[Federal Register Volume 84, Number 94 (Wednesday, May 15, 2019)]
[Notices]
[Pages 21868-21889]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09966]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85811; File No. SR-BX-2019-011]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
of Proposed Rule Change To Make Permanent the Pilot Program for the
Exchange's Retail Price Improvement Program, Which Is Set To Expire on
June 30, 2019
May 9, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 26, 2019 Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to make permanent the pilot program for the
Exchange's Retail Price Improvement (``RPI'') Program (the ``Program''
or ``BX RPI Program''), which is set to expire the earlier of approval
of the filing to make this rule permanent or June 30, 2019.
The text of the proposed rule change is available on the Exchange's
website at http://nasdaqbx.cchwallstreet.com/, at the principal office
of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to make permanent the Exchange's pilot RPI
Program,\3\ currently scheduled to expire the earlier of approval of
the filing to make this rule permanent or June 30, 2019.
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\3\ Securities Exchange Act Release No. 73702 (November 28,
2014), 79 FR 72049 (December 4, 2014) (SR-BX-2014-048) (``RPI
Approval Order''). In addition to approving the RPI Program on a
pilot basis, the Commission granted the Exchange's request for
exemptive relief from Rule 612 of Regulation NMS, 17 CFR 242.612
(``Sub-Penny Rule''), which among other things prohibits a national
securities exchange from accepting or ranking orders priced greater
than $1.00 per share in an increment smaller than $0.01. See id. As
part of this filing, and pursuant to the Exchange's separate written
request, the Exchange also requests that the exemptive relief from
the Sub-Penny Rule be made permanent. See Letter from Jeffrey S.
Davis, Vice President and Deputy General Counsel, Nasdaq BX, Inc. to
Eduardo A. Aleman, Deputy Secretary, Securities and Exchange
Commission dated April 26, 2019.
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Background
In November 2014, the Commission approved the RPI Program on a
pilot basis.\4\ The Program is designed to attract retail order flow to
the Exchange, and allow such order flow to receive potential price
improvement. The Program is currently limited to trades occurring at
prices equal to or greater than $1.00 per share. Under the Program, a
class of market participant called a Retail Member Organization
(``RMO'') is eligible to submit certain retail order flow (``Retail
Orders'') \5\ to the Exchange. BX members (``Members'') are permitted
to provide potential price improvement for Retail Orders in the form of
non-displayed interest that is priced more aggressively than the
Protected National Best Bid or Offer (``Protected NBBO'').\6\
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\4\ See id.
\5\ A ``Retail Order'' is defined in BX Rule 4780(a)(2) by
referencing BX Rule 4702, and BX Rule 4702(b)(6) says it is an order
type with a non-display order attribute submitted to the Exchange by
an RMO. A Retail Order must be an agency order, or riskless
principal order that satisfies the criteria of FINRA Rule 5320.03.
The Retail Order must reflect trading interest of a natural person
with no change made to the terms of the underlying order of the
natural person with respect to price (except in the case of a market
order that is changed to a marketable limit order) or side of market
and that does not originate from a trading algorithm or any other
computerized methodology.
\6\ The term Protected Quotation is defined in Chapter XII, Sec.
1(19) and has the same meaning as is set forth in Regulation NMS
Rule 600(b)(58). The Protected NBBO is the best-priced protected bid
and offer. Generally, the Protected NBBO and the national best bid
and offer (``NBBO'') will be the same. However, a market center is
not required to route to the NBBO if that market center is subject
to an exception under Regulation NMS Rule 611(b)(1) or if such NBBO
is otherwise not available for an automatic execution. In such case,
the Protected NBBO would be the best-priced protected bid or offer
to which a market center must route interest pursuant to Regulation
NMS Rule 611.
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The Program was approved by the Commission on a pilot basis running
one-year from the date of implementation.\7\ The Commission approved
the Program on November 28, 2014.\8\ The Exchange implemented the
Program on December 1, 2014 and the pilot has since been extended for a
one-year period twice, as well as for a six-month period twice, with it
now scheduled to expire the earlier of approval of the filing to make
this rule permanent or June 30, 2019.\9\
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\7\ See RPI Approval Order, supra note 3 at 72053.
\8\ Id. at 72049.
\9\ See Securities Exchange Act Release No. 76490 (November 20,
2015), 80 FR 74165 (November 27, 2015) (SR-BX-2015-073); Securities
Exchange Act Release No. 79446 (December 1, 2016), 81 FR 88290
(December 7, 2016) (SR-BX-2016-065); Securities Exchange Act Release
No. 82192 (December 1, 2017), 82 FR 57809 (December 7, 2017) (SR-BX-
2017-055); Securities Exchange Act Release No. 83539 (June 28,
2018), 83 FR 31203 (July 3, 2018) (SR-BX-2018-026); and Securities
Exchange Act Release No. 84847 (Dec. 18, 2018), 83 FR 66326 (Dec.
26, 2018) (SR-BX-2018-063).
