Notice2026-04895
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 11.24 To Allow a Retail Member Organization To Enter a Retail Order Onto the Exchange in a Principal Capacity
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
March 13, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 49 (Friday, March 13, 2026)</title>
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[Federal Register Volume 91, Number 49 (Friday, March 13, 2026)]
[Notices]
[Pages 12459-12466]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-04895]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-104958; File No. SR-CboeBYX-2026-005]
Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 11.24 To Allow a Retail Member Organization To Enter a Retail
Order Onto the Exchange in a Principal Capacity
March 10, 2026.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on February 23, 2026, Cboe BYX Exchange, Inc. (the ``Exchange'' or
``BYX'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Exchange
filed the proposal as a ``non-controversial'' proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') proposes to
(i) amend Rule 11.24(a)(2), to allow a Retail Member Organization to
enter a Retail Order onto the Exchange in a principal capacity,
provided the requirements of proposed Rule 11.24(h) are satisfied; (ii)
codify in proposed new Rule 11.24(h) additional requirements a Retail
Member Organization must comply with in order to enter Retail Orders as
principal; and (iii) amend Rule 11.24(b)(6) to require that Retail
Member Organizations have in place policies and procedures reasonably
designed to ensure compliance with proposed Rule 11.24(h), as well as
to ensure that the Retail Member Organization can, upon request by the
Exchange, produce documentation evidencing compliance with the
requirements of Rule 11.24(h). The text of the proposed rule change is
provided in Exhibit 5.
The text of the proposed rule change is also available on the
Commission's website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>), the
Exchange's website (<a href="https://www.cboe.com/us/equities/regulation/rule_filings/bzx/">https://www.cboe.com/us/equities/regulation/rule_filings/bzx/</a>), and at the principal office of the Exchange.
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.
[[Page 12460]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to (i) amend Rule 11.24(a)(2) to allow a
Retail Member Organization (``RMO'') \5\ to enter a Retail Order \6\
onto the Exchange in a principal capacity, provided the requirements of
Rule 11.24(h) are satisfied; (ii) codify in proposed new Rule 11.24(h)
additional requirements a RMO must comply with in order to enter Retail
Orders as principal; and (iii) amend Rule 11.24(b)(6) requiring that
RMOs have in place policies and procedures reasonably designed to
ensure compliance with proposed Rule 11.24(h), as well to ensure that
the RMO can, upon request by the Exchange, produce documentation
evidencing compliance with the requirements of Rule 11.24(h). The
Exchange notes that the proposed amendments are substantially similar
those approved by the Securities and Exchange Commission (``SEC'') for
the Exchange's affiliate, Cboe EDGX Exchange, Inc. (``EDGX''). with
differences only to account for the Exchange's existing rule text and
details and descriptions included in the Exchange's Rules, but not in
the applicable EDGX Price Improvement Rules.\7\ For example, such
differences include, but are not limited to the differences the
Exchange's priority rules relative to those of EDGX, as well as
differences relating to BYX's inverted fee structure versus that of the
traditional make-take model on EDGX.
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\5\ 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. See Rule 11.24(a)(1).
\6\ A Retail Order is currently 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.'' See Rule
11.24(a)(2).
\7\ See Securities Exchange Act Release No. 104705 (January 28,
2026), 91 FR 4650 (February 2, 2026) (SR-CboeEDGX-2025-035).
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These proposed amendments are in response to feedback received by
the Exchange from certain RMOs that have stated that the ability to
enter orders in a principal capacity would better enable them to
provide their retail customers with better priced executions.
Currently, RMOs are only able to enter Retail Orders onto the Exchange
in either an agency or riskless principal capacity. Specifically, these
RMOs have explained 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. Because the price ultimately
allocated to the retail customer by the RMO would be different from
(and notably, would always be better priced than) the price the
principal order received on the Exchange, such Retail Orders would not
currently qualify as riskless principal transactions.\8\ Accordingly,
because Exchange rules currently only permit the entry of Retail Orders
in a riskless principal or agency capacity, such post-execution price
improvement is not currently permitted.
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\8\ 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'', available at:
<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 notes that the ultimate determination as to whether an
RMO may choose to execute in this manner is not something to which the
Exchange has visibility. Indeed, such a decision will vary from RMO to
RMO. Generally speaking, 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 additional price improvement as a service to their retail
customer(s) or retail broker customers. Because principal orders
entered in this manner are for the benefit of the underlying retail
customer(s)--i.e., to provide retail orders with better priced
executions--the Exchange believes that such transactions are consistent
with the definition of Retail Order, and the purposes of BYX's Retail
Price Improvement Program (discussed infra).
