price improvement when a contra-side
Retail Order is submitted to the Exchange and certain conditions are
met. With the deeper pool of retail liquidity-providing orders, the
Exchange believes that RMOs will see increased opportunities for on-
exchange price improvement and seek to execute more of their Retail
Orders on the Exchange.
Proposal
The Exchange proposes to amend Rule 11.24(a) to include Rule
11.24(a)(4), which defines the proposed Enhanced RPI Order. The
proposed Enhanced RPI Order allows a retail liquidity provider to post
a limit order to the Exchange, but also provides the opportunity for
the liquidity provider to ``step-up'' its price within a defined Step-
Up Range instruction and have the ability to gain price priority by
providing a greater amount of price improvement as compared to orders
with higher priority that are resting on the same side of the BYX Book
in order to execute against an incoming Retail Order seeking to remove
liquidity. An Enhanced RPI Order is designed to be entered with a limit
price, but must also include a Step-Up Range instruction, which, when
applied to the order's ranked price provides the highest (for buy
orders) or lowest (for sell orders) price it is willing to execute
against a contra-side Retail Order. If the Enhanced RPI Order includes
a Step-Up Range instruction that would allow the Enhanced RPI Order to
provide additional price improvement over the price of the highest-
ranked resting order on the same side of the BYX Book, the Enhanced RPI
Order will be given price priority over the highest-ranked resting

[[Page 26846]]

order, subject to certain conditions discussed infra. In order for an
Enhanced RPI Order to receive queue priority, the Step-Up Range
instruction must allow the Enhanced RPI Order to provide a greater
amount of price improvement to an incoming contra-side Retail Order
than would otherwise be available from same-side, resting orders on the
BYX Book by stepping up to the next half cent midpoint or next full
cent for securities priced at or above $1.00 and to the next minimum
price increment for securities priced below $1.00.\30\
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\30\ Generally, an Enhanced RPI Order is expected to provide at
least $0.005 of price improvement in order to gain price priority
over same-side resting orders on the BYX Book, but the Exchange
notes that the minimum amount of required price improvement will
vary between $0.001 and $0.01, based on the order types resting on
the BYX Book. In certain instances, Enhanced RPI Orders in
securities priced at or above $1.00 may only need to step up to the
NBBO midpoint or from the NBBO midpoint to the next full cent in
order to gain price priority over same-side resting orders on the
BYX Book (discussed infra).
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The Exchange believes this proposed change would further the
purpose of the Program to attract retail marketable order flow to the
Exchange, while also increasing opportunities for price improvement. By
offering the Enhanced RPI Order, the Exchange proposes to create an
enhancement to its current Program that offers the ability for
liquidity providers to earn queue priority to execute against
marketable retail order flow on the Exchange. The Enhanced RPI Order
would allow Users to post orders at their limit price but step up or
down to a higher price (for buy orders) or lower price (for sell
orders) in order to execute against marketable retail order flow that
is less prone to adverse selection.\31\ The Exchange believes that the
proposed change will lead to increased participation in the Program by
Users seeking to provide liquidity for marketable retail order flow. As
a result of increased participation in the Program, the Exchange
believes that it will attract additional marketable retail order flow
in search of price improvement opportunities.
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\31\ Adverse selection is the phenomenon where the price of a
stock drops right after a liquidity provider purchases the stock.
Marketable retail order flow is generally seen as more desirable by
institutional liquidity providers as executions against retail
orders are less prone to adverse selection. The Commission has
previously opined that retail liquidity programs may be beneficial
to institutional investors as they may be able to reduce their
possible adverse selection costs by interacting with retail order
flow. See Pilot Approval Order at 71656.
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The Exchange believes that the introduction of the Enhanced RPI
Order will complement the existing RPI Order type as it is intended to
provide Users with additional, optional functionality that may be
utilized when seeking to interact with Retail Orders. The Exchange
views the Enhanced RPI Order as a complement to the existing RPI Order
because the distinction between the Enhanced RPI Order and the existing
RPI Order is simply the addition of the Step-Up Range instruction,
which will permit Users to enter an Enhanced RPI Order at a defined
limit price but simultaneously permit these Users to have the ability
to gain price priority over resting same-side orders on the BYX Book in
exchange for providing price improvement. Users will be free to decide
whether resting on the BYX Book in order to obtain an execution against
a Retail Order at a specific limit price utilizing an RPI Order is more
valuable than submitting an Enhanced RPI Order for a chance to earn
price priority in exchange for price improvement.
The Exchange also believes that while certain retail liquidity
providers will be incentivized to use the proposed Enhanced RPI Order
due to its ability to gain price priority, certain retail liquidity
providers will simply want the ability to interact with retail order
flow and are not concerned with gaining price priority. If the Enhanced
RPI Order is successful in attracting additional retail order flow,
Users submitting RPI Orders may also benefit as there is additional
liquidity against which their RPI Orders may interact if those Retail
Orders are not filled by an Enhanced RPI Order. For these reasons, the
Enhanced RPI Order and RPI Order should be viewed as complementary
order types and should not be seen as competing with one another. While
Enhanced RPI Orders may be entered by any User, the Exchange believes
that the majority of Enhanced RPI Orders will be entered by or on
behalf of institutional investors that are willing to provide
additional price improvement as a way to minimize their adverse
selection costs. The Exchange does not believe that Users will be less
likely to submit RPI Orders simply because an Enhanced RPI Order type
is also available, similar to how Users are not dissuaded from
submitting traditional limit orders when a Discretionary Order \32\
also exists on the Exchange.
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\32\ See Rule 11.9(c)(10).
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In conjunction with introducing Rule 11.24(a)(4), the Exchange
proposes to introduce Rule 11.24(a)(5) in order to define the term RPI
Interest as either RPI Orders or Enhanced RPI Orders. The Exchange also
proposes to amend Rule 11.24(e) in order to more accurately describe
when the Retail Liquidity Identifier is displayed. Additionally, the
Exchange proposes to amend Rule 11.24(g) by removing the example
currently found in the rule text that describe RPI Order priority. The
Exchange notes that Rule 11.24(g) will be inclusive of both RPI Order
priority and Enhanced RPI Order priority and as such the example
currently contained within Rule 11.24(g) is no longer necessary as it
is explained more thoroughly in the proposed rule text. The Exchange
also proposes to make corresponding changes within Rule 11.24 to
replace certain references to RPI Order with the term RPI Interest in
order to have language inclusive of both RPI Orders and Enhanced RPI
Orders. Further, the Exchange proposes to delete Rule 11.24(h), as the
Exchange proposes to expand the Program to securities priced below
$1.00. The Exchange will announce that the RPI Program has expanded to
all securities in a Trade Desk notice, and periodic updates will no
longer be required. The Exchange also proposes to delete Rule 11.24(i)
as it is inapplicable to Retail Orders on the Exchange and was
inadvertently added to the rule text. Finally, the Exchange proposes to
clarify throughout Rule 11.24 that RPI Orders and Enhanced RPI Orders
will be ineligible to execute at prices equal to or inferior to the
Protected NBB or Protected NBO.
Additionally, with the introduction of the Enhanced RPI Order, the
Exchange proposes to amend Rule 11.24(a)(2) to permit a Retail Order to
be entered as a Mid-Point Peg Order.\33\ The Exchange also proposes to
amend Rule 11.24(a)(2) to better describe that the time-in-force
requirement for all Retail Orders, including those entered as a Mid-
Point Peg Order, is required to be Immediate or Cancel (``IOC''). The
Exchange believes that allowing the Mid-Point Peg Order instruction on
a Retail Order will benefit Users who choose to submit Retail Orders
because it will permit a Retail Order to guarantee price improvement at
the midpoint or better. The Mid-Point Peg Order instruction will be
optional, and not required for Users of Retail Orders.
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\33\ See Rule 11.9(c)(9). A Mid-Point Peg Order is a limit order
that, after entry into the System, the price of the order is
automatically adjusted by the System in response to changes in the
NBBO to be pegged to the mid-point of the NBBO, or, alternatively,
pegged to the less aggressive of the midpoint of the NBBO or one
minimum price variation inside the same side of the NBBO as the
order.

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[[Page 26847]]

RPI Orders
Current RPI Order Definition, Priority, and Order Allocation
Rule 11.24(a)(3) currently defines an RPI Order as ``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.''
\34\ Rule 11.24(a)(3) also provides that 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. RPI Orders are non-displayed (including the buy or sell
interest, the offset, and the ceiling or floor price.\35\ Users are not
required to submit RPI Orders.\36\ An RPI Order may be entered as an
odd lot, round lot, or mixed lot.\37\
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\34\ Supra note 8.
\35\ Id.
\36\ Id.
\37\ Id.
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As stated in current Rule 11.24(g), RPI Orders are ranked in
accordance with Rule 11.12(a). Furthermore, under current Rule
11.24(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 Rule 11.12.
Any remaining unexecuted RPI interest remains 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 Rule 11.24(f). The following example
illustrates this method:
<bullet> Protected NBBO for security ABC is $10.00-$10.05
<bullet> User 1 enters an RPI Order to buy ABC at $10.015 for 500
shares
<bullet> User 2 then enters an RPI Order to buy ABC at $10.02 for
500 shares
<bullet> User 3 then enters an RPI Order to buy ABC at $10.035 for
500 shares
An incoming Retail Order to sell ABC for 1,000 shares executes
first against User 3's bid for 500 shares at $10.035, because it is the
best priced bid, then against User 2's bid for 500 shares at $10.02,
because it is the next best priced bid. User 1 is not filled because
the entire size of the Retail Order to sell 1,000 shares is depleted.
The Retail Order executes against RPI Orders in price/time
priority.\38\
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\38\ See Rule 11.24(f) for additional examples of Retail Order
designation and interaction with RPI Interest under the current
Program. While the example included in current Rule 11.24(g) remains
accurate, the Exchange proposes to delete this example from the rule
text (discussed infra) as its proposed rule text will encompass the
above-described behavior.
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Proposed RPI Order Definition
The Exchange now proposes to amend the definition of RPI Order to
more accurately reflect when an RPI Order is eligible to execute
against a contra-side Retail Order and at what pricing increments RPI
Orders may be entered. The Exchange also proposes to add to its rule
text that an RPI Order may be entered as a Primary Peg Order as defined
in Rule 11.9(c)(8)(A) and specify at what pricing increments the
applicable positive or negative offset must be entered. Additionally,
the Exchange proposes to remove references to the ``ceiling or floor''
price and replace that term with ``limit price'' as it more accurately
describes the price at which an RPI Order entered as a Primary Pegged
Order will be eligible to interact with a contra-side Retail Order.
The Exchange proposes to revise the definition of RPI Order under
Rule 11.24(a)(3) to state that an RPI Order consists of non-displayed
interest that is identified as such. An RPI Order for a security priced
at or above $1.00 must be priced at least $0.001 better than the
Protected NBB or Protected NBO and may be entered in increments of
$0.001. For securities priced below $1.00, an RPI Order must be priced
at least $0.0001 better than the Protected NBB or Protected NBO and may
be priced in $0.0001 increments. The Exchange will also include
language that an RPI Order may be entered at a limit price that is
equal to or inferior than the Protected NBB or Protected NBO, but may
execute only at prices better than the Protected NBB or Protected NBO.
Additionally, the Exchange notes that an RPI Order that is ineligible
to execute due to not being priced at least $0.001 (for securities
priced at or above $1.00) or $0.0001 (for securities priced below
$1.00) better than the Protected NBB or Protected NBO will not be
canceled, but will remain on the BYX Book in case the Protected NBBO
moves such that the RPI Order becomes eligible to execute at a later
time.
Further, the Exchange is proposing to amend Rule 11.24(a)(3) to
clarify that an RPI Order may be entered as a Primary Pegged Order
(``RPI Primary Pegged Order''), as defined in Rule 11.9(c)(8)(A) and
that the ranked price of an RPI Primary Pegged Order will be the price
of the order after the order is pegged to the Protected NBB or
Protected NBO and the applicable positive (for buy orders) or negative
(for sell orders) offset (``Offset Amount'') is applied.\39\ For RPI
Primary Pegged Orders priced at or above $1.00, the Offset Amount may
be entered in increments of $0.001 and for RPI Primary Pegged Orders
priced below $1.00, the Offset Amount may be entered in increments of
$0.0001.
---------------------------------------------------------------------------

\39\ See Rule 11.9(c)(8) and Rule 11.9(c)(8)(A). A Pegged Order
is a limit order that after entry into the System, the price of the
order is automatically adjusted by the System in response to changes
in the NBBO. A User entering a Pegged Order can specify that such
order's price will offset the inside quote on the same side of the
market by an amount (the ``Primary Offset Amount'') set by the User
(a ``Primary Pegged Order'').
---------------------------------------------------------------------------

Proposed Enhanced RPI Order
The Exchange now proposes to introduce an Enhanced RPI Order that
Users seeking to provide RPI liquidity may utilize on an optional
basis. The proposed Enhanced RPI Order will be eligible to obtain price
priority over resting orders in the same security on the same side of
the BYX Book in order to execute against a Retail Order by including a
Step-Up Range instruction when entered. Enhanced RPI Orders will be
ranked in accordance with proposed Rule 11.24(g) (discussed infra). In
order to effect the proposed change, the Exchange proposes to introduce
Rule 11.24(a)(4), which would define an Enhanced RPI Order as:
<bullet> An ``Enhanced Retail Price Improvement Order'' or
``Enhanced RPI Order'' is an RPI Order that is designated with a Step-
Up Range instruction. A Step-Up Range instruction is an optional, non-
displayed instruction that is added to (for buy orders) or subtracted
from (for sell orders) the ranked price of an RPI Order and provides a
maximum execution price (for buy orders) or minimum execution price
(for sell orders) at which a User is willing to execute against contra-
side Retail Orders. The Step-Up Range instruction may be priced in
increments of $0.001 for securities priced at or above $1.00 and
securities priced below $1.00.
<bullet> An Enhanced RPI Order may be entered as a limit order, in
a sub-penny increment with an explicit limit price, or as a Primary
Pegged Order (as defined in Rule 11.9(c)(8)(A)) with an Offset Amount.
An Enhanced RPI Order is ranked at its limit price and not the price
inclusive of its Step-Up Range instruction.
<bullet> An Enhanced RPI Order that is also a Primary Pegged Order
(``Enhanced RPI Primary Pegged Order'') must be entered with an Offset
Amount and will have its ranked price determined after the application
of the Offset Amount, as described in Rule 11.9(c)(8) and Rule
11.9(c)(8)(A). The Step-Up Range instruction of an Enhanced RPI Primary
Pegged Order will be applied to the resulting ranked price following
the application of the Offset Amount and