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Specifically, BX Rule 4780 will be amended to delete 4780(h) that
says the Program is a pilot and that it is scheduled to expire the
earlier of
[[Page 21869]]
approval of the filing to make this rule permanent or June 30, 2019.
[sic] BX Rule 4780(g) will be amended to include at the end of the
subsection that the Program will be limited to securities whose Bid
Price on the Exchange is greater than or equal to $1.00 per share.
[sic] \10\
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\10\ The Commission notes that the Exchange is not proposing to
delete Rule 4780(h) in its entirety. Under the proposed rule change,
Rule 4780(h) will state, ``The Program will be limited to securities
whose Bid Price on the Exchange is greater than or equal to $1.00
per share.'' Rule 4780(g) will remain unchanged under the proposed
rule change.
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The SEC approved the Program pilot, in part, because it concluded,
``the Program is reasonably designed to benefit retail investors by
providing price improvement to retail order flow.'' \11\ The Commission
also found that ``while the Program would treat retail order flow
differently from order flow submitted by other market participants,
such segmentation would not be inconsistent with Section 6(b)(5) of the
Act, which requires that the rules of an exchange are not designed to
permit unfair discrimination.'' \12\ As the SEC acknowledged, the
retail order segmentation was designed to create greater retail order
flow competition and thereby increase
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\11\ See RPI Approval Order, supra note 3 at 72051.
\12\ Id.
[GRAPHIC] [TIFF OMITTED] TN15MY19.001
the amount of this flow to transparent and well-regulated exchanges.
This would help to ensure that retail investors benefit from
competitive price improvement that exchange-based liquidity providers
provide.
As discussed below, the Exchange believes that the Program supports
these conclusions. The Program does not harm retail investors. In fact,
so far it has provided price improvement of more than $4 million since
inception to retail investors that they may not otherwise have
received. As a result, the Exchange believes that it is therefore
appropriate to make the pilot Program permanent.
Definitions
The Exchange adopted the following definitions under BX Rule 4780.
First, the term ``Retail Member Organization'' (or ``RMO'') is defined
as a Member (or a division thereof) that has been approved by the
Exchange to submit Retail Orders.
Second, the term ``Retail Order'' is defined by BX Rule
4702(b)(6)(A) as an order type with a non-display order attribute
submitted to the Exchange by an RMO. A Retail Order must be an agency
Order, or riskless principal Order that satisfies the criteria of FINRA
Rule 5320.03. The Retail Order must reflect trading interest of a
natural person with no change made to the terms of the underlying order
of the natural person with respect to price (except in the case of a
market order that is changed to a marketable limit order) or side of
market and that does not originate from a trading algorithm or any
other computerized methodology.\13\
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\13\ See supra note 5.
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The criteria set forth in FINRA Rule 5320.03 adds additional
precision to the definition of ``Retail Order'' by clarifying that an
RMO may enter Retail Orders on a riskless principal basis, provided
that (i) the entry of such riskless principal orders meet the
requirements of FINRA Rule 5320.03, including that the RMO maintains
supervisory systems to reconstruct, in a time[hyphen]sequenced manner,
all Retail Orders that are entered on a riskless principal basis; and
(ii) the RMO submits a report, contemporaneously with the execution of
the facilitated order, that identifies the trade as riskless principal.
The term ``Retail Price Improving Order'' or ``RPI Order'' or
collectively ``RPI interest'' is defined as an Order Type with a Non-
Display Order Attribute that is held on the Exchange Book in order to
provide liquidity at a price at least $0.001 better than the NBBO
through a special execution process described in Rule 4780. An RPI
Order may be entered in price increments of $0.001. An RPI Order will
be posted to the Exchange Book regardless of its price, but an RPI
Order may execute only against a Retail Order, and only if its price is
at least $0.001 better than the NBBO.\14\ RPI orders can
[[Page 21870]]
be priced either as an explicitly priced limit order or implicitly
priced as relative to the NBBO with an offset of at least $0.001.
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\14\ Exchange systems prevent Retail Orders from interacting
with RPI Orders if the RPI Order is not priced at least $0.001
better than the Protected NBBO. The Exchange notes, however, that
price improvement of $0.001 would be a minimum requirement and
Members can enter RPI Orders that better the Protected NBBO by more
than $0.001. Exchange systems accept RPI Orders without a minimum
price improvement value; however, such interest execute at its floor
or ceiling price only if such floor or ceiling price is better than
the Protected NBBO by $0.001 or more.
