Notice2026-01974
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Order Granting Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Amend Exchange Rule 11.21 To Allow a Retail Member Organization To Enter a Retail Order Onto the Exchange in a Principal Capacity
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Published
February 2, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 21 (Monday, February 2, 2026)</title>
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[Federal Register Volume 91, Number 21 (Monday, February 2, 2026)]
[Notices]
[Pages 4650-4652]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-01974]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104705; File No. SR-CboeEDGX-2025-035]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Order
Granting Approval of a Proposed Rule Change, as Modified by Amendment
No. 1, To Amend Exchange Rule 11.21 To Allow a Retail Member
Organization To Enter a Retail Order Onto the Exchange in a Principal
Capacity
January 28, 2026.
I. Introduction
On May 21, 2025, Cboe EDGX Exchange, Inc. (``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 (i) amend
Exchange Rule 11.21(a)(2) to allow a Retail Member Organization
(``RMO'') to enter a Retail Order onto the Exchange in a principal
capacity, provided certain conditions are satisfied.\3\ On July 25,
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
September 4, 2025, the Exchange submitted Amendment No. 1 to the
proposed rule change, which amended and superseded the proposed rule
change in its entirety.\6\ On September 5, 2025, the Commission
published notice of Amendment No. 1 and instituted 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. 1.\8\
On December 3, 2025, the Commission designated February 5, 2026 as the
date by which the Commission shall either approve or disapprove the
proposed rule change.\9\ The Commission has not received any comments
on the proposal. As discussed further below, this order approves the
proposed rule change, as modified by Amendment No. 1.
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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. 103182 (June 4,
2025), 90 FR 24476 (June 10, 2025). A ``Retail Member Organization''
or ``RMO'' is a Member (or a division thereof) that has been
approved by the Exchange under Rule 11.21 to submit Retail Orders.
See Exchange Rule 11.21(a)(1). ``Member'' is defined in Exchange
Rule 1.5(n). As described herein, ``Retail Order'' is defined in
Exchange Rule 11.21(a)(2).
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 103546 (July 25,
2025), 90 FR 35954 (July 30, 2025) (designating September 8, 2025 as
the date by which the Commission shall either approve, disapprove,
or institute proceedings to determine whether to disapprove the
proposed rule change).
\6\ The full text of Amendment No. 1 is available on the
Commission's website at <a href="https://www.sec.gov/comments/sr-cboeedgx-2025-035/srcboeedgx2025035-648447-1943494.pdf">https://www.sec.gov/comments/sr-cboeedgx-2025-035/srcboeedgx2025035-648447-1943494.pdf</a>.
\7\ 15 U.S.C. 78s(b)(2)(B).
\8\ See Securities Exchange Act Release No. 103878 (Sept. 5,
2025), 90 FR 43668 (Sept. 10, 2025) (``Notice and OIP'').
\9\ See Securities Exchange Act Release No. 104302 (Dec. 3,
2025), 90 FR 56806 (Dec. 8, 2025).
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II. Description of the Proposal
The Exchange proposes to (i) amend Exchange Rule 11.21(a)(2) to
allow an RMO to enter a Retail Order onto the Exchange in a principal
capacity, provided the requirements of proposed Exchange Rule 11.21(g)
are satisfied; (ii) codify in proposed new Exchange Rule 11.21(g)
additional requirements an RMO must comply with in order to enter
Retail Orders as principal; and (iii) amend Exchange Rule 11.21(b)(6)
to require that RMOs have in place policies and procedures reasonably
designed to ensure compliance with proposed Exchange Rule 11.21(g), as
well as to ensure that the RMO can, upon request by the Exchange,
produce documentation evidencing compliance with the requirements of
Exchange Rule 11.21(g).