Current Definition of ``Retail Order''
Currently, Rule 11.24(a)(2) provides that a Retail Order is an
agency order, or a riskless principal order that meets the criteria of
FINRA Rule 5320.03.\9\ A Retail Order is an Immediate or Cancel
Order,\10\ which may be an odd lot, round lot, or mixed lot and may
include Mid-Point Peg Order \11\ instruction. A Retail Order must
originate from a natural person and must be entered onto the Exchange
by an RMO. The RMO is not permitted to change the terms of the order
with respect to the price or side of the market, and a Retail Order may
not originate from a trading algorithm or any other computerized
methodology. An RMO is a Member (or a division thereof) that has been
approved by the Exchange under BYX Rule 11.24 to submit Retail Orders.
Pursuant to BYX Rule 11.24(b), which describes the qualification and
application process for becoming a RMO, any member may qualify as a RMO
if it conducts a retail business or routes retail orders on behalf of
another broker-dealer.
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\9\ See FINRA Rule 5320.3, Riskless Principal Exception,
available at: <a href="https://www.finra.org/rules-guidance/rulebooks/finra-rules/5320">https://www.finra.org/rules-guidance/rulebooks/finra-rules/5320</a>.
\10\ See Rule 11.9(b)(1). An Immediate or Cancel Order is ``[a]
limit order that is to be executed in whole or in part as soon as
such order is received. The portion not executed immediately on the
Exchange or another trading center is treated as cancelled and is
not posted to the BYX Book. . .''
\11\ 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
[national best bid or offer (``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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Proposed Definition of Retail Order
The Exchange believes that retail customers are a key part of the
trading ecosystem, and as such, has designed products and programs to
execute Retail Orders quickly, at a low-cost, and with added pricing
incentives. For instance, BYX's Retail Price Improvement (``RPI'')
Program seeks to improve execution prices for retail customers who
trade U.S. equities on BYX by offering sub-penny price improvement
opportunities and enhanced rebates to Retail Orders. Liquidity
providers have the ability to interact solely with contra-side Retail
Orders (which is generally preferred to executing with non-Retail
Orders to minimize adverse selection risk) by electing to submit an RPI
Order \12\ or an Enhanced RPI Order.\13\ Under the BYX RPI Program, RPI
Orders and Enhanced RPI Orders priced at least $0.001 better than the
Protected National Best Bid (``Protected NBB'') or the Protected
National Best Offer (``Protected NBO'') \14\ in securities priced at or
above $1.00 are eligible to execute against incoming Retail Orders.\15\
RPI Orders and Enhanced RPI Orders submitted by liquidity providers
under the RPI Program are executable only against incoming Retail
Orders submitted by approved RMOs. While Exchange rules currently
permit the routing of Retail
[[Page 12461]]
Orders, the Exchange does not currently identify Retail Orders as such
when routing to away exchanges, and the Exchange does not propose to do
so with this current proposal. Retail Orders that interact with price
improving orders also receive an enhanced rebate on BYX.
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\12\ See Rule 11.24(a)(3).
\13\ See Rule 11.24(a)(4).
\14\ See Rule 1.5(s). The term ``Protected NBB'' shall mean the
national best bid that is a Protected Quotation and the term
``Protected NBO'' shall mean the national best offer that is a
Protected Quotation.
\15\ See Rule 11.24(a)(3) and Rule 11.24(a)(4). For securities
priced below $1.00, an RPI Order or Enhanced RPI Order must be
priced at least $0.0001 better than the Protected NBB or Protected
NBO.
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The Exchange now seeks to amend Rule 11.24(a)(2) to provide that an
RMO may also enter a Retail Order in a principal capacity, provided the
RMO satisfies the conditions codified in proposed Rule 11.24(h). As
noted above, some RMOs have expressed a desire to enter Retail Orders
onto the Exchange on behalf of their retail customers in a principal
capacity and subsequently provide such orders with post-execution price
improvement in addition to any price improvement received on the
Exchange. Because the RMO will allocate its Exchange execution to its
retail customer at a different (and better) price than it received on
the Exchange, such transaction can only be done in a principal
capacity. To better illustrate the order flow of a Retail Order being
executed in a principal capacity by an RMO, consider the following
example:
<bullet> An RMO has an order in hand from its retail customer to
sell 100 shares of stock XYZ;
<bullet> The RMO elects to send a Retail Order to the Exchange on
behalf of its retail customer;
<bullet> The Retail Order is accepted and executed by the Exchange
at a price improved price of $10.005;
<bullet> The Exchange sends the execution message back to the RMO
with the execution price of $10.005;
<bullet> Based on their own internal best execution practices, or
execution quality metrics, the RMO may then elect to provide their
retail customer's order with price improvement in addition to that
already received on the Exchange.