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The price of an RPI Order with an offset is determined by a
Member's entry of the following into the Exchange: (1) RPI buy or sell
interest; (2) an offset from the Protected NBBO, if any; and (3) a
ceiling or floor price. RPI Orders submitted with an offset are similar
to other peg orders available to Members in that the order is tied or
``pegged'' to a certain price, and would have its price automatically
set and adjusted upon changes in the Protected NBBO, both upon entry
and any time thereafter. RPI sell or buy interest typically are entered
to track the Protected NBBO, that is, RPI Orders typically are
submitted with an offset. The offset is a predetermined amount by which
the Member is willing to improve the Protected NBBO, subject to a
ceiling or floor price. The ceiling or floor price is the amount above
or below which the Member does not wish to trade. RPI Orders in their
entirety (the buy or sell interest, the offset, and the ceiling or
floor) will remain non-displayed. The Exchange also allows Members to
enter RPI Orders that establish the exact limit price, which is similar
to a non-displayed limit order currently accepted by the Exchange
except the Exchange accepts sub-penny limit prices on RPI Orders in
increments of $0.001. The Exchange monitors whether RPI buy or sell
interest, adjusted by any offset and subject to the ceiling or floor
price, is eligible to interact with incoming Retail Orders.
Members and RMOs may enter odd lots, round lots or mixed lots as
RPI Orders and as Retail Orders respectively. As discussed below, RPI
Orders are ranked and allocated according to price and time of entry
into the BX trading system (``System'') consistent with BX Rule 4757
and therefore without regard to whether the size entered is an odd lot,
round lot or mixed lot amount. Similarly, Retail Orders interact with
RPI Orders and other price-improving orders available on the Exchange
(e.g., non-displayed liquidity priced more aggressively than the NBBO)
\15\ according to the Priority and Allocation rules of the Program and
without regard to whether they are odd lots, round lots or mixed lots.
Finally, Retail Orders are designated as Type 1 or Type 2 without
regard to the size of the order.
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\15\ Other price improving liquidity may include, but is not
limited to: Booked non-displayed orders with a limit price that is
more aggressive than the then-current NBBO; midpoint-pegged orders
(which are by definition non-displayed and priced more aggressively
than the NBBO); non-displayed orders pegged to the NBBO with an
aggressive offset, as defined in BX Rule 4780(a)(4) as Other Price
Improving Contra-Side Interest. Orders that do not constitute other
price improving liquidity include, but are not limited to: Orders
with a time-in-force instruction of IOC; displayed orders; limit
orders priced less aggressively than the NBBO.
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RPI Orders interact with Retail Orders as follows. Assume a Member
enters RPI sell interest with an offset of $0.001 and a floor of $10.10
while the Protected NBO is $10.11. The RPI Order could interact with an
incoming buy Retail Order at $10.109. If, however, the Protected NBO
was $10.10, the RPI Order could not interact with the Retail Order
because the price required to deliver the minimum $0.001 price
improvement ($10.099) would violate the Member's floor of $10.10. If a
Member otherwise enters an offset greater than the minimum required
price improvement and the offset would produce a price that would
violate the Member's floor, the offset would be applied only to the
extent that it respects the Member's floor. By way of illustration,
assume RPI buy interest is entered with an offset of $0.005 and a
ceiling of $10.112 while the Protected NBBO is at $10.11. The RPI Order
could interact with an incoming sell Retail Order at $10.112, because
it would produce the required price improvement without violating the
Member's ceiling, but it could not interact above the $10.112 ceiling.
Finally, if a Member enters an RPI Order without an offset (i.e., an
explicitly priced limit order), the RPI Order will interact with Retail
Orders at the level of the Member's limit price as long as the minimum
required price improvement is produced. Accordingly, if RPI sell
interest is entered with a limit price of $10.098 and no offset while
the Protected NBBO is $10.11, the RPI Order could interact with the
Retail Order at $10.098, producing $0.012 of price improvement. The
System will not cancel RPI interest when it is not eligible to interact
with incoming Retail Orders; such RPI interest will remain in the
System and may become eligible again to interact with Retail Orders
depending on the Protected NBBO. RPI Orders are not accepted during
halts.
RMO Qualifications and Approval Process
Under BX Rule 4780(b), any Member may qualify as an RMO if it
conducts a retail business or routes retail orders on behalf of another
broker-dealer. For purposes of BX Rule 4780, conducting a retail
business shall include carrying retail customer accounts on a fully
disclosed basis. Any Member that wishes to obtain RMO status is
required to submit: (i) An application form; (ii) supporting
documentation sufficient to demonstrate the retail nature and
characteristics of the applicant's order flow \16\ and (iii) an
attestation, in a form prescribed by the Exchange, that substantially
all orders submitted by the Member as a Retail Order would meet the
qualifications for such orders under proposed BX Rule 4780(b). The
Exchange shall notify the applicant of its decision in writing.
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\16\ For example, a prospective RMO could be required to provide
sample marketing literature, website screenshots, other publicly
disclosed materials describing the retail nature of their order
flow, and such other documentation and information as the Exchange
may require to obtain reasonable assurance that the applicant's
order flow would meet the requirements of the Retail Order
definition.