A. Modifications to Exchange Rule 11.21(a)(2) In Order To Permit RMOs
To Enter Retail Orders in a Principal Capacity
Currently, RMOs are only able to submit Retail Orders to the
Exchange in an agency or riskless principal capacity.\10\ Specifically,
a Retail Order is defined as: ``an agency or riskless principal order
that meets the criteria of FINRA Rule 5320.03 that originates from a
natural person and is submitted to the Exchange by a Retail Member
Organization, 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 other computerized
methodology.'' \11\ The Exchange states it has received feedback from
certain RMOs that the ability to handle Retail Orders in a principal
capacity will enable them to provide their retail customers with post-
execution price improvement that is in addition to any price
improvement received on the Exchange.\12\ The Exchange states that
``RMOs may choose to execute in this manner to satisfy certain
execution quality and price improvement benchmarks RMOs have applied to
their underlying retail order(s), as well as to simply provide
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additional price improvement as a service to their retail customer(s)
or retail broker customers.'' \13\ The Exchange further states that
providing this additional price improvement is not possible under the
current definition of Retail Order because such principal orders fail
to meet the definition of riskless principal because the price
ultimately allocated to the retail customer by the RMO would be
different from (i.e., always be better priced than) the price the
principal order received on the Exchange.\14\
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\10\ See Exchange Rule 11.21(a)(2). The Exchange states that it
offers (i) retail-only pricing incentives for low cost remove fees
and premium rebates, (ii) discounts for RMOs on port fees and market
data and (iii) retail tiers that give growing retail firms
additional rebates. See Notice and OIP at 43670; Cboe U.S. Equities
Fee Schedules, EDGX Equities, <a href="https://www.cboe.com/us/equities/membership/fee_schedule/edgx/">https://www.cboe.com/us/equities/membership/fee_schedule/edgx/</a>. The Exchange also states that it
offers RMOs the ability to participate in the Exchange's ``Retail
Priority program,'' pursuant to which the displayed portion of an
individual customer's Retail Priority Order will post at the front
of the order queue for same-priced orders submitted on EDGX. Id.
Pursuant to Exchange Rule 11.9, Interpretations and Policies .01 a
``Retail Priority Order'' is a Retail Order that is entered on
behalf of a person that does not place more than 390 equity orders
per day on average during a calendar month for its own beneficial
account(s).
\11\ See Exchange Rule 11.21(a)(2).
\12\ See Notice and OIP at 43669.
\13\ See id. at 43670.
\14\ Id. at 43669-70. A ``riskless principal'' transaction is a
transaction in which a member, after having received an order to buy
(sell) a security, purchases (sells) the security as principal and
satisfies the original order by selling (buying) as principal at the
same (emphasis added) price (the offsetting ``riskless'' leg). See
FINRA Rule 5320.03--``Riskless Principal Exception'', <a href="https://www.finra.org/rules-guidance/rulebooks/finra-rules/5320">https://www.finra.org/rules-guidance/rulebooks/finra-rules/5320</a>.
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The Exchange proposes to amend Exchange Rule 11.21(a)(2) to provide
that an RMO may now also enter a Retail Order as a ``principal order'',
provided the requirements in proposed Exchange Rule 11.21(g), as
discussed below, are met.
B. Additional Requirements for Retail Orders Entered as Principal
Orders
The Exchange proposes to introduce Exchange Rule 11.21(g) to ensure
that principal orders entered as Retail Orders are done so only on
behalf of bona fide retail customers. Specifically: (i) the RMO must be
in receipt of and actively managing, at the time of order entry onto
the Exchange, a Retail Order it seeks to execute on behalf of a retail
customer; (ii) the Retail Order entered by an RMO as principal must
solely be for the purpose of providing post-execution price improvement
\15\ to the retail customer(s) in addition to any price improvement
received on the Exchange; (iii) the size of the principal order must
not be greater than that of the underlying order(s) entered on behalf
of the retail customer(s); and (iv) the total number of shares executed
in a principal capacity must be fully allocated to the underlying
retail customer(s) in a consistent manner and within 60-seconds of
execution. The Exchange states that these requirements are similar to
the requirements of FINRA Rule 5320.03 (Riskless Principal
Exception).\16\
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\15\ Should an RMO enter a Retail Order principally but elect
not to provide post-execution price improvement the Exchange states
that it would expect that the RMO would allocate that execution back
to their retail customer(s) in a riskless principal capacity, in
which case such transaction must comply with existing Exchange Rule
11.21(a)(2) and FINRA Rule 5320.03. See Notice and OIP at 43671,
n.17.
\16\ See Notice and OIP at 43671. FINRA Rule 5320.03 provides an
exception for FINRA members from FINRA's general prohibition on a
member trading ahead of its own customers.