<bullet> For the purposes of this example, assume that the RMO
indeed chooses to provide their retail customer with additional price
improvement of $0.005, for a final execution price of $10.01.\16\ This
transaction is executed as principal, and is a separate transaction
executed off-exchange by and between the RMO and its retail customer.
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\16\ Here, the RMO is not permitted to execute this transaction
in a riskless principal capacity, because the RMO is not providing
its retail customer with the same execution price it received on the
Exchange. By permitting the RMO to use a principal order, though,
the RMO would be able to provide its retail customer with price
improvement in addition to that already received on the Exchange.
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<bullet> This transaction and its execution price of $10.01 will be
reported to the Transaction Reporting Facility (``TRF'') consistent
with FINRA off-exchange reporting rules and guidance.\17\
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\17\ See ``Trade Reporting Frequently Asked Questions'', Section
309: Reporting Customer Price Adjustment Transactions, available at:
<a href="https://www.finra.org/filing-reporting/market-transparency-reporting/trade-reporting-faq#309">https://www.finra.org/filing-reporting/market-transparency-reporting/trade-reporting-faq#309</a>.
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Importantly, the Exchange intends for Retail Orders to be entered
on behalf of only bona fide retail customers. As such, the Exchange now
also proposes to introduce new Rule 11.24(h), Retail Orders Entered as
Principal, to codify requirements designed to ensure that Retail Orders
by RMOs in a principal capacity are in fact on behalf of retail
customers. Specifically, the Exchange seeks to codify that any Retail
Orders entered onto the Exchange in a principal capacity by an RMO on
behalf of its retail customer(s) must meet the following criteria,
which are similar to the requirements under FINRA Rule 5320.03's,
Riskless Principal Exception: (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 \18\ to the
retail customer(s) in addition to any price improvement received on the
Exchange; (iii) the size of the principal order shall 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.
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\18\ Should an RMO enter a Retail Order principally but elect
not to provide post-execution price improvement the Exchange 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 11.24(a)(2)
and FINRA Rule 5320.03.
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The monitoring for compliance with these requirements will occur
post-trade, as part of the Exchange's surveillance functions.
Importantly, the Exchange's Regulatory and Surveillance departments
already possess the capability to review Retail Orders to ensure that
those entered in either a principal or riskless principal transaction
were indeed entered and executed by the RMO on behalf of a retail
customer.\19\ For instance, the Exchange's Regulatory and Surveillance
teams currently review Retail Orders entered as principal to determine
whether such orders were in fact ultimately executed as riskless
principal \20\ and fully allocated to the RMO's end retail customer, at
the same price, in accordance with FINRA Rule 5320.03. While the
proposed amendment would enable RMOs to allocate a trade to their end
retail customer at a different price, this would not diminish the
Exchange's Regulatory and Surveillance teams' ability to effectively
regulate RMOs' compliance with the Exchange's Retail Order rules.
Rather, the Regulatory and Surveillance functions would instead need
only monitor for Retail Orders that were entered principally, but not
ultimately executed as riskless principal, and further inquire with the
RMO that (i) the RMO was in receipt of and actively managing, at the
time of order entry onto the Exchange, a Retail Order it sought to
execute on behalf of a retail customer (ii) the Retail Order entered by
an RMO as principal was solely for the purpose of providing post-
execution price improvement to the retail customer(s) in addition to
any price improvement received on the Exchange; (iii) the size of the
principal order was not 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 was fully allocated to the
underlying retail customer(s) in a consistent manner and within 60-
seconds of execution.
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\19\ The Exchange permits RMOs to enter Retail Orders onto the
Exchange in an agency, principal, or riskless principal capacity.
See ``Capacity'' in ``Cboe US Equities BOE Specification'', pg. 62,
available at: <a href="https://cdn.cboe.com/resources/membership/Cboe_US_Equities_BOE_Specification.pdf">https://cdn.cboe.com/resources/membership/Cboe_US_Equities_BOE_Specification.pdf</a>; see also ``Order Capacity''
in ``Cboe US Equities FIX Specification,'' p. 21, available at:
<a href="https://cdn.cboe.com/resources/membership/Cboe_US_Equities_FIX_Specification.pdf">https://cdn.cboe.com/resources/membership/Cboe_US_Equities_FIX_Specification.pdf</a>.