[[Page 26848]]

may cause the Enhanced RPI Primary Pegged Order to execute at a price
that is higher (for buy orders) or lower (for sell orders) than its
limit price. An Enhanced RPI Primary Pegged Order priced at or above
$1.00 may have its Offset Amount entered in pricing increments of
$0.001. An Enhanced RPI Primary Pegged Order priced below $1.00 may
have its Offset Amount entered in pricing increments of $0.0001.
<bullet> The System will monitor whether an Enhanced RPI Order,
adjusted by any applicable Offset Amount, the order's Step-Up Range
instruction, and the order's limit price, is eligible to interact with
incoming Retail Orders. An Enhanced RPI Order (including any applicable
Offset Amount, the Step-Up Range instruction, and the limit price)
remains non-displayed in its entirety. Any User is permitted, but not
required, to submit an Enhanced RPI Order. An Enhanced RPI Order may be
an odd lot, round lot or mixed lot. An Enhanced RPI Order shall have
priority as described in Rule 11.24(g). An Enhanced RPI Order is
ineligible to execute at prices equal to or inferior to the Protected
NBB (for buy orders) or Protected NBO (for sell orders), however an
Enhanced RPI Order may be entered with a limit price that is equal to
or inferior to the Protected NBB or Protected NBO. An Enhanced RPI
Order that is ineligible to execute because it is priced equal to or
inferior to the Protected NBB (for buy orders) or Protected NBO (for
sell orders) will not be cancelled and will become eligible to execute
against Retail Orders should the Enhanced RPI Order becomes executable
at a later time.
The ranked price of an Enhanced RPI Order will be determined by a
User's entry of the following into the Exchange: (1) Enhanced RPI buy
or sell interest; (2) any applicable offset; (3) the Step-Up Range
instruction; and (4) the limit price. The Step-Up Range instruction of
an Enhanced RPI Order is the maximum amount above the order's limit
price (for buy orders) or minimum amount below the order's limit price
(for sell orders) at which a User is willing to execute. As discussed
infra, if the Enhanced RPI Order can improve upon resting liquidity on
the same side of the BYX Book by stepping up to the nearest full cent
(for securities priced at or above $1.00) or the next minimum pricing
increment (for securities priced below $1.00),\40\ it will receive
price priority over the resting liquidity on the BYX Book. An Enhanced
RPI Order, however, will not improve upon the price of another resting
Enhanced RPI Order to receive price priority.\41\
---------------------------------------------------------------------------

\40\ Supra note 30. There are certain instances in which an
Enhanced RPI Order may only need to provide between $0.001-$0.005 in
price improvement in securities priced at or above $1.00 in order to
gain price priority over resting liquidity on the BYX Book.
\41\ The Exchange plans to submit a request for an exemption
under Regulation NMS Rule 612 that would permit it to accept and
rank non-displayed RPI Interest. As will be outlined in the request,
the Exchange has received an exemption from Rule 612 for the current
Program, but believes it is appropriate to renew its request as the
Program seeks to introduce Enhanced RPI Orders even as the
fundamental nature of the Program is not changing.
---------------------------------------------------------------------------

Pursuant to proposed Rule 11.24(g)(2), Enhanced RPI Orders in
securities priced at or above $1.00 may include a Step-Up Range
instruction priced in $0.001 increments, but these orders shall not
gain priority over other same-side resting orders on the BYX Book if
the Step-Up Range instruction is unable to step up to the NBBO midpoint
or the next full cent. Step-Up Range instructions priced in increments
finer than $0.01 will be capped at the maximum executable price based
on a valid tick increment or midpoint and will not otherwise be
executable at the maximum price of the Step-Up Range instruction.
Proposed Retail Order Designation
Currently, under Rule 11.24(f)(2), a resting RPI Order is eligible
to execute against a Type 2-designated Retail Order (a ``Type 2
Order'') \42\ that has exhausted all price improving liquidity on the
BYX Book even if the RPI Order is not providing price improvement, as a
Type 2 Order is eligible to execute against all marketable liquidity
once the order has interacted with all price improving liquidity. The
Exchange proposes to amend Rule 11.24(f)(2) to provide that RPI
Interest (inclusive of both RPI Orders and the proposed Enhanced RPI
Orders) is ineligible to execute at prices equal to or inferior to the
Protected NBB or Protected NBO. In the event that an RPI Order is
ineligible to execute against a Type 2 Order because it is not
providing at least $0.001 of price improvement in securities priced at
or above $1.00 or at least $0.0001 of price improvement in securities
priced below $1.00, the Exchange will not cancel the resting RPI
Interest. Rather, the RPI Interest will persist on the BYX Book and
will become eligible to execute should the Protected NBB or Protected
NBO move to a price that permits the RPI Interest to provide price
improvement. The proposed change is being made in order to limit RPI
Interest to only providing executions that provide price improvement to
contra-side Retail Orders, consistent with the definition of an RPI
Order, the proposed definition of an Enhanced RPI Order, and the
description of RPI Order functionality in the Exchange's previous Pilot
Approval Order and RPI Approval Order.
---------------------------------------------------------------------------

\42\ See Rule 11.24(f)(2). A Type 2-designated Retail Order will
interact first with available price improving RPI Orders and other
price improving liquidity and then any remaining portion of the
Retail Order will be executed as an IOC Order pursuant to Rule
11.9(b)(1). A Type 2-designated Retail Order can either be submitted
as a BYX Only Order or as an order eligible for routing pursuant to
Rule 11.13(a)(2). The Exchange proposes to make clear in Rule
11.24(f)(2) that the remaining portion of a Type 2-designated Retail
Order will be ineligible to execute against contra-side RPI Interest
that is not priced better than the Protected NBB or Protected NBO.
---------------------------------------------------------------------------

Proposed Order Priority
As discussed above, the proposed Enhanced RPI Order will be ranked
according to its limit price then time of entry into the System. With
the introduction of the proposed Enhanced RPI Order, the Exchange
proposes to reorganize Rule 11.24(g) into Rule 11.24(g)(1)-(3). The
Exchange also proposes to rename Rule 11.24(g) as ``Order Priority''
and remove the current reference to order allocation as the example
utilized within current Rule 11.24(g) and shows order allocation will
be deleted as discussed supra. Proposed Rule 11.24(g) will serve as an
introductory paragraph and will contain the existing rule text found in
current Rule 11.24(g) that describes order priority with respect to RPI
Orders. The Exchange proposes to amend the existing rule text in Rule
11.24(g) to replace RPI Orders with RPI Interest and to clarify that
RPI Interest is ineligible to execute at prices that are equal to or
inferior to the Protected NBB or Protected NBO. RPI Interest that is
ineligible to execute due to being priced equal to or inferior to the
Protected NBB or Protected NBO will not be cancelled and will become
eligible to execute against Retail Orders should the RPI Interest
become priced better than the Protected NBB or Protected NBO at a later
time. The Exchange proposes to remove the example of RPI Order priority
contained within current Rule 11.24(g) \43\ as it is duplicative of
proposed rule text which describes that RPI Orders are to be ranked and
executed in accordance with Rule 11.12 and also as described in Rule
11.24(g), as applicable. Proposed Rule 11.24(g) will also provide that
Enhanced RPI Orders have the ability to gain execution priority over
resting same-side orders on the BYX Book with higher price/time

[[Page 26849]]

priority in the same security if certain criteria is satisfied.
---------------------------------------------------------------------------

\43\ Supra footnote 38.
---------------------------------------------------------------------------

Proposed Rule 11.24(g)(1) describes three instances in which the
Step-Up Range instruction of an Enhanced RPI Order will be utilized to
determine at what price an Enhanced RPI Order must execute versus a
contra-side Retail Order in order to gain price priority over resting
same-side orders on the BYX Book with higher price/time priority in the
same security. Pursuant to proposed Rule 11.24(g)(1)(A), the Step-Up
Range instruction of an Enhanced RPI Order will be utilized when the
Step-Up Range instruction is needed to gain priority over a resting
same-side order (excluding resting Enhanced RPI Orders) on the BYX Book
with higher price/time priority. As discussed infra in proposed Rule
11.24(g)(2) and proposed Rule 11.24(g)(3), an Enhanced RPI Order shall
gain priority over resting same-side orders on the BYX Book with higher
price/time priority in the same security if the Step-Up Range
instruction is able to provide a greater amount of price improvement to
an incoming contra-side Retail Order than would be provided by the
resting same-side order on the BYX Book.
Second, under proposed Rule 11.24(g)(1)(B), the Step-Up Range
instruction of an Enhanced RPI Order will be utilized in situations
where: (i) a contra-side Retail Order to sell (buy) is entered at a
higher (lower) price than the ranked price (i.e., its limit price) of
the Enhanced RPI Order and all other resting liquidity and (ii) the
price of the Enhanced RPI Order following application of the Step-Up
Range instruction is priced equal to or higher (lower) than the Retail
Order's limit price. In this scenario, an Enhanced RPI Order will
execute versus a contra-side Retail Order at the Retail Order's limit
price.\44\ This situation is also applicable to an Enhanced RPI Order
that is also a Primary Pegged Order. The limit price of an Enhanced RPI
Order that is also a Primary Pegged Order will be adjusted by any
applicable offset and the Step-Up Range instruction applied to the
resulting ranked price.
---------------------------------------------------------------------------

\44\ See Example 9, infra.
---------------------------------------------------------------------------

Lastly, as described in proposed Rule 11.24(g)(1)(C), the Step-Up
Range instruction of an Enhanced RPI Order will be utilized to
determine order book priority when multiple Enhanced RPI Orders are
resting on the BYX Book and are eligible to trade ahead of resting
same-side orders on the BYX Book with higher price/time priority that
are not Enhanced RPI Orders. Priority will be given to the Enhanced RPI
Order with the Step-Up Range instruction that could result in the
highest (for an Enhanced RPI Order to buy) or lowest (for an Enhanced
RPI Order to sell) possible execution price for the contra-side Retail
Order, even if the resulting execution does not occur at the highest
(lowest) maximum execution price that is permitted by the Step-Up Range
instruction. The actual execution price provided to the Retail Order
will be the price the Enhanced RPI Order needs to step up to as
described in proposed Rule 11.24(g)(1)(A) and proposed Rule
11.24(g)(1)(B).
Proposed Rule 11.24(g)(1)(C)(i) describes an exception to utilizing
the Step-Up Range instruction in order to determine order book priority
and applies when there are multiple Enhanced RPI Orders resting on the
BYX Book, no other resting same-side liquidity with higher priority,
and an incoming Retail Order to sell (buy) is priced lower (higher)
than the ranked prices of the resting Enhanced RPI Orders. In this
instance, execution priority will be determined by the higher ranked
price and not the Step-Up Range instruction of the Enhanced RPI Orders.
An Enhanced RPI Primary Pegged Order will have its priority determined
by the ranked price that results after the application of the Offset
Amount as described in Rule 11.9(c)(8) and Rule 11.9(c)(8)(A) and will
not include the Step-Up Range instruction. The Enhanced RPI Orders will
execute pursuant to Rule 11.12 in standard price/time priority
according to their limit prices or resulting ranked prices after
application of the applicable positive or negative offset in the case
of Enhanced RPI Primary Pegged Orders.
Proposed Rule 11.24(g)(2) provides that for securities priced at or
above $1.00 an Enhanced RPI Order shall gain priority over resting
same-side orders on the BYX Book with higher price/time priority in the
same security if the Step-Up Range instruction is able to provide a
greater amount of price improvement to an incoming contra-side Retail
Order, as provided for in proposed Rule 11.24(g)(1)(A)-(C). In order to
gain priority over resting same-side orders on the BYX Book with higher
price/time priority in the same security, an Enhanced RPI Order must be
able to step up to the next valid tick increment. Proposed Rules
11.24(g)(2)(A)-(C) provide certain scenarios where an Enhanced RPI
Order may only need to provide a half cent of price improvement or less
in order to gain priority over resting same-side orders on the BYX Book
with higher price/time priority.
Proposed Rule 11.24(g)(2) also provides that Enhanced RPI Orders in
securities priced at or above $1.00 may include a Step-Up Range
instruction priced in $0.001 increments, but these orders shall not
gain priority over other same-side resting orders on the BYX Book if
the Step-Up Range instruction is unable to step up to the NBBO midpoint
or the next full cent. Step-Up Range instructions priced in increments
finer than $0.01 will be capped at the maximum executable price based
on a valid tick increment or midpoint and will not be executable at the
maximum price of the Step-Up Range instruction. Further, proposed Rule
11.24(g)(2) states that if there are no resting Enhanced RPI Orders on
the BYX Book that are able to provide a greater amount of price
improvement than other resting same-side orders on the BYX Book with
higher price/time priority in the same security, then an incoming
Retail Order may execute against those resting same-side orders on the
BYX Book in price/time priority in accordance with Rule 11.12. Any
remaining unexecuted portion of the Retail Order will cancel or execute
in accordance with proposed Rule 11.24(f). Additionally, proposed Rule
11.24(g)(2) provides that the Step-Up Range instruction of an Enhanced
RPI Order shall have priority over the discretionary offset of a
Discretionary Order.\45\
---------------------------------------------------------------------------

\45\ See Rule 11.12 (Priority of Orders) section infra for
additional discussion of the Exchange's proposal to amend its order
priority rules in order to account for the Step-Up Range instruction
of an Enhanced RPI Order.
---------------------------------------------------------------------------

Proposed Rule 11.24(g)(2)(A) provides that if the NBBO midpoint is
priced in a half-cent increment (e.g., $10.005) and the best-priced
resting order on the BYX Book is ranked at the NBBO midpoint (e.g.,
$10.005), the Enhanced RPI Order's Step-Up Range instruction must
permit the Enhanced RPI Order to step up to the next full cent above
(for buy orders) or below (for sell orders) the NBBO midpoint (e.g.,
$10.01 for buy orders or $10.00 for sell orders). Proposed Rule
11.24(g)(2)(B) provides that if the NBBO midpoint is priced in a half-
cent increment (e.g., $10.005) and the best-priced resting order on the
BYX Book to buy (sell) is ranked at the full cent below (above) the
NBBO midpoint (e.g., $10.00 or $10.01), the Enhanced RPI Order's Step-
Up Range instruction must permit the Enhanced RPI Order to step up to
the NBBO midpoint (e.g., $10.005 or beyond). In the event that an RPI
Order priced in an $0.001 increment is resting on the BYX Book,
proposed Rule 11.24(g)(2)(C) provides that the Enhanced RPI Order's
Step-Up Range instruction must permit the Enhanced RPI Order to step up
to the closer of the

[[Page 26850]]

