Notice2026-01119
Order Granting Limited Exemption Pursuant to Rule 612(d) of Regulation NMS to Cboe BYX Exchange, Inc. From Rule 612 of Regulation NMS
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Published
January 22, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 14 (Thursday, January 22, 2026)</title>
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[Federal Register Volume 91, Number 14 (Thursday, January 22, 2026)]
[Notices]
[Pages 2813-2815]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-01119]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104625]
Order Granting Limited Exemption Pursuant to Rule 612(d) of
Regulation NMS to Cboe BYX Exchange, Inc. From Rule 612 of Regulation
NMS
January 16, 2026.
I. Introduction
Pursuant to Rule 612(d) of Regulation NMS, Cboe BYX Exchange, Inc.
(``BYX'' or the ``Exchange'') requests exemptive relief with respect to
Retail Price Improvement Orders (``RPI Orders'') \1\ and Enhanced
Retail Price Improvement Orders (``Enhanced RPI Orders'' and
collectively with RPI Orders, ``RPI Interest''),\2\ each of which may
be priced in sub-penny increments, from the provisions of Rule 612 of
Regulation NMS (the ``Sub-Penny Rule'') \3\ that prohibit a national
securities exchange from accepting, displaying, or ranking bids,
offers, orders and indications of interest in an increment smaller than
the minimum pricing increment.\4\
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\1\ Under the Exchange's Retail Price Improvement Program (``RPI
Program''), an RPI Order consists of non-displayed interest on the
Exchange that is eligible to interact with incoming Retail Orders
(as defined in BYX Rule 11.24(a)(2)). To be executable, an RPI Order
for an NMS stock that is priced at or above $1.00 must be priced at
least $0.001 better than the Protected NBB or Protected NBO and may
be priced in $0.001 increments (e.g., $10.001). To be executable, an
RPI Order for an NMS stock that is priced below $1.00 must be priced
at least $0.0001 better than the Protected NBB or Protected NBO and
may be priced in $0.0001 increments (e.g., $0.5001). An 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
BYX Rule 11.9(c)(8)(A)) with a positive offset (for buy orders) or a
negative offset (for sell orders). See Proposal, infra note 9, at
pages 14-17 and 170 of 176 (amending BYX Rule 11.24(a)(3) and
describing such amendments).
\2\ Under the RPI Program, an Enhanced RPI Order is an RPI Order
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 up to which (for buy orders) or minimum execution price down
to which (for sell orders) 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. Like RPI Orders, 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. See
Proposal, infra note 9, at pages 17-20 and 170-176 of 176 (amending
BYX Rule 11.24 to add BYX Rule (a)(4) and describing such
amendments).
\3\ 17 CFR 242.612.
\4\ See Letter from Courtney Smith, Senior Counsel, Cboe Global
Markets--North American Equities to Vanessa Countryman, Secretary,
Commission (Sept. 30, 2025) (``Exemption Request''). On September
18, 2024, the Commission issued Securities Exchange Act Release No.
101070 (Sept. 18, 2024), 89 FR 81620 (Oct. 8, 2024) (Regulation NMS:
Minimum Pricing Increments, Access Fees, and Transparency of Better
Priced Orders) (``Final Rules''), which, among other things,
promulgated amendments to Rule 612 of Regulation NMS. The amendments
to Rule 612 are required to be implemented on the first business day
of November 2026. See Securities Exchange Act Release No. 104172
(Oct. 31, 2025), 90 FR 51418 (Nov. 17, 2025) at 51418. The Final
Rules modified the numbering of certain provisions of Rule 612, and
the citations to the provisions of Rule 612 in this order are to the
provisions as numbered in the Final Rules. When the Exchange filed
the Exemption Request, certain of the amendments to Rule 612 under
the Final Rules were temporarily stayed, and the Exchange's
Exemption Request referenced provisions of Rule 612 as in effect
prior to the Final Rules. See Exemption Request at note 1; see also
Securities Exchange Act Release No. 101899 (Dec. 12, 2024) (File No.
S7-30-22) (Order Granting Partial Stay In the Matter of the Motion
by Nasdaq, Inc., The Nasdaq Stock Market LLC, Nasdaq BX, Inc.,
Nasdaq PHLX LLC, Cboe Global Markets, Inc., Cboe BZX Exchange, Inc.,
Cboe BYX Exchange, Inc., Cboe EDGA Exchange, Inc., and Cboe EDGX
Exchange, Inc. For Stay of Effect of Amendments to Rules 610 and 612
of Regulation NMS).