\20\ As a general matter the exchange notes that riskless
principal transactions are typically entered into the marketplace as
principal orders, buying the security for itself and then, post-
execution, selling the security to its end-customer. If the broker-
dealer sells its customer the security at the same price for which
it purchased the security, this is typically called a riskless
principal transaction. This transaction is known as ``riskless''
because the broker-dealer purchases the security, knowing that it
will sell the security to its customer at the same price. See
generally SEC Office of Education and Advocacy, ``Investor Bulletin:
How to Read Confirmation Statements,'' available at: <a href="https://www.sec.gov/investor/alerts/ib_confirmations.pdf">https://www.sec.gov/investor/alerts/ib_confirmations.pdf</a>.
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In this regard, whether the order is executed principally or as
riskless principal, the Exchange will still have the ability to
effectively enforce its rules. Indeed, the Exchange's Regulatory and
Surveillance functions already monitor for Retail Orders that are
entered as riskless principal as well as principal. Notably, for the
full year 2025, 20.3% of all Retail Orders entered across each of
Cboe's four equities exchanges, were entered as principal, compared to
only 10.2% entered as
[[Page 12462]]
riskless principal. 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.
Importantly, for the purpose of determining whether an order should
qualify as a Retail Order, the Exchange believes that from a
surveillance perspective, principal orders and riskless principal
orders are essentially the same order type. In addition to how it
monitors and surveils Retails Orders (discussed directly above), BYX
notes that there is no difference between a Retail Order entered as a
riskless principal order that meets the requirements of FINRA Rule
5320.03, and a principal order, that meets the requirements of the
proposed rule. As noted above, a riskless principal order is a
transaction in which a Member, after having received an order to buy
(sell) a security, purchases (sells) the security as principal and,
contemporaneously, satisfies the original order by selling (buying) as
principal at the same price. A riskless principal order involves two
orders, the execution of one being dependent upon the receipt of the
execution of the other. As such, there is no ``risk'' in the
interdependent transactions when completed. Notably, riskless principal
orders are typically entered onto exchanges in a principal capacity,
and the riskless principal leg of the transaction is reflected only via
a corresponding non-media trade report to a FINRA Facility.\21\ In this
regard, the Exchange believes that the results of a riskless principal
transaction and a principal transaction are the same: the customer will
receive an execution while the involved Member acts as an intermediary
to effect the transaction. However, instead of receiving the same
Exchange execution price, the retail customer will now receive a better
priced execution because the RMO is now able to commit capital to that
order, as principal. Existing rule text does not permit this scenario
because the current definition of Retail Order only permits an RMO to
trade in an agency or riskless principal capacity. When trading as
agent, the RMO is simply passing the execution back to its retail
customer(s) at the price received on-Exchange. If trading as riskless
principal, the RMO trades principally on the Exchange, but then
allocates the execution, at the same price, back to its retail customer
in a riskless transaction.\22\ In this regard, by trading principally,
an RMO may instead use its financial balance sheet and principal
trading account to provide additional price improvement to a retail
customer's order in a separate transaction. Here, the RMO is not
permitted to execute this transaction in a riskless principal capacity,
because the RMO is not providing its retail customer with the same
execution price it received on the Exchange. By permitting the RMO to
use a principal order, though, the RMO would be able to provide its
retail customer with price improvement in addition to that already
received on the Exchange.
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\21\ FINRA Members can report riskless principal transactions by
submitting a single tape report to a FINRA Facility in the same
manner as an agency transaction, marked with a ``riskless
principal'' capacity indicator, excluding the mark-up or mark-down,
commission-equivalent or other fee. Alternatively, members can
report an OTC riskless principal transaction by submitting two (or
more, as necessary) reports: (1) a tape report to reflect the
initial leg of the transaction with a capacity of principal; and (2)
a non-tape (regulatory or clearing-only) report to reflect the
offsetting ``riskless'' leg of the transaction with a capacity of
riskless principal.
\22\ Id.
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Existing RMO Application Process/Requirements & Proposed Policies and
Procedures
The Exchange also notes that the proposed amendment 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. Currently,
Rule 11.24(b)(1)-(6) sets forth an objective process by which a Member
organization applies to become an RMO. First, to qualify as a Retail
Member Organization, a Member must conduct a retail routing business or
route retail orders on behalf of another broker-dealer.\23\ To become
an RMO, a Member is required to submit an application form,\24\
supporting documentation (e.g., marketing literature, website
screenshots, and other publicly disclosed materials) confirming that
the applicant's order flow would meet the requirements of the Retail
Order definition,\25\ and an attestation \26\ in a form prescribed by
the Exchange, that substantially all orders submitted as Retail Orders
will qualify as such under the Rule.\27\ After submission of these
materials, various Exchange functions, including legal and operations,
review the application to assess whether the applicant's order flow
complies with Exchange rules.\28\ Applicants are then notified, in
writing, of the Exchange's decision.\29\
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\23\ See Rule 11.24(b)(1).