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An RMO is required to have written policies and procedures
reasonably designed to assure that it will only designate orders as
Retail Orders if all requirements of a Retail Order are met. Such
written policies and procedures must require the Member to (i) exercise
due diligence before entering a Retail Order to assure that entry as a
Retail Order is in compliance with the requirements of this rule, and
(ii) monitor whether orders entered as Retail Orders meet the
applicable requirements. If the RMO represents Retail Orders from
another broker-dealer customer, the RMO's supervisory procedures must
be reasonably designed to assure that the orders it receives from such
broker-dealer customer that it designates as Retail Orders meet the
definition of a Retail Order. The RMO must (i) obtain an annual written
representation, in a form acceptable to the Exchange, from each broker-
dealer customer that sends it 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 its broker-
dealer customers' Retail Order flow continues to meet the applicable
requirements.\17\
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\17\ The Exchange or another self-regulatory organization on
behalf of the Exchange will review an RMO's compliance with these
requirements through an exam based review of the RMO's internal
controls.
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[[Page 21871]]
If the Exchange disapproves the application, the Exchange provides
a written notice to the Member. The disapproved applicant could appeal
the disapproval by the Exchange as provided in proposed BX Rule
4780(d), and/or reapply for RMO status 90 days after the disapproval
notice is issued by the Exchange. An RMO also could voluntarily
withdraw from such status at any time by giving written notice to the
Exchange.
Failure of RMO To Abide by Retail Order Requirements
BX Rule 4780(c) addresses an RMO's failure to abide by Retail Order
requirements. If an RMO designates orders submitted to the Exchange as
Retail Orders and the Exchange determines, in its sole discretion, that
those orders fail to meet any of the requirements of Retail Orders, the
Exchange may disqualify a Member from its status as an RMO. When
disqualification determinations are made, the Exchange provides a
written disqualification notice to the Member. A disqualified RMO may
appeal the disqualification as provided in proposed BX Rule 4780(d)
and/or reapply for RMO status 90 days after the disqualification notice
is issued by the Exchange.
Appeal of Disapproval or Disqualification
BX Rule 4780(d) provides appeal rights to Members. If a Member
disputes the Exchange's decision to disapprove it as an RMO under BX
Rule 4780(b) or disqualify it under BX Rule 4780(c), such Member
(``appellant'') may request, within five business days after notice of
the decision is issued by the Exchange, that the Retail Price
Improvement Program Panel (``RPI Panel'') review the decision to
determine if it was correct.
The RPI Panel consists of the Exchange's Chief Regulatory Officer
(``CRO''), or a designee of the CRO, and two officers of the Exchange
designated by the Chief Executive Officer of BX. The RPI Panel reviews
the facts and render a decision within the time frame prescribed by the
Exchange. The RPI Panel may overturn or modify an action taken by the
Exchange and all determinations by the RPI Panel constitute final
action by the Exchange on the matter at issue.
Retail Liquidity Identifier
Under BX Rule 4780(e), the Exchange disseminates an identifier when
RPI interest priced at least $0.001 better than the Exchange's
Protected Bid or Protected Offer for a particular security is available
in the System (``Retail Liquidity Identifier''). The Retail Liquidity
Identifier is disseminated through consolidated data streams (i.e.,
pursuant to the Consolidated Tape Association Plan/Consolidated
Quotation System, or CTA/CQS, for Tape A and Tape B securities, and The
Nasdaq Stock Market, LLC (``Nasdaq'') UTP Plan for Tape C securities)
as well as through proprietary Exchange data feeds.\18\ The Retail
Liquidity Identifier reflects the symbol and the side (buy or sell) of
the RPI interest, but does not include the price or size of the RPI
interest. In particular, CQS and UTP quoting outputs include a field
for codes related to the Retail Liquidity Identifier. The codes
indicate RPI interest that is priced better than the Exchange's
Protected Bid or Protected Offer by at least the minimum level of price
improvement as required by the Program.
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\18\ The Exchange notes that the Retail Liquidity Identifier for
Tape A and Tape B securities are disseminated pursuant to the CTA/
CQS Plan. The identifier is also available through the consolidated
public market data stream for Tape C securities. The processor for
the Nasdaq UTP quotation stream disseminates the Retail Liquidity
Identifier and analogous identifiers from other market centers that
operate programs similar to the RPI Program.
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Retail Order Designations
Under BX Rule 4780(f), an RMO can designate how a Retail Order
interacts with available contra-side interest as provided in Rule 4702.
A Type 1-designated Retail Order will attempt to execute against
RPI Orders and any other orders on the Exchange Book with a price that
is (i) equal to or better than the price of the Type-1 Retail Order and
(ii) at least $0.001 better than the NBBO. A Type-1 Retail Order is not
routable and will thereafter be cancelled.
A Type 2-designated Retail Order will first attempt to execute
against RPI Orders and any other orders on the Exchange Book with a
price that is (i) equal to or better than the price of the Type-2
Retail Order and (ii) at least $0.001 better than the NBBO and will
then attempt to execute against any other order on the Exchange Book
with a price that is equal to or better than the price of the Type-2
Retail Order, unless such executions would trade through a Protected
Quotation. A Type-2 Retail Order may be designated as routable.