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The Securities and Exchange Commission (``Commission'') previously
granted exemptive relief from the Sub-Penny Rule to BYX with respect to
RPI Orders when it approved BYX's RPI Program, which permits the
Exchange to accept and rank certain quotes and orders from certain
participants in sub-penny increments as small as $0.001.\5\ On March
13, 2025, the Exchange filed with the Commission, pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \6\ and Rule
19b-4 thereunder,\7\ a proposed rule change to modify the definition
and operation of RPI Orders and to introduce Enhanced RPI Orders, as
well as to expand the RPI Program to include securities priced below
$1.00. The proposed rule change was published for comment in the
Federal Register on March 20, 2025.\8\ On September 29, 2025, the
Exchange filed Amendment No. 4 to the proposed rule change, which was
deemed approved on November 15, 2025.\9\ BYX submitted the Exemptive
Request to reflect the modified RPI Order and the newly introduced
Enhanced RPI Orders.
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\5\ See Securities Exchange Act Release No. 87154 (Sept. 30,
2019), 84 FR 53183 (Oct. 4, 2019), SR-CboeBYX-2019-014 (``RPI
Approval Order''), at 53185-86; Securities Exchange Act Release No.
68303 (Nov. 27, 2012), 77 FR 71652 (Dec. 3, 2012), SR-BYX-2012-019
(``RPI Pilot Approval Order''), at 71657-58.
\6\ 15 U.S.C. 78s(b)(1).
\7\ 17 CFR 240.19b-4.
\8\ See Securities Exchange Act Release No. 102681 (Mar. 14,
2025), 90 FR 13240. On April 29, 2025, pursuant to Section 19(b)(2)
of the Act, 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. 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. 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 to the proposed rule
change. On June 17, 2025, the Exchange withdrew Amendment Nos. 1 and
2, and submitted Amendment No. 3 to the proposed rule change. On
June 18, 2025, the Commission published notice of Amendment No. 3
and instituted proceedings pursuant to Section 19(b)(2)(B) of the
Act, to determine whether to approve or disapprove the proposed rule
change, as modified by Amendment No. 3. See Securities Exchange Act
Release No. 103291, 90 FR 26843 (June 24, 2025). On September 2,
2025, the Commission designated November 15, 2025 as the date by
which the Commission shall either approve or disapprove the proposed
rule change. See Securities Exchange Act Release No. 103819, 90 FR
43006 (Sept. 5, 2025).
\9\ See Securities Exchange Act Release No. 104210 (Nov. 18,
2025), 90 FR 52727 (Nov. 21, 2025). Amendment No. 4 amended and
superseded Amendment No. 3 in its entirety. In Amendment No. 4, the
Exchange provided additional detail regarding the proposed amendment
to Exchange Rule 11.12 (Priority of Orders). The full text of
Amendment No. 4 is available on the Commission's website at <a href="https://www.sec.gov/comments/sr-cboebyx-2025-007/srcboebyx2025007-665327-1988394.pdf">https://www.sec.gov/comments/sr-cboebyx-2025-007/srcboebyx2025007-665327-1988394.pdf</a> (``Proposal'').
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II. Limited Exemption From the Sub-Penny Rule
Pursuant to its authority under Rule 612(d) of Regulation NMS,\10\
the Commission hereby grants the Exchange a limited exemption from the
Sub-Penny Rule to operate its RPI Program as modified by the Proposal.
For the reasons discussed below, the Commission determines that such
action is necessary or appropriate in the public interest, and is
consistent with the protection of investors.
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\10\ 17 CFR 242.612(d).
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When the Commission adopted the Sub-Penny Rule, the Commission
identified a variety of problems caused by sub-penny quoting that the
Sub-Penny Rule was designed to address:
<bullet> If investors' limit orders lose execution priority for a
nominal amount, investors may, over time, decline to use them, thus
depriving the markets of liquidity.
<bullet> When market participants can gain execution priority for a
nominal amount, important customer protection rules such as exchange
priority rules and the Manning Rule \11\ could be undermined.
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\11\ See Financial Industry Regulatory Authority, Inc. Rule 5320
(Prohibition Against Trading Ahead of Customer Orders).
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<bullet> Flickering quotations that can result from widespread sub-
penny pricing could make it more difficult for broker-dealers to
satisfy their best execution obligations and other regulatory
responsibilities.