\24\ See Rule 11.24(b)(2)(A).
\25\ See Rule 11.24(b)(2)(B).
\26\ See, ``Retail Member Organization--Broker-Dealer Customer
Agreement'', and ``Broker-Dealer Customer Annual Attestation'' of
``Cboe BYX Exchange, Inc., Retail Member Organization Application'',
available at: <a href="https://cdn.cboe.com/resources/membership/BYX_Retail_Member_Organization_Application.pdf">https://cdn.cboe.com/resources/membership/BYX_Retail_Member_Organization_Application.pdf</a>. Following approval
of this proposal, the Exchange will make conforming edits to the
attestation reflecting the changes to the definition of ``Retail
Order'', as well as the amendments made to Rule 11.24.
\27\ See Rule 11.24(b)(2)(C)
\28\ See Rule 11.24(b)(3)
\29\ Id.
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Furthermore, all RMOs must have in place policies and procedures
reasonably designed to ensure that it will only designate orders as
Retail Orders if all requirements of a Retail Order are met.\30\ These
policies and procedures must require the Member to (i) exercise due
diligence before entering a Retail Order to ensure that entry as a
Retail Order is in compliance with the requirements of the Rule, and
(ii) monitor whether orders entered as Retail Orders meet the
applicable requirements.\31\ If an RMO does not itself conduct a retail
business but routes Retail Orders on behalf of another broker-dealer,
the RMO's supervisory procedures must be reasonably designed to ensure
that the orders it receives from the other broker-dealer that are
designated as Retail Orders meets the definition of a Retail Order.\32\
In these cases, 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 the entry of such orders as Retail Orders will be in
compliance with the requirements of Rule 11.24; and (ii) monitor
whether Retail Order flow routed on behalf of other such broker-dealers
meets the applicable requirements.\33\ Importantly, the Exchange's
regulatory and surveillance functions provide appropriate oversight by
the Exchange by monitoring for continued compliance with the terms of
these provisions. 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.\34\ The proposed amendment will not
eliminate or diminish the strength of the existing protections
currently codified in Rule 11.24.
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\30\ See Rule 11.24(b)(6).
\31\ Id.
\32\ Id.
\33\ Id.
\34\ See Rule 11.24(c)(1).
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In addition, as noted further above, the Exchange has proposed
requirements pursuant to proposed Rule 11.24(h) designed to ensure that
Retail Orders entered in a principal capacity are in fact entered on
behalf of bona fide
[[Page 12463]]
retail customers, and that such principal orders comply with specific
requirements. Namely, when entering a Retail Order onto the Exchange
for execution in a principal capacity, an RMO must comply with the
following requirements, which are similar to those required by FINRA
Rule 5320.03's Riskless Principal Exception requirements: (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 \35\ to the retail customer(s) in addition to any price
improvement received on the Exchange; (iii) the size of the principal
order shall 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
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\35\ Should an RMO enter a Retail Order principally but elect
not to provide post-execution price improvement the Exchange 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 11.24(a)(2)
and FINRA Rule 5320.03.
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In conjunction with these requirements, the Exchange also proposes
to amend Rule 11.24(b)(6), to codify the requirements 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 11.24(h), and to ensure the RMO is able to,
upon request, provide the Exchange with documentation evidencing
compliance with such requirements. Moreover, if a Retail Member
Organization 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 Retail Member Organization'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. The Retail Member
Organization must: (i) obtain an annual written representation, in a
form acceptable to the Exchange, from each other broker-dealer that
sends the Retail Member Organization orders to be designated as Retail
Orders that entry of such orders as Retail Orders will be in compliance
with the requirements of this Rule; and (ii) monitor whether Retail
Order flow routed on behalf of such other broker-dealers meets the
applicable requirements.
Finally, the Exchange believes it important to note that as Members
of the Exchange, RMOs must be registered brokers or dealers. As
registered brokers or dealers, RMOs are subject to a panoply of rules,
such as FINRA Rule 2010 (Standards of Commercial Honor and Principles
of Trade), BYX Rule 2.2 (Obligation of Members and the Exchange), and
BYX Rule 3.1 (Business Conduct of Members). These rules require,
amongst other things, that as brokers or dealers, Members are required
to conduct business with the highest standards of commercial honor, and
obligate Members to comply with all Exchange rules, by-laws, and
regulations.\36\ While the Exchange has an obligation to maintain fair
and orderly markets and carry out it its duties as a self-regulatory
organization, RMOs are also obligated to ensure that only orders that
comply with Exchange rules are routed to the Exchange and designated as
Retail Orders.