Priority and Order Allocation
Under BX Rule 4780(g), competing RPI Orders in the same security
are ranked and allocated according to price then time of entry into the
System. Executions occur in price/time priority in accordance with BX
Rule 4757. Any remaining unexecuted RPI interest remain available to
interact with other incoming Retail Orders if such interest is at an
eligible price. Any remaining unexecuted portion of the Retail Order
will cancel or execute in accordance with BX Rule 4780(f). The
following example illustrates this method:
Protected NBBO for security ABC is $10.00-$10.05
Member 1 enters an RPI Order to buy ABC at $10.015 for 500
Member 2 then enters an RPI Order to buy ABC at $10.02 for 500
Member 3 then enters an RPI Order to buy ABC at $10.035 for
500
An incoming Retail Order to sell 1,000 shares of ABC for $10.00
executes first against Member 3's bid for 500 at $10.035, because it is
the best-priced bid, then against Member 2's bid for 500 at $10.02,
because it is the next best-priced bid. Member 1 is not filled because
the entire size of the Retail Order to sell 1,000 is depleted. The
Retail Order executes against RPI Orders in price/time priority.
However, assume the same facts above, except that Member 2's RPI
Order to buy ABC at $10.02 is for 100. The incoming Retail Order to
sell 1,000 executes first against Member 3's bid for 500 at $10.035,
because it is the best-priced bid, then against Member 2's bid for 100
at $10.02, because it is the next best-priced bid. Member 1 then
receives an execution for 400 of its bid for 500 at $10.015, at which
point the entire size of the Retail Order to sell 1,000 is depleted.
As a final example, assume the same facts as above, except that
Member 3's order was not an RPI Order to buy ABC at $10.035, but
rather, a non-displayed order to buy ABC at $10.03. The result would be
similar to the result immediately above, in that the incoming Retail
Order to sell 1,000 executes first against Member 3's bid for 500 at
$10.03, because it is the best-priced bid, then against Member 2's bid
for 100 at $10.02, because it is the next best priced bid. Member 1
then receives an execution for 400 of its bid for 500 at $10.015, at
which point the entire size of the Retail Order to sell 1,000 is
depleted.
All Regulation NMS securities traded on the Exchange are eligible
for inclusion in the RPI Program. The Exchange limits the Program to
trades occurring at prices equal to or greater than $1.00 per share.
Toward that end, Exchange trade validation systems prevent the
interaction of RPI buy or sell interest (adjusted by any offset) and
Retail Orders at a price below $1.00 per
[[Page 21872]]
share.\19\ For example, if there is RPI buy interest tracking the
Protected NBB at $0.99 with an offset of $0.001 and a ceiling of $1.02,
Exchange trade validation systems would prevent the execution of the
RPI Order at $0.991 with a sell Retail Order with a limit of $0.99.
However, if the Retail Order was Type 2 as defined the Program,\20\ it
would be able to interact at $0.99 with liquidity outside the Program
in the Exchange's order book. In addition to facilitating an orderly
\21\ and operationally intuitive program, the Exchange believes that
limiting the Program to trades equal to or greater than $1.00 per share
enabled it better to focus its efforts to monitor price competition and
to assess any indications that data disseminated under the Program is
potentially disadvantaging retail orders. As part of that review, the
Exchange produced data throughout the pilot, which included statistics
about participation, the frequency and level of price improvement
provided by the Program, and any effects on the broader market
structure.
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\19\ As discussed above, the price of an RPI is determined by a
Member's entry of buy or sell interest, an offset (if any) and a
ceiling or floor price. RPI sell or buy interest typically tracks
the Protected NBBO.
\20\ Type 2 Retail Orders are treated as IOC orders that execute
against displayed and non-displayed liquidity in the Exchange's
order book where there is no available liquidity in the Program.
Type 2 Retail Orders can either be designated as eligible for
routing or as non-routable, as described above.
\21\ Given the proposed limitation, the Program would have no
impact on the minimum pricing increment for orders priced less than
$1.00 and therefore no effect on the potential of markets executing
those orders to lock or cross. In addition, the non-displayed nature
of the liquidity in the Program simply has no potential to disrupt
displayed, protected quotes. In any event, the Program would do
nothing to change the obligation of exchanges to avoid and reconcile
locked and crossed markets under NMS Rule 610(d).
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Rationale for Making the Program Pilot Permanent
The Exchange established the RPI Program in an attempt to attract
retail order flow to the Exchange by providing an opportunity price
improvement to such order flow. The Exchange believes that the Program
promotes transparent competition for retail order flow by allowing
Exchange members to submit RPI Orders \22\ to interact with Retail
Orders. BX also believes that such competition promotes efficiency by
facilitating the price discovery process and generating additional
investor interest in trading securities, thereby promoting capital
formation and retail investment opportunities. The Program will
continue to be limited to trades occurring at prices equal to or
greater than $1.00 per share.
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\22\ A Retail Price Improvement Order is defined in BX Rule
4780(a)(3) by referencing BX Rule 4702 and BX Rule 4702(b)(5) says
that it is as an order type with a non-display order attribute that
is held on the Exchange Book in order to provide liquidity at a
price at least $0.001 better than the NBBO through a special
execution process described in Rule 4780.