<bullet> Widespread sub-penny quoting could decrease market depth
and lead to higher transaction costs.
<bullet> Decreasing depth at the inside could cause institutions to
rely more on execution alternatives away from the exchanges,
potentially increasing fragmentation in the securities markets.\12\
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\12\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005) (Adopting Release for Regulation
NMS). See also RPI Approval Order, supra note 5, at 53186; RPI Pilot
Approval Order, supra note 5, at 71657.
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When the Commission approved the Exchange's RPI Program, it granted
the Exchange a limited exemption from the Rule 612 prohibition on a
national securities exchange accepting or ranking orders priced greater
than $1.00 per share in an increment smaller than $0.01.\13\ The
Commission recognized that the vast majority of marketable retail
orders are internalized by OTC market makers, and to the extent that
OTC market makers offer price improvement over the NBBO, it is
typically offered in sub-penny amounts. The Commission stated that OTC
market makers typically select a sub-penny price for a trade without
quoting at that exact amount or accepting orders from retail customers
seeking that exact price. The Commission further recognized that
exchanges, and exchange member firms, cannot compete for marketable
retail order flow on the same basis because it would be impractical for
exchange electronic systems to generate sub-penny executions without
exchange liquidity providers or retail brokerage firms having first
submitted sub-penny orders or quotations, which the Sub-Penny Rule
expressly prohibits.\14\
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\13\ See RPI Approval Order, supra note 5, at 53186; RPI Pilot
Approval Order, supra note 5, at 71657-58. In the Final Rules, the
Commission stated that national securities exchanges' retail
liquidity programs that operate pursuant to Commission exemptions
that either permit certain quoting and trading in increments of
$0.001, or aggregate order flow at the midpoint, will be able to
continue to operate without interruption and without changes to
exchange rules or the grant of further exemptive relief by the
Commission. See Final Rules, supra note 4, at 81643.
\14\ See RPI Pilot Approval Order, supra note 5, at 71658. See
also RPI Approval Order, supra note 5, at 53186. See also Final
Rules, supra note 4.
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Modifications to the Exchange's RPI Program made by the Proposal,
which are described in detail in the Proposal and in the Exchange's
Exemption Request, do not raise any new concerns regarding the problems
the Sub-Penny Rule was designed to address, and the limited exemption
granted in this order should continue to promote competition between
exchanges and OTC market makers in a manner that is reasonably designed
to minimize the problems that
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the Commission identified when adopting the Sub-Penny Rule. As is
currently the case, under the RPI Program as modified by the Proposal,
sub-penny prices will not be disseminated through the consolidated
quotation data stream,\15\ which should avoid quote flickering and
reduced depth at the inside quotation.\16\
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\15\ See Proposal at pages 139-142 of 176 (discussing
dissemination of the Retail Liquidity Identifier).
\16\ See RPI Pilot Approval Order, supra note 5, at 71658.
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Furthermore, granting this limited exemption would not reduce
incentives for market participants to display limit orders. Enabling
the Exchange to continue to compete for retail order flow through the
RPI Program, as modified by the Proposal, should not materially detract
from the current incentives to display limit orders, while potentially
resulting in greater order interaction and price improvement for
marketable retail orders on a public national securities exchange. To
the extent that the RPI Program may raise Manning Rule and best
execution issues for broker-dealers, these issues are already presented
by the existing practices of OTC market makers.\17\
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\17\ Id.
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This limited exemption from the Sub-Penny Rule is limited solely to
the operation of the RPI Program by the Exchange. This exemption does
not extend beyond the scope of Exchange Rule 11.24. In addition, this
exemption is conditioned on the Exchange continuing to conduct the RPI
Program, in accordance with Exchange Rule 11.24 and substantially as
described in the Exchange's Exemption Request and the Proposal. Any
further changes to Exchange Rule 11.24 may cause the Commission to
reconsider this exemption.
III. Conclusion
It is therefore ordered, pursuant to Rule 612(d) of Regulation NMS,
that the Exchange is granted a limited exemption from Rule 612 of
Regulation NMS with respect to the operation of the RPI Program as set
forth in Exchange Rule 11.24 to allow the Exchange to accept and rank
RPI Interest priced equal to or greater than $1.00 per share in
increments of $0.001.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12) and 17 CFR 200.30-3(a)(83).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2026-01119 Filed 1-21-26; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on January 22, 2026.
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