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\36\ While the RMO application process discussed above does rely
on information provided by the applicant, the Exchange believes that
ultimately it must be allowed to rely on representations made by
registered brokers or dealers that are obligated to conduct their
securities business consistent with the highest standards of
commercial honor, and in submitting their application, have attested
to the accuracy of the information provided to the Exchange.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\37\ Specifically, the
Exchange believes the proposed rule change is consistent with the
Section 6(b)(5) \38\ 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) \39\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\37\ 15 U.S.C. 78f(b).
\38\ 15 U.S.C. 78f(b)(5).
\39\ Id.
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In particular, the Exchange believes that the proposed rule change
is consistent with these principles because it would increase
competition among execution venues, encourage additional on-exchange
retail liquidity, and in turn, increase the opportunities for retail
customers to receive even greater levels of price improvement from RMOs
that trade principally and choose to commit additional capital to their
Retail Orders. The Exchange notes that a significant percentage of the
orders of individual customers are executed over the counter.\40\ By
providing RMOs with an additional order capacity in which they may
submit their retail orders to the Exchange, BYX believes that more
retail flow may be directed to the Exchange and have the opportunity to
execute on a regulated, transparent market. Indeed, even the Commission
has noted that ``a very large percentage of marketable (immediately
executable) order flow of individual customers is `executed' or
`internalized' by broker-dealers in the [over-the-counter-markets].''
\41\ The Commission has also noted that a review of the order flow of
eight retail brokers revealed that nearly 100% of their customer market
orders were routed to over-the-counter market makers, often pursuant to
payment for order flow arrangements.\42\ By making clear to retail
broker-dealers that, subject to the conditions discussed herein, they
can enter and execute Retail Orders on the Exchange in a principal
capacity, such market participants may be encouraged to seek on-
Exchange price improvement opportunities. The Exchange believes that
the proposed change is likely to increase the number of Retail Orders
entered onto the Exchange. Based on feedback from Members that manage
retail orders, they already trade retail orders on-exchange in a
principal capacity. However, because Exchange Rules do not currently
permit the execution and allocation of a Retail Order in a principal
capacity, such
[[Page 12464]]
Members simply enter their principal retail orders as non-retail
attested order flow--i.e., they do not enter Retail Orders as RMOs,
onto the Exchange. As such, these Members' retail customer orders are
not eligible to avail themselves of the benefits BYX offers to retail
firms and Retail Orders. By making clear that such Members can now
enter such orders as Retail Orders, the Exchange believes the volume of
Retail Orders entered onto the Exchange will increase. In turn, an
increase in the number of Retail Orders submitted onto the Exchange
will encourage more retail liquidity provision, thereby deepening BYX's
retail liquidity pool, fostering enhanced price discovery, and offering
Retail Orders more price improvement opportunities as the number of
liquidity providers competing to trade with Retail Orders increases.
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\40\ Ninety-plus percent (90%) of retail marketable orders are
routed to wholesalers and executed off-exchange. See Chair Gensler's
remarks, ``Market Structure and the Retail Investors: Remarks Before
the Piper Sandler Global Exchange Conference'', (June 2, 2022),
available at: <a href="https://www.sec.gov/news/speech/gensler-remarks-piper-sandler-global-exchange-conference-060822">https://www.sec.gov/news/speech/gensler-remarks-piper-sandler-global-exchange-conference-060822</a>).
\41\ See Securities Exchange Act Release No. 61358 (January 14,
2010), 75 FR 3594, 3600 (January 21, 2010) (``Concept Release on
Equity Market Structure'').
\42\ Id.
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The Exchange also believes that the proposed amendment to add
principal orders to the definition of Retail Order, promotes just and
equitable principles of trade and is not unfairly discriminatory. All
RMOs are permitted to utilize the proposed principal order capacity and
doing so is not mandatory. While some RMOs may choose not to provide
additional price improvement to executions they receive on the
Exchange, such possibility does not make the proposed amendment
discriminatory. Indeed, to prevent all RMOs from trading in a principal
capacity to provide their retail customers with additional price
improvement, simply because some RMOs may choose not to do so, only
disadvantages the retail customer. Moreover, each RMO has its own
rationale and strategies in how to provide their retail orders with
best execution, and the proposed amendment to merely permit trading in
a principal capacity should not be germane to a consideration of
whether certain RMOs are better positioned to trade in this manner,
than others.