NBBO midpoint or the next full cent above (for buy orders) or below
(for sell orders) the NBBO midpoint in order to gain priority over the
resting RPI Order (e.g., an Enhanced RPI Order with a limit price of
$10.00 must contain a Step-Up Range instruction of at least $0.005 in
order to gain priority over a resting RPI Order with a limit price of
$10.001).
Proposed Rule 11.24(g)(3) provides that for securities priced below
$1.00, Enhanced RPI Orders shall be granted price priority over resting
same-side orders on the BYX Book if the Enhanced RPI Order's Step-Up
Range instruction is able to provide a greater amount of price
improvement to an incoming contra-side Retail Order by stepping up to
the next minimum price increment. The Exchange notes that the System
does not support fractional penny quotations or executions priced in
$0.00001 increments and finer in securities priced below $1.00 but does
support quotations and executions in fractional pennies priced in
increments up to $0.0001.
Proposed Amendment to Rule 11.12 (Priority of Orders)
In conjunction with the proposed reorganization of Rule 11.24(g),
the Exchange also proposes to amend current Rule 11.12 (Priority of
Orders) in order to introduce a priority band for the Step-Up Range
instruction of an Enhanced RPI Order. The Exchange proposes to replace
the current text of Rule 11.12(a)(2)(F) with ``The Step-Up Range
instruction of an Enhanced RPI Order as set forth in Rule 11.24[;].''
In addition, the Exchange proposes to move the current text of Rule
11.12(a)(2)(F) (``Discretionary portion of Discretionary Orders as set
forth in Rule 11.9(c)(9)'') to Rule 11.12(a)(2)(G), revise the rule
reference found in current Rule 11.12(a)(2)(F) to correct an error, and
introduce new Rule 11.12(a)(2)(H), which will contain the text
(``Supplemental Peg Orders'') currently found in Rule 11.12(a)(2)(G).
Introducing a new priority band for the Step-Up Range instruction
associated with an Enhanced RPI Order will establish that in situations
where an Enhanced RPI Order is executable inside its Step-Up Range
instruction at the same price as a Discretionary Order that is
executable inside the discretionary portion of its order, the Step-Up
Range instruction associated with the Enhanced RPI Order will have
priority over the discretionary portion of the Discretionary Order. The
Exchange believes that assigning priority to the Step-Up Range
instruction of the Enhanced RPI Order is appropriate because Users
choosing to submit Enhanced RPI Orders would be providing price
improvement over other same-side resting orders on the BYX Book in
order to trade at higher (for buy orders) or lower (for sell orders)
prices when needed in order to execute against a contra-side Retail
Order. Given that a User submitting an Enhanced RPI Order with a Step-
Up Range instruction would be providing price improvement (i.e., a more
favorable price) in order to execute against an incoming contra-side
Retail Order, the Exchange believes it is appropriate to rank the Step-
Up Range instruction ahead of the discretionary portion of a
Discretionary Order in proposed Rule 11.12(a)(2).
The Exchange has included the examples below to show how order
priority with an Enhanced RPI Order will be determined. In the examples
below, the Retail Liquidity Identifier (discussed infra) is presumed to
be displayed unless stated otherwise. Additionally, all Retail Orders
described in the examples are presumed to be Type 1-designated Retail
Orders \46\ unless otherwise specified.
---------------------------------------------------------------------------

\46\ See Rule 11.24(f)(1). A Type 1-designated Retail Order will
interact with available contra-side RPI Order and other price
improving contra-side interest but will not interact with other
available interest in the System that is not offering price
improvement or route to other markets. The portion of a Type 1-
designated Retail Order that does not execute against contra-side
RPI Orders or other price improving liquidity will be immediately
and automatically cancelled. The Exchange notes that proposed Rule
11.24(f)(1) will be updated to reflect ``contra-side RPI Interest''
to capture both RPI Orders and Enhanced RPI Orders.
---------------------------------------------------------------------------

Example 1 \47\
---------------------------------------------------------------------------

\47\ See proposed Rule 11.24(g)(1)(A) and Rule 11.24(g)(2)(A).
---------------------------------------------------------------------------

In order to illustrate priority of an Enhanced RPI Order over other
Non-Displayed Orders \48\ resting on the BYX Book, consider the
following example:
---------------------------------------------------------------------------

\48\ See Rule 11.9(c)(11). A Non-Displayed Order is a market or
limit order that is not displayed on the Exchange.
---------------------------------------------------------------------------

<bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters a Mid-Point Peg \49\ order to buy ABC at $10.03
for 100. User 1's order is ranked at $10.025 as the User elected that
the Mid-Point Peg order be pegged to the mid-point of the NBBO.
---------------------------------------------------------------------------

\49\ Supra note 33.
---------------------------------------------------------------------------

[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 2's Step-Up Range instruction is $0.02. User 2's order is
ranked at $10.01 and is willing to step-up to a maximum price of
$10.03.
[cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
<bullet> Result: User 3's Retail Order for 100 will execute against
User 2's Enhanced RPI Order at $10.03. While User 1's order is ranked
at a higher price ($10.025) than User 2's order ($10.01), User 2's
order includes a Step-Up Range instruction of $0.02 and is willing to
step up to a maximum price of $10.03, which provides additional price
improvement to User 3's Retail Order than User 1's Mid-Point Peg Order.
As User 2's order provides an additional $0.005 of price improvement
over User 1's midpoint price, the Exchange gives priority to User 2's
Enhanced RPI Order.
Example 2 \50\
---------------------------------------------------------------------------

\50\ See proposed Rule 11.24(g)(1)(A) and Rule 11.24(g)(2)(B).
---------------------------------------------------------------------------

There are two situations in which an Enhanced RPI Order may only
need to step-up one-half cent in order to earn queue priority in
securities priced at or above $1.00. First, when the NBBO midpoint is
priced in a half cent and the Enhanced RPI Order is stepping up from
the half-cent midpoint to the next full cent in order to provide price
improvement (see Example 1 above). The second instance occurs when the
best-priced resting order on the BYX Book is ranked at a whole cent,
and the NBBO midpoint is priced in a half cent increment, the Enhanced
RPI Order will only need to step up to the NBBO midpoint in order to
earn queue priority. Consider the following example:
<bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters a Non-Displayed Order to buy ABC at $10.02 for
100.
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 2's Step-Up Range instruction is $0.02. User 2's order is
ranked at $10.01 and is willing to step up to a maximum price of
$10.03.
[cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
<bullet> Result: User 3's Retail Order for 100 will execute against
User 2's Enhanced RPI Order at $10.025. While User 1's order is ranked
at a higher price ($10.02) than User 2's order ($10.01), User 2 has
included a Step-Up Range instruction of $0.02 on its order and is
willing to step up to a maximum price of $10.03 in order to provide
additional price improvement as compared to other orders resting on the
BYX Book. Even though User 2's order may execute up to a price of
$10.03, it only needs to step up to the NBBO midpoint of $10.025. User
2's Enhanced RPI Order thus provides price improvement at the NBBO
midpoint over User 1's ranked price of $10.02 and is granted priority
over User 1's Non-Displayed Order.

[[Page 26851]]

Example 3 \51\
---------------------------------------------------------------------------

\51\ See proposed Rule 11.24(g)(1)(A).
---------------------------------------------------------------------------

In most instances, an Enhanced RPI Order will need to step-up a
full penny in order to earn queue priority. Consider the following:
<bullet> The Protected NBBO for security ABC is $10.00 x $10.10.
[cir] User 1 enters a Non-Displayed Order to buy ABC at $10.03 for
100.
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 2's Step-Up Range instruction is $0.04. User 2's order is
ranked at $10.01 and is willing to step up to a maximum price of
$10.05.
[cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
<bullet> Result: User 3's Retail Order for 100 will execute against
User 2's Enhanced RPI Order at $10.04. While User 1's order is ranked
at a higher price ($10.03) than User 2's order ($10.01), User 2 has
included a Step-Up Range instruction of $0.04 on its order and is
willing to step up to a maximum price of $10.05 in order to provide
additional price improvement as compared to other orders resting on the
BYX Book. Even though User 2's order may execute up to a price of
$10.05, it only needs to provide one penny of price improvement above
User 1's ranked price of $10.03 in order to earn queue priority.
Example 4 \52\
---------------------------------------------------------------------------

\52\ See proposed Rule 11.24(g).
---------------------------------------------------------------------------

There may be instances where there is no other liquidity resting on
the BYX Book against which the Enhanced RPI Order can step up against.
In these instances, the Enhanced RPI Order will trade at its ranked
price. Consider the following example.
<bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 1's Step-Up Range instruction is $0.015. User 1's order is
ranked at $10.01 and is willing to step up to a maximum price of
$10.025.
[cir] User 2 enters a Retail Order to sell ABC at $10.00 for 100.
<bullet> Result: User 2's Retail Order for 100 will execute against
User 1's Enhanced RPI Order at its limit price of $10.01 as there are
no better-priced orders resting on the BYX Book against which User 1
would need to provide greater price improvement to User 2.
Example 5 \53\
---------------------------------------------------------------------------

\53\ See proposed Rule 11.24(g).
---------------------------------------------------------------------------

There may be instances where there is no other liquidity resting on
the BYX Book against which the Enhanced RPI Order can step up against.
In these instances, the Enhanced RPI Order will trade at its ranked
price. Consider the following example.
<bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.001 for
100. User 1's Step-Up Range instruction is $0.015. User 1's order is
ranked at $10.001 and is willing to step up to a maximum price of
$10.016.
[cir] User 2 enters a Retail Order to sell ABC at $10.00 for 100.
<bullet> Result: User 2's Retail Order for 100 will execute against
User 1's Enhanced RPI Order at its limit price of $10.001 as there are
no better-priced orders resting on the BYX Book against which User 1
would need to provide greater price improvement to User 2.
Example 6 \54\
---------------------------------------------------------------------------

\54\ See proposed Rule 11.24(g). See also proposed Rule
11.24(a)(4).
---------------------------------------------------------------------------

There may be instances where an Enhanced RPI Order has a ranked
price equal to the NBB (NBO), there is no other liquidity resting on
the BYX Book against which the Enhanced RPI Order can step up against,
and a contra-side Retail Order is entered with a ranked price equal to
the NBB (NBO). In this instance, the Exchange will not utilize the
Step-Up Range instruction to create an execution. Consider the
following example:
<bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.00 for
100. User 1's Step-Up Range instruction is $0.001. User 1's order is
ranked at $10.00 and is willing to step up to a maximum price of
$10.001. The Retail Liquidity Identifier is not displayed as the ranked
price of $10.00 is equal to the NBB and the Retail Liquidity Identifier
will only display when there is RPI Interest priced at least $0.001
better than the Protected NBB or Protected NBO.
[cir] User 2 enters a Retail Order to sell ABC at $10.00 for 100.
<bullet> Result: No execution will occur. User 1's Enhanced RPI
Order has a ranked price equal to the Protected NBB at $10.00. User 2's
Retail Order is entered with a ranked price of $10.00. Pursuant to
proposed Rule 11.24(a)(4), an Enhanced RPI Order is ineligible to
execute if it is priced equal to or inferior to the Protected NBB and
will not be canceled. In this instance, there is no other resting
liquidity on the BYX Book for which the Step-Up Range instruction would
be utilized to gain queue priority against. As such, the Exchange does
not believe it is appropriate to utilize the Step-Up Range instruction
of the Enhanced RPI Order to create an execution that otherwise would
not occur. Since no execution occurs, User 2's Retail Order is
cancelled due to its time-in-force of IOC.
Example 7 \55\
---------------------------------------------------------------------------

\55\ See proposed Rule 11.24(g)(1)(A) and Rule 11.24(g)(2)(A).
---------------------------------------------------------------------------

Enhanced RPI Orders will only have priority against other better-
priced liquidity resting on the BYX Book in the event that the Enhanced
RPI Order can step-up to the next half cent or full cent. In the
example below, the Enhanced RPI Order is unable to step up against the
best priced order on the BYX Book but is able to step up against an
order ranked at the next best price level. Consider the following
example:
<bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters a Non-Displayed Order to buy ABC at $10.04 for
100.
[cir] User 2 enters a Non-Displayed Order to buy ABC at $10.02 for
100.
[cir] User 3 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 3's Step-Up Range instruction is $0.03. User 3's order is
ranked at $10.01 and is willing to step up to a maximum price of
$10.04.
[cir] User 4 enters a Retail Order to sell ABC at $10.00 for 150.
<bullet> Result: User 4's Retail Order will execute 100 shares
first with User 1's Non-Displayed Order as User 1's Non-Displayed Order
has price priority over the orders submitted by Users 2 and 3. While
User 3's Enhanced RPI Order includes a Step-Up Range instruction of
$0.03 and is willing to execute up to a maximum price of $10.04, the
Step-Up Range instruction does not provide greater price improvement
for User 4's Retail Order as compared to User 1's Non-Displayed Order
and as such, User 3's Enhanced RPI Order does not have priority over
User 1's Non-Displayed Order. Once User 4's Retail Order executes
against User 1's Non-Displayed Order, 50 shares remain on User 4's
Retail Order. User 4's Retail Order will then execute its remaining 50
shares with User 3's Enhanced RPI Order at a price of $10.025. While
User 2's Non-Displayed Order is ranked at a higher price ($10.02) than
User 3's Enhanced RPI Order ($10.01), User 3's Enhanced RPI Order has a
Step-Up Range instruction of $0.03 and is willing to execute up to a
maximum price of $10.04 and User 2's Non-Displayed Order does not
contain a Step-Up Range instruction. As User 3's Enhanced RPI Order is
willing to provide greater price

[[Page 26852]]

improvement as compared to a better-priced order resting on the same
side of the BYX Book, it is given priority over User 2's Non-Displayed
Order. User 3's Enhanced RPI Order executes 50 shares against User 4's
Non-Displayed Order at a price of $10.025 because it provides one-half
cent of price improvement over User 2's ranked price of $10.02.
Example 8 \56\
---------------------------------------------------------------------------

\56\ See proposed Rule 11.24(g)(1)(B).
---------------------------------------------------------------------------

Enhanced RPI Orders will execute within their Step-Up Range
instruction when the incoming Retail Order's price is not executable at
the Enhanced RPI Order's ranked price. Consider the following example:
<bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 1's Step-Up Range instruction is $0.03. User 1's order is
ranked at $10.01 and is willing to step up to a maximum price of
$10.04.
[cir] User 2 enters a Retail Order to sell ABC at $10.03 for 100.
<bullet> Result: User 2's Retail Order will execute with User 1's
Enhanced RPI Order at $10.03 as the limit price of User 2's Retail
Order ($10.03) is within the maximum price provided by User 1's Step-Up
Range instruction.
Example 9 \57\
---------------------------------------------------------------------------

\57\ See proposed Rule 11.24(g)(1)(C)(i).
---------------------------------------------------------------------------

When there are multiple Enhanced RPI Orders resting on the BYX
Book, no other same side liquidity with higher priority, and the
contra-side Retail Order is priced higher (for buy orders) or lower
(for sell orders) than the resting Enhanced RPI Orders' ranked prices,
execution priority will be determined by the higher ranked price and
not by the Step-Up Range instructions of the Enhanced RPI Orders.
Consider the following example:
<bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 1's Step-Up Range instruction is $0.04. User 1's order is
ranked at $10.01 and is willing to step up to a maximum price of
$10.05.
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.02 for
100. User 2's Step-Up Range instruction is $0.02. User 2's order is
ranked at $10.02 and is willing to step up to a maximum price of
$10.04.
[cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
<bullet> Result: User 3's Retail Order will execute with User 2's
Enhanced RPI Order at $10.02 because User 2's Enhanced RPI Order has
price priority over User 1's Enhanced RPI Order due to its higher
ranked price of $10.02. Given that User 3's Retail Order was priced
lower than the resting Enhanced RPI Orders' ranked prices at its time
of entry, the Exchange believes that priority should be determined by
using the ranked price of the Enhanced RPI Orders resting on the BYX
Book at the time of User 3's Retail Order entry.
Example 10 \58\
---------------------------------------------------------------------------

\58\ See proposed Rule 11.24(g)(1)(B).
---------------------------------------------------------------------------