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The Exchange believes, in accordance with its filing establishing
the pilot Program, which BX did ``produce data throughout the pilot,
which will include statistics about participation, the frequency and
level of price improvement provided by the Program, and any effects on
the broader market structure.'' \23\ The Exchange has fulfilled this
obligation through the reports and assessments it has submitted to the
Commission since the implementation of the pilot Program.
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\23\ See Securities Exchange Act Release No. 73410 (October 23,
2014), 79 FR 64447 at 64450 (SR-BX-2014-048).
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The SEC stated in the RPI Approval Order that the Program could
promote competition for retail order flow among execution venues, and
that this could benefit retail investors by creating additional well-
regulated and transparent price improvement opportunities for
marketable retail order flow, most of which is currently executed in
the Over-the-Counter (``OTC'') markets without ever reaching a public
exchange.\24\ The Exchange believes that the Program does not harm
retail investors and so far has provided price improvement of more than
$4 million since inception to retail investors that they may not
otherwise have received. The data demonstrates that the Program has
continued to grow over time and the Exchange has not detected any
negative impact to market quality. The Exchange also has not received
any complaints or negative feedback concerning the Program.
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\24\ RPI Approval Order, 79 FR at 72053.
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As seen in the table below, RMO orders and shares executed have
continued to rise since the introduction of the Program in December
2014. RMO executed share volume on BX accounted for 0.05% of total
consolidated volume in eligible U.S. listed securities in Q4 2017.
Despite its size relative to total consolidated trading, however, the
Program has continued to provide some price improvement to RMO orders
each month with total price improvement during market hours from the
start of the Program through May 2018 totaling over $4.3 million.
Retail orders are routed by sophisticated brokers using systems
that seek the highest fill rates and amounts of price improvement.
These brokers have many choices of execution venues for retail orders.
When they choose to route to the Program, they have determined that it
is the best opportunity for fill rate and price improvement at that
time.
----------------------------------------------------------------------------------------------------------------
Total RMO
Total RMO RMO shares price
Month orders (market executed improvement
hours) (market hours) (market hours)
----------------------------------------------------------------------------------------------------------------
Sep-14.......................................................... 0 0 $0
Oct-14.......................................................... 0 0 0
Nov-14.......................................................... 0 0 0
Dec-14.......................................................... 4,003 521,587 6,572
Jan-15.......................................................... 66,903 9,723,791 55,480
Feb-15.......................................................... 71,204 12,948,664 54,769
Mar-15.......................................................... 62,216 10,818,042 49,232
Apr-15.......................................................... 75,558 12,121,577 63,247
May-15.......................................................... 98,859 16,723,281 81,268
Jun-15.......................................................... 116,570 20,341,305 100,520
Jul-15.......................................................... 133,917 22,310,364 111,657
Aug-15.......................................................... 192,546 30,011,636 194,706
Sep-15.......................................................... 141,496 23,199,937 110,415
Oct-15.......................................................... 148,414 25,745,772 128,838
Nov-15.......................................................... 123,267 20,788,967 120,037
Dec-15.......................................................... 145,022 24,414,783 140,444
[[Page 21873]]
Jan-16.......................................................... 162,025 30,010,815 181,781
Feb-16.......................................................... 135,409 27,794,644 173,988
Mar-16.......................................................... 93,729 17,688,230 88,900
Apr-16.......................................................... 82,819 15,269,513 78,241
May-16.......................................................... 70,192 13,336,738 71,145
Jun-16.......................................................... 76,092 15,356,152 74,035
Jul-16.......................................................... 65,121 13,532,803 59,305
Aug-16.......................................................... 78,611 16,412,113 64,231
Sep-16.......................................................... 84,240 17,368,907 46,792
Oct-16.......................................................... 146,207 30,827,361 60,624
Nov-16.......................................................... 103,046 19,744,407 60,391
Dec-16.......................................................... 168,638 31,003,843 76,025
Jan-17.......................................................... 140,203 23,474,999 58,887
Feb-17.......................................................... 139,447 26,643,083 59,372
Mar-17.......................................................... 161,154 30,595,963 73,250
Apr-17.......................................................... 126,665 26,587,486 59,141
May-17.......................................................... 143,927 31,368,371 78,979
Jun-17.......................................................... 332,266 71,569,426 405,933
Jul-17.......................................................... 210,309 39,061,892 155,669
Aug-17.......................................................... 266,762 51,442,492 255,999
Sep-17.......................................................... 154,846 29,831,646 69,634
Oct-17.......................................................... 205,399 39,409,251 95,051
Nov-17.......................................................... 370,064 94,703,209 169,738
Dec-17.......................................................... 219,528 49,424,240 102,082
Jan-18.......................................................... 248,419 47,080,453 113,956
Feb-18.......................................................... 263,576 40,979,066 100,148
Mar-18.......................................................... 597,460 40,896,277 98,779
Apr-18.......................................................... 1,095,396 41,067,806 97,015
May-18.......................................................... 1,031,527 31,843,167 81,199
-----------------------------------------------
Total....................................................... 8,353,052 1,193,994,059 4,327,477
----------------------------------------------------------------------------------------------------------------
[GRAPHIC] [TIFF OMITTED] TN15MY19.002
[[Page 21874]]
[GRAPHIC] [TIFF OMITTED] TN15MY19.003
The table below shows that between April 2017 and May 2018, roughly
50% of RMO orders were for 100 shares or less and around 70% of orders
were for 300 shares or less. Larger orders of 7,500 shares or more
accounted for approximately 2%, ranging from 0.62% to 3.09%. Although
large order were a small percentage of total orders, they make up a
significant portion of total shares ordered, ranging from 21.11% to
46.22%. Orders of 300 shares or less, which accounted for the vast
majority of total RMO orders, accounted for only between 4.81% and
15.38% of total shares ordered.