Moreover, proposed Rule 11.24(h) and the proposed amendment to Rule
11.24(b)(6) are designed to prevent fraudulent and manipulative acts
and practices, and to promote just and equitable principles of trade.
Specifically, the proposed requirements under Rule 11.24(h) are
designed to ensure that RMOs trade principally only on behalf of bona
fide retail customers, and not the RMOs own trading account.
Furthermore, the requirement that RMOs have in place policies and
procedures reasonably designed to ensure compliance with Rule 11.24(h)
will also help to ensure that RMOs are cognizant of their regulatory
obligations, thereby better ensuring their compliance with Rule
11.24(h). Additionally, Rule 11.24(b)(6)'s requirement that RMOs also
have policies and procedures in place reasonably designed to ensure
that RMOs can, upon request, provide the Exchange with documentation of
their compliance with Rule 11.24(h) will help to ensure the Exchange
can properly surveil and regulate its RMOs.
Finally, the Exchange also believes that this proposal is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers. As noted above, while the proposed definition will
help to ensure that only bona fide retail customers receive the
benefits afforded to Retail Orders, the segmentation afforded Retail
Orders is not a novel concept in the securities market. The Commission
has long recognized that U.S. capital markets should be structured with
the interests of retail customers in mind \43\ and recently proposed a
series of rules designed, in part, to attempt to bring order flow back
to the exchanges from off-exchange trading venues.\44\ Indeed, the
proposed amendments are substantially similar those approved by the
Commission for EDGX with differences only to account for the Exchange's
existing rule text and details and descriptions included in the
Exchange's Rules but not in the applicable Rules of EDGX.\45\
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\43\ 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>.
\44\ See Securities Exchange Act Release No. 96495 (December 14,
2022), 88 FR 128 (January 3, 2023) (``Order Competition Rule'');
Securities Exchange Act Release No. 96494 (December 14, 2022), 87 FR
80266 (December 29, 2022) (``Tick Size Proposal''); 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 notes that while such proposals have since been
withdrawn by the Commission, the underlying principles of investor
protection and protection of the interests of retail investors,
remain a critical focus of the SEC, today.
\45\ Supra note 7.
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Additionally, while certain RMOs may elect to trade principally and
other RMOs may choose not to do so, the Exchange is not privy to such
decision making and the Exchange does not dictate how RMOs may choose
to enhance the execution quality of their Retail Orders. Just as some
RMOs choosing to enter their Retail Orders onto the Exchange with more
marketable or more conservative limit prices is non-discriminatory, the
mere fact that the Exchange now seeks to permit an RMO to trade
principally should not raise such concerns. Moreover, any RMO that
satisfies the requirements of Rule 11.24(h) may enter Retail Orders
onto the Exchange in a principal capacity, regardless of their size or
trading volume. Likewise, trading principally is not a requirement to
enter orders onto the Exchange as principal, and RMOs are free to do
so, or not, consistent with their business models and order handling
practices.
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 intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. The Exchange
believes the proposed amendment will help to enhance the submission of
Retail Orders to the Exchange by providing RMOs with additional
flexibility in how they choose to execute their retail customers'
orders on the Exchange. In turn, greater overall order flow and trading
opportunities benefits all market participants on the Exchange. An
increase in RMO activity and liquidity providing orders will serve to
enhance the Exchange's available liquidity. Deeper liquidity pools
will, in turn, enhance price discovery, as well as price improvement
opportunities for retail customers as liquidity providers compete for
retail executions. Liquidity providers also benefit by being able to
interact with retail order flow that is often executed off-exchange,
and therefore generally inaccessible to those trading in the lit
markets.
While the proposed definition will help to ensure that only bona
fide retail customers receive the benefits afforded to Retail Orders,
the segmentation afforded Retail Orders is not a novel concept in the
securities market. The Commission has long recognized that U.S. capital
markets should be structured with the interests of retail customers in
mind \46\ and has proposed a series of rules designed, in part, to
attempt to bring order flow back to the exchanges from off-exchange
trading venues.\47\ In this regard, the proposed amendments should not
result in any new or novel issues to be considered by the Commission or
that have not already been contemplated by today's market participants.