The Step-Up Range instruction will be used to determine order book
priority in situations where: (i) a contra-side Retail Order to sell
(buy) is entered at a higher (lower) price than the Enhanced RPI
Order's limit price and all other resting liquidity in the same
security and (ii) the Enhanced RPI Order's Step-Up Range instruction is
priced equal to or higher (lower) than the Retail Order's limit price.
Consider the following example:
<bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 1's Step-Up Range instruction is $0.04. User 1's order is
ranked at $10.01 and is willing to step up to a maximum price of
$10.05.
[cir] User 2 enters a Non-Displayed Order to buy ABC at $10.02 for
100. User 2's order is ranked at $10.02.
[cir] User 3 enters a Retail Order to sell ABC at $10.03 for 100.
<bullet> Result: User 3's order will execute with User 1's Enhanced
RPI Order at $10.03 because (i) User 3's Retail Order to sell was
entered at a higher price than the ranked price of both User 1 and User
2's orders; and (ii) the maximum price provided by the Step-Up Range
instruction of User 1's Enhanced RPI Order is higher ($10.05) than the
limit price of User 3's Retail Order ($10.03). Even though User 2's
ranked price is higher than User 1's ranked price, User 2's order is
not marketable against User 3's Retail Order. User 3's Retail Order
would otherwise be unable to execute if the Exchange did not look to
the price improvement provided by User 1's Step-Up Range instruction to
permit an execution between User 1 and User 3.
Example 11 \59\
---------------------------------------------------------------------------

\59\ See proposed Rule 11.24(g)(1)(C).
---------------------------------------------------------------------------

The Step-Up Range instruction will be used to determine order book
priority in situations where multiple Enhanced RPI Orders are resting
on the BYX Book and are eligible to trade ahead of higher priority
orders resting on the BYX Book. Consider the following example:
<bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 1's Step-Up Range instruction is $0.04. User 1's order is
ranked at $10.01 and is willing to step up to a maximum price of
$10.05.
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.02 for
100. User 2's Step-Up Range instruction is $0.02. User 2's order is
ranked at $10.02 and is willing to step up to a maximum price of
$10.04.
[cir] User 3 enters a Non-Displayed Order to buy ABC at $10.03 for
100. User 3's order is ranked at $10.03.
[cir] User 4 enters a Retail Order to sell ABC at $10.03 for 100.
<bullet> Result: User 4's Retail Order will execute with User 1's
Enhanced RPI Order at $10.04 because the Exchange looks to the Step-Up
Range instruction to determine order book priority when there are
multiple Enhanced RPI Orders resting on the BYX Book that are willing
to provide additional price improvement as compared to other orders
resting on the BYX Book. While both User 1 and User 2 can execute at a
price of $10.04, User 1's Enhanced RPI Order can result in a higher
maximum possible execution price (step up range of $0.04; maximum price
of $10.05) as compared to User 2's Enhanced RPI Order (step up range of
$0.02; maximum price of $10.04). As such, User 1's Enhanced RPI Order
is given priority ahead of User 2's Enhanced RPI Order to execute
against User 4's Retail Order. In this instance, when there are
multiple Enhanced RPI Orders that can provide price improvement to the
contra-side Retail Order, the Exchange believes it is appropriate to
grant order book priority to the Enhanced RPI Order containing the
Step-Up Range instruction that could result in the highest (in the
event of a buy order) or lowest (in the event of a sell order)
potential maximum execution price, even if the resulting execution does
not occur at the highest (lowest) maximum execution price. By granting
execution priority to the User who's Enhanced RPI Order results in the
highest (lowest) potential maximum execution price, the Exchange is
encouraging Users to submit aggressively priced orders. As such, the
Exchange believes it is appropriate to give priority to User 1's
Enhanced RPI Order in this instance because User 1's Enhanced RPI Order
(Step-Up Range instruction of $0.04; maximum price of $10.05) could
potentially result in a higher maximum execution price than User 2's
Enhanced RPI Order (Step-Up Range instruction of $0.02; maximum price
of $10.04) and is therefore willing

[[Page 26853]]

to provide additional price improvement to Retail Orders as compared to
User 2's Enhanced RPI Order.
Example 12 \60\
---------------------------------------------------------------------------

\60\ See proposed Rule 11.24(g)(1)(A).
---------------------------------------------------------------------------

Enhanced RPI Orders will have price priority over resting RPI
Orders (that do not contain a Step-Up Range instruction) on the BYX
Book so long as the Step-Up Range instruction of the Enhanced RPI Order
is greater than the limit price of the resting RPI order. Consider the
following example:
<bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 1's Step-Up Range instruction is $0.04. User 1's order is
ranked at $10.01 and is willing to step up to a maximum price of
$10.05.
[cir] User 2 enters an RPI Order to buy ABC at $10.02.
[cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
<bullet> Result: User 3's Retail Order will execute with User 1's
Enhanced RPI Order at a price of $10.025 because User 1's Enhanced RPI
Order containing a Step-Up Range instruction allows User 3's Retail
Order to receive an additional one-half cent price improvement as
compared to the ranked price of User 2's RPI Order. While User 2's RPI
Order had a higher ranked price ($10.02) than User 1's Enhanced RPI
Order ($10.01), User 2's RPI Order did not contain a Step-Up Range
instruction. Given that Enhanced RPI Orders are designed to provide
price improvement against all resting orders on the BYX Book, the
Exchange believes this factor favors using the price improvement
provided by the Step-Up Range instruction in order to determine
priority in situations where there are both resting RPI and Enhanced
RPI Orders on the BYX Book. While RPI Orders do provide at least $0.001
of price improvement as compared to the Protected NBBO, Enhanced RPI
Orders allow for price improvement to the next valid half cent or full
cent as the transaction is priced above $1.00. Thus, using the Step-Up
Range instruction to determine priority when RPI Orders are resting on
the BYX Book results in an increased amount of price improvement for
the contra-side Retail Order.
Example 13 \61\
---------------------------------------------------------------------------

\61\ See proposed Rule 11.24(g)(1)(A).
---------------------------------------------------------------------------

There may be situations in which an Enhanced RPI Order that is
granted order book priority over a resting same-side RPI Order will
provide between $0.001-$0.004 of price improvement over the same-side
order when stepping up to the next NBBO midpoint or next full cent.
Consider the following example:
<bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters an RPI Order to buy ABC at $10.024 for 100.
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 2's Step-Up Range instruction is $0.04. User 2's order is
ranked at $10.01 and is willing to step up to a maximum price of
$10.05.
[cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
<bullet> Result: User 3's Retail Order executes against User 2's
Enhanced RPI Order at a price of $10.025 because it is able to earn
queue priority by providing price improvement at the NBBO midpoint.
While User 1's RPI Order ($10.024) had a higher ranked price than User
2's Enhanced RPI Order ($10.01), User 2's Enhanced RPI Order contains a
Step-Up Range instruction that is willing to step up to a maximum price
of $10.05. As discussed in footnote 30 supra, the Exchange believes
that it is appropriate to grant priority to an Enhanced RPI Order with
a Step-Up Range instruction that provides at least $0.001 of price
improvement to the Retail Order and permits the Enhanced RPI Order to
step up to the next NBBO midpoint or next full cent when there is a
resting RPI Order on the BYX Book in a security priced at or above
$1.00. While the Step-Up Range instruction of the Enhanced RPI Order is
only providing $0.001 of price improvement as compared to the RPI Order
with a limit price of $10.024, the total amount of price improvement as
compared to the Retail Order's limit price of $10.00 is $0.025.
Example 14 \62\
---------------------------------------------------------------------------

\62\ See proposed Rule 11.24(g)(1)(A).
---------------------------------------------------------------------------

Enhanced RPI Orders may also improve against displayed orders
resting on the BYX Book in order to provide price improvement to a
contra-side Retail Order. Consider the following example:
<bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters an Enhanced RPI Order to buy ABC at $9.99 for
100. User 1's Step-Up Range instruction is $0.06. User 1's order is
ranked at $9.99 and is willing to step up to a maximum price of $10.05.
The Retail Liquidity Identifier is not displayed as the limit price of
$9.99 is below the NBB and the Retail Liquidity Identifier will only
display when there is RPI Interest priced at least $0.001 better than
the Protected NBB or Protected NBO.
[cir] User 2 enters a displayed order to buy ABC at $10.00 for 100.
[cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
<bullet> Result: User 3's Retail Order will execute with User 1's
Enhanced RPI Order at a price of $10.01. While User 2's displayed order
is displayed and ranked at a higher price ($10.00) than User 1's
Enhanced RPI Order ($9.99), User 1's Enhanced RPI Order includes a
Step-Up Range instruction of $0.06 on its order, which permits the
order to execute up to a maximum price of $10.05. In this instance,
executing User 2's displayed order at $10.00 does not provide any price
improvement to the Retail Order when User 1's Enhanced RPI Order is
resting on the BYX Book and is willing to provide additional price
improvement to Order 3 than Order 2 is willing to provide. User 1's
Enhanced RPI Order is willing to step up to the next full cent above
$10.00 (in this case, $10.01), which provides a full penny of price
improvement to User 3's Retail Order., As such, this is the price at
which User 3's Retail Order executes with User 1's Enhanced RPI Order.
Example 15 \63\
---------------------------------------------------------------------------

\63\ See proposed Rule 11.24(g)(1)(A).
---------------------------------------------------------------------------

The ranked price of an Enhanced RPI Primary Pegged Order is the
price that results after the application of the Offset Amount, as
described in Rule 11.9(c)(8) and Rule 11.9(c)(8)(A). The Step-Up Range
instruction is applied to an Enhanced RPI Primary Pegged Order
following the application of the Offset Amount. Consider the following
example:
<bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters a Non-Displayed Order to buy ABC at $10.03 for
100.
[cir] User 2 enters an Enhanced RPI Primary Pegged Order to buy ABC
at $10.02 for 100. User 2's Step-Up Range instruction is $0.03. User
2's order includes an offset of $0.01. User 2's order is ranked at
$10.01 and is willing to step up to a maximum price of $10.04.
<bullet> The Protected NBBO for security ABC changes to $10.01 x
$10.05.
[cir] User 2's Enhanced RPI Primary Pegged Order is now ranked at
$10.02 and is willing to step up to a maximum price of $10.05.
[cir] User 3 enters a Retail Order to sell ABC at $10.01 for 100.
<bullet> Result: User 3's Retail Order will execute with User 2's
Enhanced RPI Order at a price of $10.04 because User 2's Enhanced RPI
Order includes a Step-

[[Page 26854]]

Up Range instruction of $0.03 and is willing to execute up to a maximum
price of $10.05 (based on the Protected NBBO and the offset of $0.01 at
the time User 3's order is entered) in order to provide additional
price improvement as compared to other orders resting on the BYX Book.
While User 1's order has a higher limit price ($10.03) than User 2's
Enhanced RPI Order ($10.02, based on the Protected NBBO and the offset
of $0.01 at the time User 3's order is entered), User 2's Enhanced RPI
Order is given queue priority due to its ability to provide $0.01 of
price improvement over User 1's order.
Example 16 \64\
---------------------------------------------------------------------------

\64\ See proposed Rule 11.24(g)(1)(A).
---------------------------------------------------------------------------

Enhanced RPI Orders may also improve upon resting orders that are
BYX Post Only Orders in order to provide price improvement to contra-
side Retail Orders. Consider the following example:
<bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] User 1 enters BYX Post Only Order to buy ABC at $10.02 for
100.
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 2's Step-Up Range instruction is $0.04. User 2's order is
ranked at $10.01 and is willing to step up to a maximum price of
$10.05.
[cir] User 3 enters a Retail Order to sell ABC at $10.00 for 100.
<bullet> Result: User 2's Enhanced RPI Order executes against User
3's Retail Order at $10.03. While User 1's BYX Post Only Order is
ranked at a higher price ($10.02) than User 2's order, User 2's
Enhanced RPI Order is willing to step-up $0.04 over the best-priced
resting order to gain queue priority. While User 2 can step-up to a
price of $10.05, User 2's Enhanced RPI Order only needs to step-up to a
price of $10.03 in order to gain queue priority over User 1's BYX Post
Only Order.
Example 17 \65\
---------------------------------------------------------------------------

\65\ See proposed Rule 11.24(g)(1)(A).
---------------------------------------------------------------------------

Enhanced RPI Orders may improve upon resting orders that are BYX
Post Only Orders appended with a Price Adjust instruction in order to
provide price improvement to contra-side Retail Orders. Consider the
following example:
<bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] There is no offer on BYX at $10.05.
[cir] User 1 enters a BYX Post Only Order (Price Adjust) to buy ABC
at $10.05 for 100. User 1's order is displayed and ranked at $10.04.
[cir] Protected NBBO updates to $10.04 x $10.05.
[cir] User 2 enters a displayed BYX Post Only Order to sell ABC at
$10.05 for 100. User 2's order is displayed and ranked at $10.05.
[cir] User 3 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 3's Step-Up Range instruction is $0.04. User 3's order is
ranked at $10.01 and is willing to step up to a maximum price of
$10.05.
[cir] User 4 enters a Retail Order to sell ABC at $10.00 for 100.
<bullet> Result: User 3's Enhanced RPI Order executes against User
4's Retail Order at $10.045. While User 1's BYX Post Only Order with
Price Adjust is ranked at a higher price ($10.04) than User 3's order
($10.01), User 3's Enhanced RPI Order is willing to step up to a
maximum price of $10.05 to gain queue priority. While User 3 is willing
to step up to a maximum price of $10.05, User 3's Enhanced RPI Order
only needs to step up to the NBBO midpoint of $10.045 in order to earn
queue priority. User 3's Enhanced RPI Order does not execute against
User 2's displayed BYX Post Only Order with a ranked price of $10.05
even though it is willing to step up to a maximum price of $10.05
because User 2's BYX Post Only Order is not a Retail Order. Enhanced
RPI Orders may only execute against contra-side Retail Orders.
Example 18 \66\
---------------------------------------------------------------------------

\66\ See proposed Rule 11.24(g)(1)(A).
---------------------------------------------------------------------------

Enhanced RPI Orders in securities priced at or above $1.00 \67\ may
not be able to improve upon resting orders if there is a displayed bid
or offer that prevents the Step-Up Range instruction of the Enhanced
RPI Order from being able to provide price improvement to a contra-side
Retail Order. Consider the following example:
---------------------------------------------------------------------------

\67\ See rule 11.9(c)(6). The Exchange does not currently accept
BYX Post Only Orders in securities priced below $1.00.
---------------------------------------------------------------------------

<bullet> The Protected NBBO for security ABC is $10.00 x $10.05.
[cir] There is no offer on BYX at $10.05.
[cir] User 1 enters a BYX Post Only Order (Display Price Slide) to
buy ABC at $10.05 for 100. User 1's order is displayed at $10.04 and
ranked non-displayed at $10.05.
[cir] Protected NBBO updates to $10.04 x $10.05.
[cir] User 2 enters a displayed BYX Post Only Order to sell ABC at
$10.05 for 100. User 2's order is displayed and ranked at $10.05.
[cir] The executable price of User 1's order is adjusted to
$10.045.\68\
---------------------------------------------------------------------------

\68\ See Rule 11.13(a)(4)(D). For bids or offers priced at or
above $1.00, in the event that an incoming order is a market order
or is a limit order priced more aggressively than the displayed
order, the Exchange will execute the incoming order at, in the case
of an incoming sell order, one-half minimum price variation less
than the price of the displayed order, and, in the case of an
incoming buy order, at one-half minimum price variation more than
the price of the displayed order.
---------------------------------------------------------------------------