Distribution of RMO Orders by Order Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
<=100 101-300 301-500 501-1,000 1,001-2,000 2,001-4,000 4,001-7,500 7,500-15,000 >15,000
Month (percent) (percent) (percent) (percent) (percent) (percent) (percent) (percent) (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Apr-17......................... 49.50 18.53 8.67 9.47 5.69 3.84 2.24 1.38 0.69
May-17......................... 46.55 23.79 8.25 8.42 5.26 3.71 2.12 1.29 0.62
Jun-17......................... 59.60 13.26 6.62 7.91 4.75 3.48 2.36 1.52 0.51
Jul-17......................... 57.30 14.61 7.32 8.50 5.17 3.28 2.00 1.19 0.65
Aug-17......................... 56.38 15.19 7.54 8.49 5.23 3.41 1.91 1.22 0.63
Sep-17......................... 53.16 16.29 7.69 8.79 5.71 4.05 2.22 1.38 0.70
Oct-17......................... 54.28 16.00 7.46 8.65 5.64 3.84 2.15 1.33 0.66
Nov-17......................... 47.76 15.30 8.19 10.23 7.38 5.10 2.95 2.04 1.06
Dec-17......................... 48.66 15.30 8.27 10.34 6.99 4.82 2.79 1.87 0.98
Jan-18......................... 53.60 14.93 7.73 9.20 5.98 4.04 2.28 1.53 0.71
Feb-18......................... 58.44 14.58 7.14 8.02 4.93 3.29 1.91 1.14 0.55
Mar-18......................... 55.29 17.97 8.63 8.38 5.12 2.64 1.07 0.61 0.28
Apr-18......................... 54.52 19.12 9.04 8.31 5.02 2.50 0.87 0.42 0.19
May-18......................... 50.44 20.21 9.89 9.10 5.77 2.88 0.96 0.50 0.26
--------------------------------------------------------------------------------------------------------------------------------------------------------
Distribution of RMO Shares Ordered by Order Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
<=100 101-300 301-500 501-1,000 1,001-2,000 2,001-4,000 4,001-7,500 7,500-15,000 >15,000
Month (percent) (percent) (percent) (percent) (percent) (percent) (percent) (percent) (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Apr-17......................... 3.04 4.63 4.42 8.78 10.06 12.89 13.89 16.06 26.23
May-17......................... 3.28 6.49 4.49 8.34 9.98 13.38 14.28 16.05 23.71
Jun-17......................... 2.47 3.78 3.95 8.89 10.15 13.74 17.06 20.07 19.88
Jul-17......................... 2.82 4.20 4.36 9.31 10.78 12.94 14.44 16.47 24.67
Aug-17......................... 2.80 4.28 4.42 9.21 10.84 13.21 13.55 16.63 25.08
Sep-17......................... 2.88 4.16 3.98 8.36 10.50 14.04 14.17 16.78 25.14
Oct-17......................... 2.89 4.31 4.09 8.73 11.02 14.04 14.49 17.11 23.32
Nov-17......................... 1.80 3.01 3.26 7.48 10.45 13.51 14.27 18.89 27.33
Dec-17......................... 2.00 3.17 3.48 8.02 10.45 13.46 14.18 18.35 26.91
[[Page 21875]]
Jan-18......................... 2.50 3.78 4.01 8.82 11.05 13.94 14.30 18.35 23.26
Feb-18......................... 3.25 4.52 4.52 9.34 11.08 13.87 14.53 16.86 22.02
Mar-18......................... 5.73 6.96 6.80 12.44 14.90 14.65 11.00 12.34 15.17
Apr-18......................... 7.27 8.11 7.84 13.68 16.23 15.46 10.29 9.51 11.61
May-18......................... 6.31 7.54 7.50 13.09 16.40 15.66 10.00 9.80 13.70
--------------------------------------------------------------------------------------------------------------------------------------------------------
Distribution of RMO Shares Executed by Order Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
<=100 101-300 301-500 501-1,000 1,001-2,000 2,001-4,000 4,001-7,500 7,500-15,000 >15,000
Month (percent) (percent) (percent) (percent) (percent) (percent) (percent) (percent) (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Apr-17......................... 11.39 15.32 11.28 16.25 12.77 10.87 9.27 9.25 3.61
May-17......................... 10.86 20.10 10.47 13.77 11.37 10.58 8.96 9.44 4.45
Jun-17......................... 7.65 10.05 8.48 14.31 11.28 11.85 12.00 18.69 5.68
Jul-17......................... 10.07 12.67 10.18 15.57 12.94 11.79 9.97 10.27 6.56
Aug-17......................... 9.93 12.98 10.89 17.05 14.16 11.94 9.38 8.23 5.45
Sep-17......................... 11.36 13.46 10.12 16.01 13.80 13.07 8.60 8.61 4.97
Oct-17......................... 10.83 13.37 10.07 16.40 14.46 12.48 9.47 7.96 4.96
Nov-17......................... 7.04 10.64 10.14 19.81 18.19 13.96 9.04 7.10 4.09
Dec-17......................... 8.25 11.27 10.37 19.49 17.05 13.33 8.82 7.13 4.28
Jan-18......................... 9.93 12.43 10.92 19.37 16.07 12.66 8.49 6.49 3.64
Feb-18......................... 12.63 14.31 11.81 19.45 15.07 11.22 6.81 5.55 3.16
Mar-18......................... 13.92 15.35 11.92 19.14 14.77 10.05 6.35 5.49 3.00
Apr-18......................... 14.81 15.76 11.86 18.35 13.47 10.21 6.75 5.41 3.39