For example, many exchanges, including the Exchange's affiliate, EDGX,
offer retail price improvement programs designed to attract retail
order flow to regulated markets and provide retail order flow with
price improvement
[[Page 12465]]
opportunities.\48\ The aforementioned retail price improvement programs
provide benefits to Retail Orders not afforded to other customers by
segmenting retail order flow from traditional order flow. Indeed, the
proposed amendments are substantially similar those approved by the
Commission for EDGX with differences only to account for the Exchange's
existing rule text and details and descriptions included in the
Exchange's Rules but not in the applicable EDGX Rules.\49\ The
Exchange's proposal, like that approved by the Commission for EDGX,
does not encourage additional segmentation, but rather seeks to enhance
existing benefits to retail customers by codifying that RMOs may
utilize a principal order type in order to provide additional post-
execution price improvement to Retail Orders.
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\46\ Supra note 40.
\47\ Supra note 41.
\48\ See, e.g., NYSE National, Inc. Rule 7.44 (Retail Liquidity
Program); Investors Exchange Inc. Rule 11.232 (Retail Price
Improvement Program).
\49\ Supra note 7.
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Additionally, the Exchange does not believe its proposal unfairly
discriminates between Retail Orders--i.e., between Retail Orders that
are executed principally, and Retail Orders executed in an agency or
riskless principal capacity. While Retail Orders entered in a principal
capacity must satisfy additional requirements compared to Retail Orders
entered as agent or riskless principal, these requirements are designed
to ensure that the benefits of the Exchange's Retail Order program
accrue only to bona fide retail brokers and their retail customers.
Moreover, treating Retail Orders entered principally in the same manner
as Retail Orders entered as agent or riskless principal equally does
not unfairly discriminate between Retail Orders. The choice to enter a
Retail Order principally or as agent or riskless principal, does not
provide a Retail Order with any additional on-Exchange benefits--i.e.,
whether entered as principal, riskless principal, or agent, the Retail
Order will be handled in the same manner. The additional price
improvement received by principal Retail Orders is fully accrued off-
Exchange, when the RMO chooses to provide additional price improvement
to their retail customers post-execution on the Exchange.
The Exchange further believes that the proposed rule change will
increase intermarket competition by enabling the Exchange to better
compete with other exchanges and off-exchange trading venues for retail
order flow. The Commission has spoken about ``increasing competition
and enhancing the direct exposure of individual customer orders to a
broader spectrum of market participants'' \50\ and the Exchange
believes its proposed amendment to the definition of Retail Order will
help to encourage RMOs to submit additional retail order flow to the
Exchange. In turn, retail customers will have additional opportunities
to receive executions on a transparent, regulated, national securities
exchange in addition to the currently available off-exchange trading
venues, and could also create additional incentives for regulated
exchanges to develop additional liquidity programs designed at
providing additional benefits to retail customers, thus promoting
additional intermarket competition.
---------------------------------------------------------------------------
\50\ See Order Competition Rule at 178.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \51\ and Rule 19b-4(f)(6) thereunder.\52\
Because the proposed rule change does not: (i) significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \53\ and Rule 19b-
4(f)(6)(iii) thereunder.\54\
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\51\ 15 U.S.C. 78s(b)(3)(A)(iii).
\52\ 17 CFR 240.19b-4(f)(6).
\53\ 15 U.S.C. 78s(b)(3)(A).
\54\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \55\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\56\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the Exchange
may provide RMOs with additional flexibility in how they choose to
execute their retail customers' orders on the Exchange. The Exchange
states that the proposed changes to Rule 11.24(a)(2) and 11.25(b)(6),
and the addition of proposed Rule 11.24(h), which imposes additional
requirements an RMO must comply with in order to enter Retail Orders as
principal, will help to increase competition among execution venues,
encourage additional on-exchange retail liquidity, and in turn,
increase the opportunities for retail customers to receive even greater
levels of price improvement from RMOs that trade principally and choose
to commit additional capital to their Retail Orders. For these reasons,
and because the proposed rule change does not raise any new or novel
regulatory issues, the Commission finds that waiving the 30-day
operative delay is consistent with the protection of investors and the
public interest. Accordingly, the Commission hereby waives the 30-day
operative delay and designates the proposed rule change as operative
upon filing.\57\
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\55\ 17 CFR 240.19b-4(f)(6).
\56\ 17 CFR 240.19b-4(f)(6)(iii).
\57\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings under
Section 19(b)(2)(B) \58\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\58\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
[[Page 12466]]
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#0270776e672f616d6f6f676c7671427167612c656d74"><span class="__cf_email__" data-cfemail="750700191058161a1818101b0106350610165b121a03">[email protected]</span></a>. Please include
file number SR-CboeBYX-2026-005 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-2026-005. 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 filing 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-2026-005 and should be submitted
on or before April 3, 2026.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\59\
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\59\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-04895 Filed 3-12-26; 8:45 am]
BILLING CODE 8011-01-P
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