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The Exchange also states that monitoring for compliance with these
requirements will occur post-trade, as part of the Exchange's existing
surveillance functions, noting the Exchange's Regulatory and
Surveillance departments already possess the capability to review
Retail Orders to ensure that those entered in a principal or riskless
principal transaction were indeed entered and executed by the RMO on
behalf of a retail customer.\17\ The Exchange expects that the
Regulatory and Surveillance functions would monitor for Retail Orders
that were entered principally, but not ultimately executed as riskless
principal, and further inquire with the RMO that the requirements of
new Exchange Rule 11.21(g) were satisfied. Further, the Exchange states
that in 2024, 25.5% of all Retail Orders entered across each of Cboe's
four equities exchanges were entered as principal, compared to only
6.4% entered as riskless principal and therefore, as a practical
matter, the Exchange is accustomed to conducting surveillance of Retail
Orders entered as principal, and the proposed amendment should not pose
any additional issues.\18\
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\17\ See Notice and OIP at 43671.
\18\ Id.
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C. Amendments to Exchange Rule 11.21(b)(6) Requiring Policies and
Procedures for, and Documentation of, Retail Orders Entered in a
Principal Capacity
The Exchange proposes to amend Exchange Rule 11.21(b)(6) to require
that RMOs choosing to enter Retail Orders in a principal capacity must
have in place policies and procedures reasonably designed to ensure
compliance with the requirements of new Exchange Rule 11.21(g), and to
ensure the RMO is able to, upon request, provide the Exchange with
documentation evidencing compliance with such requirements. If an RMO
does not itself conduct a retail business, but chooses to execute in a
principal capacity Retail Orders it manages on behalf of another
broker-dealer, the RMO's supervisory procedures must be reasonably
designed to ensure that the orders it receives from such other broker-
dealer that are designated as Retail Orders meet the definition of a
Retail Order. To this end, the RMO must: (i) obtain an annual written
representation, in a form acceptable to the Exchange, from each other
broker-dealer that sends the RMO orders to be designated as Retail
Orders that entry of such orders as Retail Orders will be in compliance
with the requirements of Exchange Rule 11.21; and (ii) monitor whether
Retail Order flow routed on behalf of such other broker-dealers meets
the applicable requirements.
Additionally, the Exchange states that the proposed rule change
does not present any new or material risks that the Exchange has not
already mitigated through its RMO application process for orders
entered onto the Exchange as Retail Orders on behalf of retail
customers.\19\ The Exchange further states that its regulatory and
surveillance functions provide appropriate oversight by monitoring for
continued compliance with the terms of the RMO requirements, including
that an RMO will only designate orders as Retail Orders if all
requirements of a Retail Order are met.\20\ If an RMO fails to abide by
the Retail Order requirements, the Exchange in its sole discretion may
disqualify a Member from its status as an RMO.\21\ The Exchange also
states that as Members of the Exchange, RMOs must be registered brokers
or dealers and therefore are subject to various FINRA and Exchange
business conduct rules, and that RMOs are obligated to ensure that only
orders that comply with Exchange rules are routed to the Exchange and
designated as Retail Orders.\22\
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\19\ Id. at 43672.
\20\ See id.
\21\ See Exchange Rule 11.21(c)(1).
\22\ See Notice and OIP at 43673 (citing as examples FINRA Rule
2010 (Standards of Commercial Honor and Principles of Trade),
Exchange Rule 2.2 (Obligation of Members and the Exchange), and
Exchange Rule 3.1 (Business Conduct of Members)).
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\23\ In particular, the Commission finds that the proposed
rule change is consistent with Sections 6(b)(5).\24\ Section 6(b)(5) of
the Act requires, among other things, that the rules of a national
securities exchange be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to remove impediments to and
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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.\25\
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\23\ 15 U.S.C. 78f(b). In approving this proposed rule change,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\24\ 15 U.S.C. 78f(b)(5).
\25\ 15 U.S.C. 78f(b)(5).
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The Commission has previously recognized that market participants
and some exchanges distinguish between individual retail investors,
whose orders are considered desirable by liquidity providers because
such retail investors are presumed on average to be less informed about
short-term price movements, and professional traders, whose orders are
presumed on average to be more informed about short-term price
movements. \26\ The Commission has also recognized that, because of
this distinction, some liquidity providers may be more inclined to
offer price improvement to retail orders.\27\ And the Commission has
previously stated that proposals involving segmentation of order flow
on a national securities exchange--even if such order flow is retail or
offers price improvement to retail orders--must be carefully
evaluated.\28\
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\26\ See, e.g., Securities Exchange Act Release No. 73702 (Nov.