[cir] User 3 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 3's Step-Up Range instruction is $0.04. User 3's order is
ranked at $10.01 and is willing to step up to a maximum price of
$10.05.
[cir] User 4 enters a Retail Order to sell ABC at $10.00 for 100.
<bullet> Result: User 1's displayed BYX Post Only Order executes
against User 4's Retail Order at $10.045. While User 3's Enhanced RPI
Order is willing to step up to a maximum price of $10.05 to gain queue
priority, User 3's Enhanced RPI Order is not eligible to trade at
$10.05 while the Exchange has a displayed offer at $10.05. The Exchange
does not permit User 3's Enhanced RPI Order to utilize its Step-Up
Range instruction to step up to a price of $10.046 as that is not an
NBBO midpoint or the next full cent. As such, User 4's Retail Order can
only execute against User 1's displayed BYX Post Only Order at a price
of $10.045.
Example 19 \69\
---------------------------------------------------------------------------

\69\ See proposed Rule 11.24(g)(1)(A).
---------------------------------------------------------------------------

Enhanced RPI Orders in securities priced below $1.00 similarly may
not be able to improve upon resting orders if there is a displayed bid
or offer that prevents the Step-Up Range instruction of the Enhanced
RPI Order from being able to provide price improvement to a contra-side
Retail Order. Consider the following example:
<bullet> The Protected NBBO for security ABC is $0.50 x $0.51.
[cir] There is no offer on BYX at $0.51.
[cir] User 1 enters a displayed order (Price Adjust) to buy ABC at
$0.51 for 100. User 1's order is displayed and ranked at $0.5099.
[cir] Protected NBBO updates to $0.5099 x $0.51.
[cir] User 2 enters a displayed order to sell ABC at $0.51 for 100.
User 2's order is displayed and ranked at $0.51.
[cir] User 3 enters an Enhanced RPI Order to buy ABC at $0.5090 for
100. User 3's Step-Up Range instruction is $0.001. User 3's order is
ranked at $0.5090 and is willing to step up to a maximum price of
$0.51.
[cir] User 4 enters a Retail Order to sell ABC at $0.5099 for 100.
<bullet> Result: User 4's Retail Order executes against User 1's
displayed order at $0.5099. While User 3's Enhanced RPI Order is
willing to step up to a maximum price of $0.51 to gain queue priority,
User 3's Enhanced RPI

[[Page 26855]]

Order is not eligible to trade at $0.51 while the Exchange has a
displayed offer at $0.51. The Exchange does not permit User 3's
Enhanced RPI Order to utilize its Step-Up Range instruction to step up
to a price of $0.50995 as the Exchange does not execute orders priced
out to five decimal places in securities priced below $1.00.\70\ As
such, the Step-Up Range instruction of User 3's Enhanced RPI Order
cannot earn queue priority and User 4's Retail Order can only execute
against User 1's displayed order at a price of $0.5099.
---------------------------------------------------------------------------

\70\ See Rule 11.11(a)(2). The Exchange currently accepts and
ranks orders priced below $1.00 in $0.0001 increments.
---------------------------------------------------------------------------

Example 20 \71\
---------------------------------------------------------------------------

\71\ See proposed Rule 11.24(g)(1)(A).
---------------------------------------------------------------------------

Enhanced RPI Orders will also be available for securities priced
below $1.00. In order for an Enhanced RPI Order in a security priced
below $1.00 to gain queue priority over a same-side resting order, the
Enhanced RPI Order must be able to step up to the next minimum price
increment. Consider the following example:
<bullet> The Protected NBBO for security ABC is $0.2001 x $0.2025.
[cir] User 1 enters a Non-Displayed Order to buy ABC at $0.2003 for
100.
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $0.2002 for
100. User 2's Step-Up Range instruction is $0.001. User 2's order is
ranked at $0.2002 and is willing to step up to a maximum price of
$0.2012.
[cir] User 3 enters a Retail Order to sell ABC at $0.2001.
<bullet> Result: User 2's Enhanced RPI Order executes against User
3's Retail Order at a price of $0.2004. While User 1's Non-Displayed
Order is ranked at a higher price ($0.2003) than User 2's Enhanced RPI
Order ($0.2002), User 2's Enhanced RPI Order included a Step-Up Range
instruction of $0.001 and is willing to execute at a price up to
$0.2012 in order to gain queue priority. The next minimum price
increment above $0.2003 is $0.2004, which is inside User 2's Step-Up
Range instruction and as such, User 2's order will have queue priority
over User 1's order.
Example 21 \72\
---------------------------------------------------------------------------

\72\ See proposed Rule 11.24(f)(2); see also proposed Rule
11.24(g).
---------------------------------------------------------------------------

The below example is included to show the proposed change to Rule
11.24(f)(2) that does not permit a Type 2-designated Retail Order to
execute against resting RPI Interest that is priced equal to the
Protected NBB or Protected NBO.
<bullet> The Protected NBBO for security ABC is $10.00 x $10.05
[cir] User 1 enters a Non-Displayed Order to buy ABC at $10.02 for
100.
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.00 for
100. User 2's Step-Up Range instruction is $0.03. User 2's order is
ranked at $10.00 and is willing to step up to a maximum price of
$10.03. The Retail Liquidity Identifier is not displayed because the
limit price of User 2's order is not priced at least $0.001 better than
the Protected NBB.
[cir] User 3 enters an RPI Order to buy ABC at $10.00 for 100. The
Retail Liquidity Identifier is not displayed because the limit price of
User 3's order is not priced at least $0.001 better than the Protected
NBB.
[cir] User 4 enters a Non-Displayed Order to buy ABC at $10.00 for
100.
[cir] User 5 enters a Type 2-designated Retail Order to sell ABC at
$10.00 for 400.
<bullet> Result: User 2's Enhanced RPI Order executes against User
5's Type 2 Order for 100 at a price of $10.025 because the best-priced
resting order on the BYX Book is ranked at a whole cent ($10.02), and
the NBBO midpoint is priced in a half cent increment.\73\ User 1's Non-
Displayed Order then executes against User 5's Type 2 Order for 100 at
a price of $10.02 because User 1's order is priced better than the
NBBO.\74\ User 4's Non-Displayed Order then executes against 5's Type 2
Order for 100 at a price of $10.00.\75\ The remaining 100 shares of
User 5's Type 2 Order are then cancelled or routed to an away market
based on User 5's instruction. This example demonstrates proposed order
priority where a Type 2 Order has a remaining quantity after executing
against all price improving liquidity. Under current Rule 11.24(f)(2),
order priority would differ in that User 5's Type 2 Order would execute
against User 3's RPI Order at $10.00 prior to executing against User
4's Non-Displayed Order due to price/time priority and would leave no
remaining quantity to either cancel back or route to an away market.
---------------------------------------------------------------------------

\73\ See proposed Rule 11.24(g)(1)(A) and proposed Rule
11.24(g)(2)(B).
\74\ See Rule 11.12(a)(1).
\75\ See proposed Rule 11.24(a)(3) and proposed Rule
11.24(f)(2).
---------------------------------------------------------------------------

Example 22 \76\
---------------------------------------------------------------------------

\76\ See proposed Rule 11.24(g)(2).
---------------------------------------------------------------------------

Step-Up Range instructions priced in increments finer than $0.01
will be capped at the maximum executable price based on a valid tick
increment or NBBO midpoint and will not be executable at the maximum
price of the Step-Up Range instruction. If a Member chooses to enter a
Step-Up Range instruction priced in an increment finer than $0.01, the
Member's Enhanced RPI Order may not be able to gain price priority over
other same-side resting orders on the BYX Book.
<bullet> The Protected NBBO for security ABC is $10.00 x $10.05
[cir] User 1 enters a Non-Displayed Order to buy ABC at $10.01 for
100.
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 2's Step-Up Range instruction is $0.01. User 2's order is
ranked at $10.01 and is willing to step up to a maximum price of
$10.02.
[cir] User 3 enters an Enhanced RPI Order to buy ABC at $10.01 for
100. User 3's Step-Up Range instruction is $0.013. User 3's order is
ranked at $10.01 and is willing to step up to a maximum price of
$10.023. User 3's order is subject to a cap at $10.02 because $10.023
is not a valid tick increment and $10.02 is the closest valid tick
increment to the maximum price provided by the Step-Up Range
instruction.
[cir] User 4 enters a Retail Order to sell ABC at $10.00 for 100.
<bullet> Result: User 4's Retail Order will trade with User 2's
Enhanced RPI Order at a price of $10.02 because User 3's Enhanced RPI
Order is subject to a cap at $10.02 and User 2's Enhanced RPI Order has
time priority. While User 3's Enhanced RPI Order included a Step-Up
Range instruction of $0.013 and was willing to step up to a maximum
price of $10.023, which is greater than User 2's maximum price of
$10.02, User 3's Enhanced RPI Order is capped at a price of $10.02
because $10.023 is not a valid tick increment and therefore is not able
to execute at a price of $10.023. As both User 2 and User 3 are willing
to step up to a maximum price of $10.02, priority is given to User 2's
Enhanced RPI Order as it was entered prior to User 3's Enhanced RPI
Order.
Example 23 \77\
---------------------------------------------------------------------------

\77\ See proposed Rule 11.24(g)(2). See also proposed Rule
11.12(a)(2).
---------------------------------------------------------------------------

[[Page 26856]]

[cir] User 2 enters a Non-Displayed Order to buy ABC at $10.01 for
100. User 2's order has a discretionary offset of $0.04. User 2's order
is ranked at $10.01 and has discretion to execute up to a maximum price
of $10.05.
[cir] User 3 enters a Retail Order to sell ABC at $10.03 for 100.
<bullet> RESULT: User 3's Retail Order executes against User 1's
Enhanced RPI Order at a price of $10.03. Both User 1's Enhanced RPI
Order and User 2's Non-Displayed Order have a ranked price of $10.01.
Similarly, both User 1's Enhanced RPI Order and User 2's Non-Displayed
Order have the ability to execute up to a maximum price of $10.05.
However, User 2's Non-Displayed Order utilizes a discretionary offset
of $0.04 to achieve its maximum price while User 1's Enhanced RPI Order
contains a Step-Up Range instruction of $0.04. While both User 1's
Step-Up Range instruction and User 2's discretionary offset would
provide a maximum execution price of $10.05, User 1's Step-Up Range
instruction has higher execution priority under proposed Rule
11.12(a)(2)(F) as compared to User 2's discretionary offset, which has
lower execution priority pursuant to proposed Rule 11.12(a)(2)(G).
Example 24 \78\
---------------------------------------------------------------------------

\78\ See proposed Rule 11.24(g)(2). See also proposed Rule
11.12(a)(2).
---------------------------------------------------------------------------

The Step-Up Range instruction of an Enhanced RPI Order shall have
priority over the discretionary offset of a Discretionary Order.
Consider the following example:
<bullet> Protected NBBO in security ABC is $10.00 x $10.05.
[cir] User 1 enters a displayed order to buy ABC at $10.01 for 100.
User 1's order has a discretionary offset of $0.04. User 1's order is
ranked at $10.01 and has discretion to execute up to a maximum price of
$10.05.
[cir] User 2 enters an Enhanced RPI Order to buy ABC at $10.00 for
100. User 2's order has a Step-Up Range instruction of $0.04. User 2's
order is ranked at $10.00 and has the ability to step-up to a maximum
price of $10.04.
[cir] User 3 enters a Retail Order to sell ABC at $10.03 for 100.
User 3's Retail Order executes against User 2's Enhanced RPI Order
at a price of $10.03. User 2's Enhanced RPI Order has a lower ranked
price ($10.00) and lower maximum price ($10.04) as compared to User 1's
displayed order ($10.01 ranked price; discretion to execute up to a
maximum price of $10.05). User 1's displayed order also has time
priority over User 2's Enhanced RPI Order as it was received by the
Exchange prior to User 2's Enhanced RPI Order. However, User 2's Step-
Up Range instruction has higher execution priority under proposed Rule
11.12(a)(2)(F) compared to User 1's discretionary offset, which has
lower execution priority under proposed Rule 11.12(a)(2)(G). The
Exchange believes that awarding priority to User 2's Enhanced RPI Order
based on its Step-Up Range instruction is appropriate because User 2 is
utilizing the Enhanced RPI Order with the purpose of attempting to gain
queue priority in order to execute against a contra-side Retail Order
(discussed infra). As demonstrated in the examples above, the Exchange
is proposing to grant an Enhanced RPI Order the ability to gain price
priority over equal-priced or better-priced resting orders on the BYX
Book so long as the Enhanced RPI Order can provide price improvement
over such resting orders. The Exchange believes that allowing liquidity
providers to post orders outside of the range at which they are willing
to execute yet maintain the opportunity to step-up against resting
orders on the same side of the BYX Book in exchange for the ability to
gain price priority will incentivize these liquidity providers to
provide additional liquidity on the Exchange. As a result of
additional, aggressively priced liquidity submitted to the Exchange
designed specifically to interact with Retail Orders, RMOs will
therefore be incentivized to submit additional retail order flow to the
Exchange which has the potential to interact with an Enhanced RPI Order
and receive price improvement.
Retail Liquidity Identifier
Current Behavior
The Exchange currently disseminates an identifier pursuant to Rule
11.24(e) when RPI interest (i.e., an RPI Order or multiple RPI Orders)
priced at least $0.001 better than the Protected NBB or Protected NBO
for a particular security priced at or above $1.00 is available in the
System (``Retail Liquidity Identifier'' or ``Identifier''). When there
is RPI interest on the BYX Book that is priced at or below (above) the
Protected NBB or Protected NBO, no Retail Liquidity Identifier is
currently disseminated by the Exchange.\79\ The Identifier is
disseminated through consolidated data streams (i.e., pursuant to the
Consolidated Tape Association Plan/Consolidated Quotation Plan, or CTA/
CQ, for Tape A and Tape B securities, and the Nasdaq UTP Plan for Tape
C securities) as well as through proprietary Exchange data feeds.\80\
The 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, CQ 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 Protected NBB or Protected
NBO by at least the minimum level of price improvement as required by
the Program. The Exchange notes that the Identifier can shift from
being disseminated to not disseminated (or vice versa) based on
movement in the Protected NBB or Protected NBO without new RPI interest
being entered on the Exchange. Further, the Exchange notes that as the
Protected NBB and Protected NBO move, there may be instances where RPI
interest is available on the Exchange but is ineligible to execute due
to being priced below (above) the Protected NBB or Protected NBO.
---------------------------------------------------------------------------

\79\ The Exchange notes that RPI Interest may not execute unless
it is priced at least $0.001 better than the Protected NBB or
Protected NBO in securities priced at or above $1.00 or priced at
least $0.0001 better than the Protected NBB or Protected NBO in
securities priced below $1.00, as proposed supra.
\80\ The Exchange notes that the Retail Liquidity Identifier for
Tape A and Tape B securities are disseminated pursuant to the CTA/CQ
Plan. The identifier is also available through the consolidated
public market data stream for Tape C securities. The processor for
the Nasdaq UTP disseminates the Retail Liquidity Identifier and
analogous identifiers from other market centers that operate
programs similar to the RPI Program.
---------------------------------------------------------------------------

Proposed Behavior
The Exchange proposes to continue to disseminate the Retail
Liquidity Identifier in its current form should the Enhanced RPI Order
be approved.\81\ For Enhanced RPI Orders, the indicator will be based
off of the ranked price only and the Step-Up Range instruction will not
be used. A separate liquidity identifier that identifies Enhanced RPI
Order interest will not be disseminated. The Exchange proposes to make
clear in Rule 11.24(e) that both RPI Orders and Enhanced RPI Orders
constitute RPI Interest and that the Retail Liquidity Identifier shall
be disseminated when RPI Interest (as defined in proposed Rule
11.24(a)(5)) with a ranked price at least $0.001 better than the
Protected NBB or Protected NBO for a particular security is available
in the System for