28, 2014), 79 FR 72049, 72051 (Dec. 4, 2014) (SR-BX-2014-048)
(approving the BX Retail Price Improvement Program on a pilot
basis).
\27\ Id.
\28\ See Securities Exchange Act Release No. 86619 (Aug. 9,
2019) 84 FR 41769, 41771 (Aug. 15, 2019) (SR-IEX-2019-05) (approving
the IEX Retail Price Improvement Program).
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The proposed rule change is novel in that it expands the definition
of Retail Order to allow RMOs to submit Retail Orders to the Exchange
in a principal capacity without requiring an offsetting riskless
transaction.\29\ In order to enter such orders, however, the RMO's sole
purpose must be to provide post-execution price improvement to the
retail customer in addition to any price improvement received on the
Exchange.\30\ The Exchange states that principal orders entered in this
manner are for the benefit of the underlying retail customer, and are
consistent with the definition of Retail Order and the purposes of its
Retail Priority program. Further, the Exchange states that more retail
flow may be directed to the Exchange and have the opportunity to
execute on a regulated, transparent market if RMOs are provided with
this additional order capacity.\31\
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\29\ See supra note 14 regarding riskless principal
transactions.
\30\ See proposed Exchange Rule 11.21(g)(ii). The Exchange
states that RMOs may choose to execute in this manner to satisfy
certain execution quality and price improvement benchmarks or to
provide additional price improvement as a service to retail
customers or retail broker customers. See Notice and OIP at 43670.
\31\ See Notice and OIP at 43673.
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In addition to the post-execution price improvement requirement
described above, the RMO must be in receipt of and actively managing,
at the time of order entry onto the Exchange, the Retail Order or
Orders it seeks to execute on behalf of a retail customer or
customers,\32\ the size of the principal order must not be greater than
that of the underlying order(s) entered on behalf of the retail
customer(s),\33\ and the total number of shares executed in a principal
capacity must be fully allocated to the underlying retail customer(s)
in a consistent manner and within 60 seconds of execution.\34\ These
conditions are analogous to conditions imposed by FINRA with respect to
riskless principal transactions, including, in relevant part, that the
offsetting principal transaction occur within 60 seconds of
execution.\35\
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\32\ See proposed Exchange Rule 11.21(g)(i).
\33\ See proposed Exchange Rule 11.21(g)(iii).
\34\ See proposed Exchange Rule 11.21(g)(iv).
\35\ See supra note 16.
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The proposed expansion of the definition of Retail Order, in
combination with the requirements imposed by new Exchange Rule
11.21(g), is reasonably designed to attract retail order flow to a
registered national securities exchange, while offering the opportunity
for retail investors to benefit from additional, post-execution price
improvement that RMOs may be willing to offer.
Further, the proposal includes safeguards with respect to
regulatory and surveillance functions. The proposed changes to Exchange
Rule 11.21(b)(6) require that RMOs choosing to enter Retail Orders in a
principal capacity maintain policies and procedures reasonably designed
to ensure compliance with the requirements of new Exchange Rule
11.21(g).\36\ In addition, an RMO must, upon request, be able to
provide the Exchange with documentation evidencing compliance. The
Exchange represents that monitoring for compliance with these
requirements will occur post trade, as part of the Exchange's existing
surveillance functions.\37\ The Exchange further represents that it is
accustomed to conducting surveillance of Retail Orders entered as
principal such that the proposed amendment should not pose any
additional issues, and its Regulatory and Surveillance departments
already possess the capability to review Retail Orders to ensure that
those entered in a principal or riskless principal transaction were
indeed entered and executed by the RMO on behalf of a retail
customer.\38\
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\36\ See proposed Exchange Rule 11.21(g).
\37\ See Notice and OIP at 43671.
\38\ Id.
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The proposal to expand the definition of Retail Order to include
orders entered on a principal basis, subject to the compliance
requirements and monitoring discussed herein, is reasonably designed to
ensure that RMOs submit only bona fide retail order flow as Retail
Orders and thereby should promote just and equitable principals of
trade and protect investors and the public interest.
For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment No. 1, is consistent with the
Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\39\ that the proposed rule change (SR-CboeEDGX-2025-035), as modified
by Amendment No. 1, be, and hereby is, approved.
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\39\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-01974 Filed 1-30-26; 8:45 am]
BILLING CODE 8011-01-P
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