[[Page 26857]]

securities priced at or above $1.00. Additionally, the Exchange
proposes to include language in proposed Rule 11.24(e) that provides
that the Retail Liquidity Identifier will not be disseminated if the
Protected NBB or Protected NBO moves such that the RPI Interest is no
longer priced higher than the Protected NBB or lower than the Protected
NBO.
---------------------------------------------------------------------------

\81\ The Exchange plans on submitting a letter requesting
assurance from staff of the Division of Trading and Markets that it
will not recommend enforcement action to the Commission pursuant to
Rule 602 of Regulation NMS (the ``Quote Rule'') with respect to: (1)
the Exchange with respect to collecting, processing, and making
available to vendors the best bid, best offer, and quotation sizes
communicated by members of the Exchange, or (2) liquidity providers
entering RPI Interest under the Program.
---------------------------------------------------------------------------

For securities priced at or above $1.00, displaying the Retail
Liquidity Identifier will provide an indication to RMOs that at least
one order guaranteeing at least $0.001 of price improvement is
available in the System, with the opportunity of a Retail Order
potentially receiving additional price improvement should the available
RPI Interest be in the form of an Enhanced RPI Order. The purpose of
the Identifier is to provide relevant market information to RMOs that
there is available RPI Interest available on the Exchange, thereby
incentivizing RMOs to send Retail Orders to the Exchange. The Exchange
believes that even in instances where the Identifier is not being
disseminated due to RPI Interest not having a ranked price at least
$0.001 above (below) the Protected NBB (Protected NBO), RMOs continue
to be incentivized to submit Retail Orders to the Exchange. While RMOs
may not be aware of potential RPI Interest on the Exchange during
periods when the Identifier is not being disseminated, the Exchange
does not believe that RMOs are harmed by the Exchange accepting RPI
Interest that is not executable at the time of receipt by the Exchange
and therefore not disseminating an Identifier. First, not all RMOs rely
on the Identifier when submitting Retail Orders to the Exchange. In
addition, Retail Orders may continue to be submitted even when the
Identifier is not being disseminated and will continue to be eligible
to execute against contra-side hidden liquidity that may be priced
equal to or above (below) the Protected NBB or Protected NBO. These
executions against hidden liquidity would also include executions
against Enhanced RPI Orders with a ranked price that is equal to or
inferior to the Protected NBB or Protected NBO (and therefore does not
trigger dissemination of the Identifier), but where the Enhanced RPI
Order's Step-Up Range instruction would permit an execution at the next
NBBO midpoint or next full cent better than the Retail Order's limit
price, which is priced at least $0.001 above (below) the Protected NBB
(Protected NBO).
As discussed below, the Exchange proposes to expand the Program to
include securities priced below $1.00. Given that the minimum price
variation (``MPV'') of a sub-dollar security is $0.0001,\82\ the
Exchange proposes in Rule 11.24(e) that the Identifier for sub-dollar
securities will be displayed when there is RPI Interest with a ranked
price at least $0.0001 above (below) the Protected NBB or Protected
NBO. Similarly, the Identifier for sub-dollar securities will not be
displayed if there is RPI Interest on the BYX Book priced at or below
(above) the Protected NBB or Protected NBO. The Exchange will continue
to display the Identifier for securities priced at or above $1.00 when
there is RPI Interest with a ranked price at least $0.001 better than
the Protected NBB or Protected NBO. The Exchange will not make any
other changes to the display of the Identifier from its current form
for sub-dollar securities other than the minimum amount of price
improvement required to display the Identifier.
---------------------------------------------------------------------------

\82\ See 17 CFR 242.612 (``Minimum pricing increment'').
---------------------------------------------------------------------------

Securities Priced Below $1.00
Rule 11.24(h) currently limits the Program to trades occurring at
prices equal to or greater than $1.00 per share and the Exchange
periodically notifies Members \83\ regarding securities included in the
Program through an information circular.\84\ Now, the Exchange proposes
to expand the Program to all securities, including those priced below
$1.00. The rationale behind expanding the Program to all securities
regardless of execution price stems from the growth of sub-dollar
trading (i.e., trading at prices below $1.00), both on- and off-
exchange. As of December 2024, an analysis of SIP \85\ data by the
Exchange found that sub-dollar average daily volume has increased 564%
as compared to first quarter 2019. In this period, sub-dollar on-
exchange average daily volume grew from 122 million shares per day to
814 million shares per day. An analysis of SIP and FINRA Trade
Reporting Facility (``TRF''),\86\ data indicates that exchanges
represented approximately 36.5% market share in sub-dollar securities,
with a total of 1,286 securities trading below $1.00. As an exchange
group, Cboe had approximately 9.8% of market share of sub-dollar
securities in the fourth quarter of 2024.
---------------------------------------------------------------------------

\83\ See Rule 1.5(n). The term ``Member'' shall mean any
registered broker or dealer that has been admitted to membership in
the Exchange. A Member will have the status of a ``member'' of the
Exchange as that term is defined in Section 3(a)(3) of the Act.
Membership may be granted to a sole proprietor, partnership,
corporation, limited liability company or other organization which
is a registered broker or dealer pursuant to Section 15 of the Act,
and which has been approved by the Exchange.
\84\ Supra note 12.
\85\ The ``SIP'' refers to the centralized securities
information processors.
\86\ Trade Reporting Facilities are facilities through which
FINRA members report off-exchange transactions in NMS stocks, as
defined in SEC Rule 600(b)(47) of Regulation NMS. See Tick Size
Proposal at 80315.
---------------------------------------------------------------------------

As trading in sub-dollar securities has grown steadily since 2020,
the Exchange believes it is appropriate to expand the Program to
include securities priced below $1.00. The Exchange notes, however,
that the MPV for sub-dollar securities differs from the MPV for
securities priced at or above $1.00. As provided for by Regulation NMS
Rule 612, for securities priced below $1.00, the MPV is $0.0001,
whereas for securities priced at or above $1.00 the MPV is $0.01.\87\
The Exchange proposes that in order for an Enhanced RPI Order to gain
queue priority ahead of resting orders on the same side of the BYX
Book, the Enhanced RPI Order will be stepped-up to the nearest MPV
($0.0001) for securities priced below $1.00. This differs from the
treatment of Enhanced RPI Orders for securities priced at or above
$1.00, which are proposed to be stepped up to the nearest half cent
NBBO midpoint or full cent ahead of resting orders on the same side of
the BYX Book.\88\
---------------------------------------------------------------------------

\87\ Supra note 82.
\88\ Supra note 30. See also Example 13, supra.
---------------------------------------------------------------------------

The Exchange recognizes that there is a distinction between the
pricing increment in securities priced at or above $1.00 and securities
priced below $1.00, which have a finer minimum pricing increment. As
discussed, in securities priced at or above $1.00 the Step-Up Range
instruction must be able to step up to the next half cent NBBO midpoint
or next full cent in order to permit an Enhanced RPI Order to have the
ability to gain price priority over resting same-side orders on the BYX
Book and requiring Users to have a Step-Up Range instruction priced in
$0.001 increments seeks to ensure that the purpose of Regulation NMS
Rule 612 is not undermined by allowing non-displayed Step-Up Range
instructions to gain price priority for a de minimis amount of price
improvement. The Exchange further supports the purpose of Regulation
NMS Rule 612 not only by requiring Users to submit Enhanced RPI Orders
with Step-Up Range instructions priced in increments of $0.001, but
also by requiring that Step-Up Range instructions permit Enhanced RPI
Orders to step up to the next NBBO midpoint or next full cent in order
to potentially gain queue priority.
In securities priced below $1.00, however, the MPV is $0.0001 and
as

[[Page 26858]]

such, the quotations and pricing of orders tend to be in finer
increments. By allowing an Enhanced RPI Order's Step-Up Range
instruction in securities priced below $1.00 to be priced in increments
of $0.0001 and requiring the Step-Up Range instruction to permit the
Enhanced RPI Order to step up to the next minimum pricing increment in
order to gain queue priority (rather than the next half cent NBBO
midpoint or next full cent as proposed for securities priced at or
above $1.00), the Exchange is seeking to stay within the bounds of
Regulation NMS and encourage Users to submit competitively priced RPI
Interest to the Exchange relative to the price of the security. The
Exchange believes that Users are not harmed by the distinction in the
minimum pricing increment for securities priced at or above $1.00 and
securities priced below $1.00 as this distinction serves to ensure that
Enhanced RPI Orders provide an adequate amount of price improvement at
all price levels in exchange for queue priority.
Currently, all Regulation NMS securities traded on the Exchange
priced at or above $1.00 are eligible for inclusion in the Program. The
Exchange will announce to its Members via a Trade Desk Notice that the
Exchange will no longer provide periodic updates of securities included
in the Program as the Program is being expanded to include all
Regulation NMS securities traded on the Exchange, regardless of price.
Implementation
The Exchange plans to implement the proposed rule change during the
second half of 2025 and will announce the implementation date via Trade
Desk Notice.
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.\89\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \90\ 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) \91\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------

\89\ 15 U.S.C. 78f(b).
\90\ 15 U.S.C. 78f(b)(5).
\91\ Id.
---------------------------------------------------------------------------

The Commission has repeatedly emphasized that the U.S. capital
markets should be structured with the interests of retail investors in
mind \92\ and has recently proposed a series of rules designed, in
part, to attempt to bring order flow back to the exchanges from off-
exchange trading venues.\93\ The Exchange believes its proposed
enhancements to the Program are consistent with the Commission's goal
of ensuring that the equities markets continue to serve the needs of
the investing public. Specifically, introducing the Enhanced RPI Order
would protect investors and the public interest by providing retail
investors the ability to obtain price improvement on BYX, a national
securities exchange. The Exchange is committed to innovation that
improves the quality of the equities markets and believes that the
proposed Enhanced RPI Order may increase the attractiveness of the
Exchange for the execution of Retail Orders submitted on behalf of the
millions of ordinary investors that rely on these markets for their
investment needs.
---------------------------------------------------------------------------

\92\ See U.S. Securities and Exchange Commission, Strategic
Plan, Fiscal Years 2018-2022, available at <a href="https://www.sec.gov/files/SEC_Strategic_Plan_FY18-FY22_FINAL_0.pdf">https://www.sec.gov/files/SEC_Strategic_Plan_FY18-FY22_FINAL_0.pdf</a>.
\93\ Supra notes 23-24. See also, Securities Exchange Act
Release No. 96496 (December 14, 2022), 88 FR 5440 (January 27, 2023)
(``Regulation Best Execution''); Securities Exchange Act Release No.
96493 (December 14, 2022), 88 FR 3786 (January 20, 2023)
(``Disclosure of Order Execution Information'').
---------------------------------------------------------------------------

The Exchange believes the proposed Enhanced RPI Order promotes just
and equitable principles of trade and is not unfairly discriminatory
because the order type will be available for all Users, and is not
limited to a certain subset of market participants. Even though
Enhanced RPI Orders may be entered by any market participant, the
Exchange believes that the majority of Enhanced RPI Orders will be
entered by or on behalf of institutional investors that are willing to
provide additional price improvement as a way to minimize their adverse
selection costs.\94\ The Exchange believes that such segmentation is
consistent with section 6(b)(5) of the Act, as it does not permit
unfair discrimination. The Commission has previously stated that the
markets generally distinguish between retail investors, whose orders
are considered desirable by liquidity providers because such retail
investors are presumed to be less informed about short-term price
movements, and professional traders, whose orders are presumed to be
more informed.\95\ The Commission has further stated that without
opportunities for price improvement, retail investors may encounter
wider spreads that are a consequence of liquidity providers interacting
with more informed order flow.\96\ The Exchange believes that its
proposed Enhanced RPI Order is reasonably designed to attract
marketable retail order flow to the exchange as it will help to ensure
that retail investors benefit from the better price that liquidity
providers are willing to provide to retail orders in exchange for
minimizing their adverse selection costs.
---------------------------------------------------------------------------

\94\ Supra note 31.
\95\ See Pilot Approval Order at 71656.
\96\ Id.
---------------------------------------------------------------------------

Additionally, the Exchange believes that the proposed Enhanced RPI
Order type is not unfairly discriminatory to institutional investors as
it rewards the User that enters the highest (for buy orders) or lowest
(for sell orders) priced Enhanced RPI Order, based on a combination of
the order's limit price and Step-Up Range instruction, with order book
priority. Ultimately, execution priority amongst orders resting on the
BYX Book will be determined by the Step-Up Range instruction entered on
each Enhanced RPI Order, subject to certain limitations described
above. If the Step-Up Range instruction for an Enhanced RPI Order
provides a marketable, contra-side Retail Order with greater price
improvement than would otherwise be available from other resting orders
by stepping up to the next full cent or NBBO midpoint (for securities
priced at or above $1.00) \97\ or the next minimum price increment (for
securities priced below $1.00), then the Enhanced RPI Order will be
granted order book priority. In the event that multiple Enhanced RPI
Orders are resting on the BYX Book, the Enhanced RPI Order with the
Step-Up Range instruction that could result in the greatest price
improvement will be given order book priority. The Exchange believes
rewarding the Step-Up Range instruction that could result in the
greatest possible price improvement will encourage Users to submit
Enhanced RPI Orders with Step-Up

[[Page 26859]]

Range instructions that are competitively priced in an attempt to earn
queue priority in exchange for providing price improvement to Retail
Orders. A higher amount of possible price improvement in exchange for
queue priority ultimately benefits both retail investors, who will
receive price improvement over the NBBO, and the User entering the
Enhanced RPI Order, who is able to execute against a marketable Retail
Order to minimize its adverse selection costs and interact with retail
order flow that they are currently unable to access on the Exchange
given that such order flow is largely executed off-exchange.
---------------------------------------------------------------------------

\97\ Supra note 30. See also Example 13 supra.
---------------------------------------------------------------------------

As noted in the Exchange's initial RPI filings,\98\ most equities
exchanges, including BYX, determine priority based on a price/time/
display allocation model.\99\ This has contributed to deep and liquid
markets for equity securities as liquidity providers compete to be the
first to establish a particular price. While the price/time/display
allocation model generally works well for institutional investors,
retail investors are traditionally not able to compete with market
makers and other automated liquidity providers to set an aggressive
price on orders submitted to the Exchange. Importantly, retail
investors, in contrast to institutional investors, tend to have longer
investment time horizons, which means they are not in the business of
optimizing queue placement under a time-based allocation model.
Therefore, in order to facilitate the needs of retail investors, the
Exchange believes an alternative approach--such as this Enhanced RPI
Order proposal--would benefit the retail investor community.
---------------------------------------------------------------------------

\98\ Supra notes 11-12.
\99\ Nasdaq PSX, however, offers a price setter pro rata model
that rewards liquidity providers that set the best price and then
rewards other market participants that enter larger sized orders.
See Securities Exchange Act Release No. 72250 (May 23, 2014), 79 FR
31147 (May 30, 2014) (SR-Phlx-2014-24).
---------------------------------------------------------------------------

As discussed earlier, the proposed introduction of the Enhanced RPI
Order is designed to provide retail investors with enhanced
opportunities to obtain additional price improvement by providing them
with potential opportunities to execute versus non-displayed Enhanced
RPI Orders that offer price improvement beyond that offered by resting
orders on the Exchange. Marketable retail order flow is routinely
executed in full on entry at the national best bid or offer or
better,\100\ but many retail liquidity programs, including the
Exchange's current Program, are designed to offer at least $0.001 of
price improvement over the Protected NBB or Protected NBO to Retail
Orders.\101\ By introducing Enhanced RPI Orders, the Exchange is
proposing to prioritize Enhanced RPI Orders ahead of other resting
orders on the same side of the BYX Book in exchange for the Enhanced
RPI Order offering price improvement to Retail Orders by stepping up to
the next full cent or (for securities priced at or above $1.00) \102\
or the next minimum price increment (for securities priced below
$1.00). The Exchange believes the ability to post an order at a price
outside of the range at which it is willing to execute with the ability
to gain priority in exchange for executing at a higher (for buy orders)
or lower (for sell orders) price will (1) encourage Users to submit
more favorably priced Enhanced RPI Orders, and (2) attract Retail Order
flow to the Exchange, both of which will benefit all investors.
Increased order flow will create a deeper pool of liquidity on the
Exchange, which provides for greater execution opportunities for all
Users and provides for overall enhanced price discovery and price
improvement opportunities on the Exchange. If successful, the proposed
rule change would benefit market participants by increasing the
diversity of order flow with which they can interact on a national
securities exchange, thereby increasing order interaction and
contributing to price formation on a regulated market. While RMOs that
submit Retail Orders will benefit from increased price improvement
opportunities, retail liquidity providers stand to benefit from the
Exchange's proposal because by submitting Enhanced RPI Orders with
higher (for buy orders) or lower (for sell orders) limit prices and
Step-Up Range instructions, their Enhanced RPI Orders have the ability
to gain price priority to execute against contra-side Retail Orders in
exchange for offering better priced liquidity.
---------------------------------------------------------------------------

\100\ A review of internal Exchange data found that 65.70% of
Retail Orders across the Exchange and its affiliates executed at the
NBBO or better in 2024. Similarly, 61.80% of retail orders across
the Exchange and its affiliates executed at or better than the NBBO
in 2023.
\101\ See, e.g., IEX Rule 11.232; Nasdaq BX Rule 4780; NYSE
National Rule 7.44-E; NYSE Rule 7.44.
\102\ Supra note 30. See also Example 13, supra.
---------------------------------------------------------------------------

The Exchange also believes that retail liquidity providers that
also choose to submit RPI Orders rather than Enhanced RPI Orders stand
to benefit from the proposal. As noted, the Exchange believes that the
increased depth and diversity of liquidity that will result from this
change will increase price improvement opportunities for Retail Orders.
As price competition increases, additional Retail Order flow will
follow as RMOs seek out price improvement opportunities. An increase in
Retail Order flow to the Exchange benefits all market participants,
including retail liquidity providers who choose to submit RPI Orders
rather than Enhanced RPI Orders. The Exchange notes that since a Step-
Up Range instruction must enable an Enhanced RPI Order to step up to
the next NBBO midpoint or next full cent in order to have the ability
to earn queue priority in securities priced at or above $1.00 (or the
next minimum pricing increment in securities priced below $1,00), there
may be instances where the Step-Up Range instruction does not permit
the Enhanced RPI Order to step up to the NBBO midpoint or next full
cent and thus the Enhanced RPI Order cannot earn queue priority to
execute against a contra-side Retail Order. In those instances, retail
liquidity providers that submit RPI Orders stand to benefit as their
RPI Orders may be priced better than the ranked price of the Enhanced
RPI Order and other resting liquidity on the BYX Book and therefore are
able to execute against the contra-side Retail Order.
The ability to choose between an Enhanced RPI Order and an RPI
Order will permit a retail liquidity provider to decide the amount of
price improvement it is willing to provide in order to execute against
an incoming Retail Order and decide whether providing additional price
improvement only if necessary to gain queue priority is a trade-off the
retail liquidity provider is willing to provide in order to earn the
right to execute against a Retail Order ahead of other same-side
resting orders on the BYX Book. A retail liquidity provider who submits
an Enhanced RPI Order will know that the Step-Up Range instruction is
utilized only if necessary to earn queue priority, giving the retail
liquidity provider confidence that price improvement is being provided
in order to execute against a Retail Order. On the other hand, a retail
liquidity provider may decide that an RPI Order is more appropriate if
the retail liquidity provider wishes to retain the ability to execute
only against a Retail Order, but does not want to commit to stepping up
to the next NBBO midpoint or next full cent and is willing to wait for
an execution rather than provide price improvement to earn queue
priority. The Exchange believes its proposal to provide retail
liquidity providers the option to prioritize queue priority in exchange
for additional price improvement in order to execute against retail
order flow through the use of an

[[Page 26860]]

Enhanced RPI Order in addition to continuing to offer an RPI Order
provides an appropriate balance to retail liquidity providers who
desire to execute against retail order flow but do not want to commit
to the additional potential price improvement required to utilize the
Step-Up Range instruction in order to gain queue priority.
Giving queue priority to certain order types is not a novel concept
in the securities markets. In fact, on the Exchange's affiliate, Cboe
EDGX Exchange, Inc. (``EDGX''), the displayed portion of Retail
Priority Orders are given allocation priority ahead of all other
available interest on the EDGX Book (``EDGX Retail Priority'').\103\
The Commission found that EDGX Retail Priority represented a reasonable
effort to enhance the ability of bona fide retail trading interest to
compete for executions with orders entered by other market participants
that may be better equipped to optimize their place in the intermarket
queue.\104\ The Exchange believes that granting queue priority to an
Enhanced RPI Order as discussed in the Purpose section similarly
reflects a reasonable effort by the Exchange to create additional price
improvement opportunities for retail investors, as has been the
standard identified by the Commission in several approval orders
written in regards to RLPs.\105\ While the Exchange is not proposing to
prioritize Retail Orders as EDGX has done, it is proposing to
prioritize Enhanced RPI Orders that provide price improvement and may
only interact with contra-side Retail Orders. The Exchange's proposal
to prohibit RPI Orders and Enhanced RPI Orders from executing with
contra-side Type 2-designated Retail Orders when the RPI Order or
Enhanced RPI Order is not priced better than the Protected NBB or
Protected NBO similarly reflects an attempt to create additional price
improvement opportunities for retail investors by making RPI Orders and
Enhanced RPI Orders ineligible from executing when these orders are not
providing price improvement to contra-side Type 2-designated Retail
Orders. While the Exchange is forgoing an execution at a marketable
price in situations where an RPI Order or Enhanced RPI Order is priced
equal to the Protected NBB or Protected NBO and there is resting
contra-side Type 2 Order interest available, the Exchange believes that
limiting RPI Order and Enhanced RPI Order executions to situations
where price improvement is offered properly reflects the main purpose
of the RPI Order and Enhanced RPI Order--that is, to create additional
price improvement opportunities for retail investors.
---------------------------------------------------------------------------

\103\ See EDGX Rule 11.9(a)(2)(A).
\104\ See Securities Exchange Act Release No. 87200 (October 2,
2019), 84 FR 53788 (October 8, 2019), SR-CboeEDGX-2019-012 (``EDGX
Retail Priority Approval Order'').
\105\ Supra note 14. See also Securities Exchange Act Release
No. 67347 (July 3, 2012), 77 FR 40673 (July 10, 2012) (SR-NYSE-2011-
55; SR-NYSEAmex-2011-84) (``RLP Approval Order'') at 40679.
---------------------------------------------------------------------------

The Exchange believes that the prioritization of Enhanced RPI
Orders that offer price improvement over other resting orders on the
same side of the BYX Book promotes just and equitable principles of
trade and is consistent with Section 6(b)(5) of the Act as it
encourages Users to submit Enhanced RPI Orders containing high (for buy
orders) or low (for sell orders) limit prices and/or Step-Up Range
instructions in exchange for queue priority ahead of all resting orders
on the same side of the BYX Book so long as price improvement is
provided to a contra-side Retail Order. The Exchange proposes to
provide queue priority for Enhanced RPI Orders over all other types of
orders and is not limiting queue priority to a certain subset of order
types. As previously stated, all Users are eligible to submit Enhanced
RPI Orders. And while the Exchange believes that most Enhanced RPI
Orders will be submitted by or on behalf of professional traders,
retail investors will have the opportunity to receive better-priced
executions should their executing broker choose to submit a marketable
Retail Order to the Exchange. The Exchange believes the introduction of
Enhanced RPI Orders will deepen the Exchange's pool of available
liquidity, increase marketable retail order flow to the Exchange and
provide additional competition for marketable retail order flow, most
of which is currently executed off-exchange in the OTC markets.
Promoting competition for retail order flow among execution venues
stands to benefit retail investors, who may be eligible to receive
greater price improvement on the Exchange by interacting with an
Enhanced RPI Order than they would if their order was internalized by a
broker-dealer on the OTC market. Additionally, retail liquidity
providers will benefit from submitting Enhanced RPI Orders and Step-Up
Range instructions with competitive prices. By providing Enhanced RPI
Orders and Step-Up Range instructions with competitive prices, retail
liquidity providers are, in essence, improving the quality of order
flow available for contra-side Retail Orders and increasing the odds of
their Enhanced RPI Orders executing with desirable retail order flow
rather than informed order flow or not executing at all.
Furthermore, the Exchange believes that its proposal to limit the
use of the Step-Up Range instruction to determine order book priority
is consistent with Section 6(b)(5) of the Act because the use of the
Step-Up Range instruction rather than limit price to determine order
priority is limited to the following: (1) the Step-Up Range instruction
is needed to gain priority over a resting order with higher order book
priority; (2) in situations where (i) a contra-side Retail Order to
sell (buy) is entered at a higher (lower) price than the Enhanced RPI
Order's ranked price and all other resting liquidity in the same
security and (ii) the Enhanced RPI Order's Step-Up Range instruction is
priced equal to or higher (lower) than the Retail Order's limit price;
and (3) to determine order book priority when multiple Enhanced RPI
Orders are resting on the BYX Book and are eligible to trade ahead of
higher priority orders. The primary use case of the Enhanced RPI Order
identified in the first scenario listed above is to provide price
improvement to marketable retail order flow. As previously discussed in
the Statutory Basis section, the Exchange believes allowing the use of
a Step-Up Range instruction in order to provide an additional, higher
(for buy orders) or lower (for sell orders) price at which an Enhanced
RPI Order may execute is essential in order to deepen the pool of
liquidity available to retail investors. In exchange for providing
orders with high (for buy orders) or low (for sell orders) limit prices
and/or Step-Up Range instructions, these liquidity providers will be
rewarded with executions against marketable retail order flow, which is
generally preferred over more informed order flow. Liquidity providers
that choose to submit Enhanced RPI Orders with competitively priced
limit prices and/or Step-Up Range instructions stand to benefit in that
their orders are positioned to possibly gain price priority over same-
side, resting orders on the BYX Book and execute against preferred
retail order flow rather than forego an execution by submitting orders
that do not contain high (for buy orders) or low (for sell orders)
limit prices and/or Step-Up Range instructions. Retail investors, on
the other hand, will receive price improvement should their order
execute against an Enhanced RPI Order. Increased opportunities for
price improvement stand to make the

[[Page 26861]]

Exchange a more attractive venue for RMOs to submit Retail Orders, thus
encouraging RMOs to bring retail order flow back to a regulated, lit
market rather than executing off-exchange.
In the situation where (i) a contra-side Retail Order to sell (buy)
is entered at a higher (lower) price than the Enhanced RPI Order's
limit price and all other resting liquidity in the same security and
(ii) the Enhanced RPI Order's Step-Up Range instruction is priced equal
to or higher (lower) than the limit price of the Retail Order, the
Exchange believes using the Step-Up Range instruction to determine
order priority promotes just and equitable principles of trade because
it rewards the Enhanced RPI Order with the highest (lowest) Step-Up
Range instruction rather than forego an execution due to the limit
price of all orders resting on the BYX Book being ineligible to trade
with the contra-side Retail Order. The intent of the Enhanced RPI Order
is to reward those Enhanced RPI Orders containing high (for buy orders)
or low (for sell orders) limit prices and/or Step-Up Range instructions
with queue priority while simultaneously providing price improvement to
Retail Orders. The Exchange believes that determining order priority
using the Step-Up Range instruction in this limited situation is
aligned with the intent of liquidity providers that choose to submit
Enhanced RPI Orders containing high (for buy orders) or low (for sell
orders) limit prices and/or Step-Up Range instructions and also
emphasizes a benefit of using the Enhanced RPI Order--the ability to
enter an order at a lower (for buy orders) or higher (for sell orders)
price but also provide a Step-Up Range instruction within which the
liquidity provider is willing to execute in order to execute against
retail order flow rather than forego an execution and remain on the BYX
Book. The Exchange seeks to encourage liquidity providers to submit
order flow designed to interact with marketable retail order flow in an
effort to increase the amount of Retail Order executions occurring on-
exchange. By rewarding Enhanced RPI Orders containing high (for buy
orders) or low (for sell orders) limit prices and/or Step-Up Range
instructions in situations where the order would otherwise not execute,
the Exchange believes its pool of liquidity available to marketable
retail order flow will deepen, thus incentivizing RMOs to submit
additional marketable retail order flow to the Exchange.
Likewise, using the Step-Up Range instruction rather than the limit
price of an Enhanced RPI Order in situations where multiple Enhanced
RPI Orders are resting on the BYX Book and are eligible to trade ahead
of higher priority orders promotes the use of the Enhanced RPI Order
type as the Exchange seeks to encourage RMOs to submit marketable
Retail Orders to the Exchange. Determining order priority of Enhanced
Orders based on their Step-Up Range instruction over the limit price of
all other higher priority orders rewards the Enhanced RPI Order that
provides the highest (for buy orders) or lowest (for sell orders) Step-
Up Range instruction. The Exchange believes that using the Step-Up
Range instruction rather than the limit price in situations where there
are multiple Enhanced RPI Orders will encourage Users to submit
Enhanced RPI Orders containing high (for buy orders) or low (for sell
orders) limit prices and/or Step-Up Range instructions to the Exchange,
as they will be given priority to interact with more desirable
marketable retail order flow based on their Step-Up Range instruction.
Additionally, the Exchange believes that RMOs will be encouraged to
direct marketable retail order flow to the Exchange knowing that the
worst price they will receive is $0.001 better than the Protected NBB
or Protected NBO for securities priced at or above $1.00 \106\ and
there is potential to receive a greater amount of price improvement
should an Enhanced RPI Order be present on the opposite side of the BYX
Book.\107\
---------------------------------------------------------------------------

\106\ For securities priced below $1.00, the minimum amount of
price improvement as compared to the Protected NBB or Protected NBO
is $0.0001.
\107\ Supra note 30. See also Example 13, supra.
---------------------------------------------------------------------------

Even in the limited situation where the ranked price of an Enhanced
RPI Order is utilized to determine the queue priority of Enhanced RPI
Orders (i.e., where multiple Enhanced RPI Orders are resting on the BYX
Book and there is no other same-side resting liquidity on the BYX Book
with higher priority and an incoming contra-side Retail Order to sell
(buy) is priced lower (higher) than the ranked price of the resting
Enhanced RPI Orders' ranked prices), Retail Orders stand to benefit.
Users submitting Enhanced RPI Orders to the Exchange do so with the
intent of interacting with contra-side Retail Orders and as such, are
encouraged to submit Enhanced RPI Orders with competitive limit prices,
in addition to their Step-Up Range instructions, in an attempt to gain
price priority in order to execute against Retail Orders. The Exchange
does not view Enhanced RPI Orders as discouraging Users from submitting
RPI Orders or devaluing RPI Orders but rather believes that Enhanced
RPI Orders are a way to encourage competition from retail liquidity
providers as they seek to minimize adverse selection costs and interact
with incoming contra-side Retail Orders. With Users contending for
executions against incoming retail liquidity, Users submitting Enhanced
RPI Orders and RPI Orders naturally would be expected to utilize
competitive prices in order to put themselves in the best position to
execute against retail liquidity rather than submit orders with prices
that are not positioned to potentially execute.
Additionally, the Exchange believes that its proposal to amend its
current Rule 11.12 in order to provide that the Step-Up Range
instruction has priority over both the discretionary portion of a
Discretionary Order and a Supplemental Peg Order is consistent with
Rule 6(b)(5) of the Act because Users choosing to submit Enhanced RPI
Orders containing Step-Up Range instructions do so with the intent to
earn queue priority over other same-side resting orders on the BYX Book
in order to execute against a contra-side Retail Order. In this sense,
the Step-Up Range instruction being utilized is dependent on other
same-side orders that are resting on the BYX Book and the User does not
have control over whether the Step-Up Range instruction is utilized or
at what price an execution may occur. While the User does not have
control over the utilization of the Step-Up Range instruction, the User
does control the maximum (minimum) price at which the Step-Up Range is
entered, and chooses this price knowing that the execution will occur
against a contra-side Retail Order.
In contrast, the discretionary portion of a Discretionary Order is
wholly dependent upon the price of the incoming contra-side order
rather than dependent on same-side resting orders on the BYX Book. A
Discretionary Order will only utilize the discretionary portion of its
order to execute against an incoming contra-side order if there are no
other orders with higher priority resting on the BYX Book. Given that
the User submitting an Enhanced RPI Order with a Step-Up Range
instruction is utilizing the Step-Up Range instruction in order to have
the ability to gain queue priority to execute against an incoming
contra-side Retail Order while the User of a Discretionary Order is not
submitting its order with the intent to gain priority, the Exchange
believes that it is appropriate to rank the Step-Up Range instruction
ahead of the discretionary portion of a Discretionary Order in proposed
Rule 11.12(a)(2).

[[Page 26862]]

An analysis of internal Exchange data found that the current
Program provided approximately $1.6 million in price improvement to
retail investors during calendar year 2024,\108\ which is a decrease
from the $4.5 million provided to retail investors between the two and
a half year period between January 2016 and June 2018.\109\ In fact,
the average amount of price improvement per month provided to retail
investors in 2024 was approximately $133,333 while between 2016-2018
the average amount of price improvement provided to retail investors
was $150,000 per month. It is reasonable to believe that the proposed
Enhanced RPI Order, by virtue of providing at least $0.001 of price
improvement and requiring the Step-Up Range instruction to be able to
step up to the next half cent NBBO midpoint or next full cent in
exchange for execution priority in securities priced at or above $1.00
(for securities priced below $1.00 the Enhanced RPI Order must provide
at least $0.0001 of price improvement and requiring the Step-Up Range
instruction to step up to the next minimum pricing increment), would
add to the Exchange's ability to provide price improvement to retail
investors. The Exchange does not believe that offering additional price
improvement to retail investors through Enhanced RPI Orders would cause
harm to the broader market. On the contrary, the Exchange believes that
rewarding Enhanced RPI Orders with order book priority in exchange for
price improvement would further the Commission's goal of providing
additional opportunities for retail investors to interact directly with
a large volume of individual investor orders.
---------------------------------------------------------------------------

\108\ Source: Cboe internal data.
\109\ See RPI Approval Order at 53184.
---------------------------------------------------------------------------

The Exchange created the Enhanced RPI Order with the goal of
encouraging liquidity providers to submit orders eligible to interact
with marketable retail order flow with the competition from these
liquidity providers resulting in a reasonable alternative for
marketable retail order flow to receive executions at a price better
than the Protected NBBO. As the Commission noted in its Order
Competition Rule proposal, over 90% of marketable NMS retail stock
orders are routed to wholesalers where the orders are not exposed to
order-by-order competition.\110\ While wholesalers generally achieve
price improvement relative to the NBBO, the Commission has indicated
that exchanges often have liquidity available at the NBBO midpoint,
which would be a more favorable price than a retail order receives when
executed by a wholesaler.\111\ As discussed, the Exchange has attempted
to encourage Retail Orders to execute on-exchange through its current
Program, with limited success.\112\ Here, the Exchange is proposing
price improvement of at least $0.001 in securities priced at or above
$1.00 ($0.0001 in securities priced below $1.00) as well as requiring
the Step-Up Range instruction to step up to the next NBBO midpoint or
next full cent in securities priced at or above $1.00 (or step up to
the next minimum pricing increment in securities priced below $1.00).
The Exchange believes that the proposal's two-pronged approach of
requiring the ability to step up to the next NBBO midpoint or next full
cent will in addition to a minimum pricing increment of $0.001
($0.0001) will result in an increase in price improvement provided to
Retail Orders, which in turn will result in an increase in order flow
to the Exchange. Increased order flow benefits all market participants
by deepening the Exchange's pool of liquidity, which the Exchange
believes would further the Commission's goal of ``increasing
competition and enhancing the direct exposure of individual investor
orders to a broader spectrum of market participants'' as set forth in
section 11A of the Exchange Act.\113\
---------------------------------------------------------------------------

\110\ Supra note 23 at 178.
\111\ Id.
\112\ As discussed in the Purpose section, Retail Orders on BYX
received an average of $0.0013 of price improvement from RPI Orders
during calendar year 2024 but received an average of $0.0033 of
price improvement from all hidden liquidity (inclusive of RPI
Orders) on BYX during calendar year 2024.
\113\ Supra note 23 at 178.
---------------------------------------------------------------------------

In addition to the proposed introduction of the Enhanced RPI Order,
the Exchange also believes that expanding the Program to include
securities priced below $1.00 is consistent with Section 6(b)(5) of the
Act because it promotes just and equitable principles of trade by
allowing liquidity providers to submit orders designed to interact with
retail order flow in all securities, rather than only in securities
priced at or above $1.00. As stated above, a significant majority of
the increased volume in sub-dollar securities comes from executions
occurring off-exchange.\114\ By permitting the Exchange to expand its
Program to include securities priced below $1.00, the Exchange would be
a more attractive venue for liquidity providers seeking to interact
with retail order flow, which furthers the Commission's goal of
bringing retail order executions back on-exchange. Further, the
proposal to expand the Program to include securities priced below $1.00
is not unfairly discriminatory because all Users will be able to submit
RPI Orders or Enhanced RPI Orders at prices below $1.00. As noted
above, the Exchange, along with its affiliates, maintained a market
share of 9.8% in sub-dollar securities during the fourth quarter of
2024.\115\ The Exchange believes that its expansion of the Program to
include sub-dollar securities would lead to more liquidity providers
submitting order flow to the Exchange in an attempt to execute against
Retail Orders. In turn, RMOs would submit additional Retail Order flow
to the Exchange to interact with RPI Orders and Enhanced RPI Orders as
there would be additional opportunities for price improvement in sub-
dollar securities.
---------------------------------------------------------------------------

\114\ See ``How Subdollar Securities are Trading Now'' (March
16, 2023). Available at: <a href="https://www.cboe.com/insights/posts/how-subdollar-securities-are-trading-now/">https://www.cboe.com/insights/posts/how-subdollar-securities-are-trading-now/</a>.
\115\ Id.
---------------------------------------------------------------------------

The proposal removes impediments to and perfect the mechanism of a
free and open market and a national market system and protects
investors and the public interest by allowing executions in Retail
Orders priced below $1.00 to receive price improvement by executing
against RPI Orders or Enhanced RPI Orders, which are currently only
available at prices at or above $1.00. In addition to the changes
described above, the Exchange believes that the changes to certain
existing rule text within Rule 11.24 is consistent with Section 6(b)(5)
of the Act because it provides additional certainty as to how Rule
11.24 is to be applied. The proposed revised definition of RPI Interest
in Rule 11.24(a)(5) is necessary in order to capture the proposed
Enhanced RPI Order type, in addition to the existing RPI Order.
Additionally, amending Rule 11.24(e) and Rule 11.24(f)(1)-(2) to
reflect the changes made in Rule 11.24(a)(5) is necessary in order to
ensure that RPI Interest is properly defined throughout Rule 11.24. The
deletion of Rule 11.24(h) is consistent with the Exchange's proposal to
expand the Program to securities priced below $1.00 and the deletion of
Rule 11.24(i) is appropriate as it is inapplicable to Retail Orders on
the Exchange and was inadvertently added to the rule text. The proposed
changes to Rule 11.24(a)(2) are intended to insert a reference to Rule
11.9(b)(1) describing Immediate or Cancel Orders and introduce the
ability for Users to submit Retail Orders as Mid-Point Peg Orders, both
of which changes serve to provide additional guidance to Users of
Retail Orders about the order modifiers permitted by the

[[Page 26863]]

Exchange. The Exchange believes these changes are intended to
facilitate usage of RPI Interest and serve to ensure that Rule 11.24 is
properly describing order behavior after the proposed introduction of
the Enhanced RPI Order and proposed expansion of the Program to
securities priced below $1.00.

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. Rather, the proposed rule change is designed to increase
intramarket competition for retail order flow by introducing a new
order type that is designed to provide price improvement to Retail
Orders in exchange for the ability to gain price priority over resting
orders on the same side of the BYX Book. The proposal, which seeks to
provide an innovative form of price improvement to Retail Orders
through the creation of the Enhanced RPI Order, represents an effort by
the Exchange to encourage on-exchange liquidity and incentivize the
trading of Retail Orders on a national securities exchange.
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, IEX, NYSE,
NYSE National, and Nasdaq BX each operate RLPs and the Exchange
believes that its proposed rule change will allow it to compete for
additional retail order flow with the aforementioned exchanges.\116\
Furthermore, the Exchange's proposal will promote competition between
the Exchange and off-exchange trading venues where the majority of
retail order flow trades today. The proposed Enhanced RPI Order is
designed to foster innovation within the market and increase 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. Expanding the program to include securities priced
below $1.00 similarly would not impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
Act. The Exchange's proposal is designed to increase competition for
trading in all securities, including but not limited to securities
priced below $1.00. Given the growth of trading in sub-dollar
securities since 2020, the Exchange believes that expanding the Program
to include sub-dollar securities will make the Program an attractive
option for retail investors seeking to trade in lower-priced
securities, and as such is a competitive measure designed to compete
directly with other exchanges for order flow.
---------------------------------------------------------------------------

\116\ Supra note 101.
---------------------------------------------------------------------------

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. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBYX-2025-007, as Modified by Amendment No. 3, and Grounds for
Disapproval Under Consideration

The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \117\ to determine whether the proposed rule
change, as modified by Amendment No. 3, should be approved or
disapproved. Institution of proceedings is appropriate at this time in
view of the legal and policy issues raised by the proposed rule change,
as modified by Amendment No. 3. Institution of proceedings does not
indicate that the Commission has reached any conclusions with respect
to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide comment
on the proposed rule change, as modified by Amendment No. 3, to inform
the Commission's analysis of whether to approve or disapprove the
proposed rule change.
---------------------------------------------------------------------------

\117\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

Pursuant to Section 19(b)(2)(B) of the Act,\118\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission recently received Amendment No. 3 and is instituting
proceedings to allow for additional analysis of, and input from
commenters with respect to, the consistency of the proposal, as
modified by Amendment No. 3, with the Act, and in particular with
Sections 6(b)(5) \119\ and 6(b)(8) \120\ of the Act. Section 6(b)(5) of
the Act requires that the rules of a national securities exchange be
designed, among other things, to promote just and equitable principles
of trade, to remove impediments to and perfect the mechanism of a free
and open market and a national market system and, in general, to
protect investors and the public interest, and not be designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers. Section 6(b)(8) of the Act requires that the rules of a
national securities exchange not impose any burden on competition that
is not necessary or appropriate in furtherance of the purposes of the
Act.
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\118\ Id.
\119\ 15 U.S.C. 78f(b)(5).
\120\ 15 U.S.C. 78f(b)(8).
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IV. Procedure: Request for Written Comments

The Commission requests that interested persons provide written
submissions of their data, views, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule change
is consistent with the Exchange Act and the rules and regulations
thereunder.
Although there do not appear to be any issues relevant to approval
or disapproval that would be facilitated by an oral presentation of
data, views, and arguments, the Commission will consider, pursuant to
Rule 19b-4 under the Act,\121\ any request for an opportunity to make
an oral presentation.\122\
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\121\ 17 CFR 240.19b-4.
\122\ Section 19(b)(2) of the Act, as amended by the Securities
Acts Amendments of 1975, Public Law 94-29 (Jun. 4, 1975), grants to
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Acts Amendments of 1975,
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75,
94th Cong., 1st Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by July 15, 2025. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
July 29, 2025. The Commission asks that commenters address the
sufficiency of the Exchange's statements in support of the proposal,
which are set forth in Amendment No. 3.\123\ In particular, the
Commission seeks comment on the following questions:
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\123\ See supra note 6.
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1. What are commenters' views on whether expanding the Exchange's
Retail Price Improvement Program to include securities priced below
$1.00 will impact the amount of price improvement accruing to retail
investors

[[Page 26864]]

(per share and in the aggregate) achieved on the Exchange?
2. What are commenters' views on how the proposed rule change might
affect the market quality of the equities markets as a whole and/or
market quality for retail orders and executions?
3. What are commenters' views on how the proposed $0.0001 pricing
increment for RPI Interest for securities priced below $1.00, and the
proposed Step-Up Range instruction increment of $0.001 for both
securities priced at and above $1.00, as well as those priced below
$1.00, will affect the incentives on market participants to post limit
orders on the Exchange and the incentives for firms to send Retail
Orders to the Exchange?
4. What are commenters' views on whether giving the Step-Up Range
instruction of Enhanced RPI Orders priority over the discretionary
offset of a Discretionary Order promotes just and equitable principles
of trade, is not designed to permit unfair discrimination, and does not
impose any burden on competition not necessary or appropriate in
furtherance of the Act?
Comments may be submitted by any of the following methods:

Electronic Comments

<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#dcaea9b0b9f1bfb3b1b1b9b2a8af9cafb9bff2bbb3aa"><span class="__cf_email__" data-cfemail="8dfff8e1e8a0eee2e0e0e8e3f9fecdfee8eea3eae2fb">[email&#160;protected]</span></a>. Please include
file number SR-CboeBYX-2025-007 on the subject line.

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-2025-007. 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="https://www.sec.gov/rules/sro.shtml">https://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 the 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-2025-007 and should
be submitted by July 15, 2025. Rebuttal comments should be submitted by
July 29, 2025.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\124\
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\124\ 17 CFR 200.30-3(a)(57).

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-11526 Filed 6-23-25; 8:45 am]
BILLING CODE 8011-01-P

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