May-18......................... 13.65 15.78 12.38 18.77 13.92 10.57 6.25 5.27 3.40
--------------------------------------------------------------------------------------------------------------------------------------------------------
The table below shows the average and median sizes of RMO removing
orders.
Average and Median RMO Sizes
------------------------------------------------------------------------
RMO taking order size
Year -------------------------------
Avg Median
------------------------------------------------------------------------
Apr-17.................................. 863 111
May-17.................................. 802 180
Jun-17.................................. 743 82
Jul-17.................................. 739 100
Aug-17.................................. 753 100
Sep-17.................................. 841 100
Oct-17.................................. 793 100
Nov-17.................................. 1,103 150
Dec-17.................................. 1,044 132
Jan-18.................................. 844 100
Feb-18.................................. 690 100
Mar-18.................................. 512 100
Apr-18.................................. 454 100
May-18.................................. 517 100
------------------------------------------------------------------------
The data provided by the Exchange describes a valuable service that
delivers some price improvement in a transparent and well-regulated
environment. The Program represents just a fraction of retail orders,
most of which are executed off-exchange by a wide range of order
handling services that have considerably more market share and which
operate pursuant to different rules and regulatory requirements. BX
found no data or received any customer feedback that indicated any
negative impact of the Program on overall market quality or for retail
investors.
As discussed herein, the Program is a minor participant in the
overall market to price improve marketable retail order flow. As the
Exchange has noted, although participation was low, retail investors
that participated in the Program received price improvement on their
orders, which was one of the stated goals of the Program. The Exchange,
therefore, believes that this pilot data supports making the Program
permanent.
As discussed more fully below, the reports and assessments provided
by the Exchange to the SEC have covered (i) the economic impact of the
Program on the entire market; (ii) the economic impact of the Program
on execution quality; (iii) whether only eligible participants are
accessing Program liquidity; (iv) whether the Program is attracting
retail participants; (v) the net benefits of the Program on
participants; (vi) the overall success in achieving intended benefits;
and (vii) whether the Program can be improved.
[[Page 21876]]
1. Economic Impact of the RPI Program on the Entire Market
The following table illustrates the level of volume done through
the Program relative to consolidated volume. The columns labeled `Daily
Results' show the distribution of the percentage of RPI to consolidated
volume for all stock/date combinations during 2017-2018. Only stock/
date combinations with positive consolidated volume are represented.
The table shows that the overwhelming number of stock/date combinations
are those in which BX RPI volume was less than 0.01% of consolidated
volume. In most of these cases, BX RPI volume was zero. In only a
comparative handful of cases does the percentage amount to a
substantial portion of the security's volume.
The columns labeled `Two-Year Aggregate' present results for stocks
summed over the entire two-year period (sum of RPI Program volume to
sum of consolidated volume). Only stocks listed during the entire two
years are represented. Virtually all stocks have RPI volume less than
0.5% of consolidated volume.
----------------------------------------------------------------------------------------------------------------
Daily results Two-year aggregate
Distribution ---------------------------------------------------------------
Count Percentage Count Percentage
----------------------------------------------------------------------------------------------------------------
>50%............................................ 22 0.0005 0 0.0000
25%-50%......................................... 44 0.0011 0 0.0000
10%-25%......................................... 368 0.0090 0 0.0000
5%-10%.......................................... 1,444 0.0355 0 0.0000
1%-5%........................................... 25,730 0.6321 0 0.0000
0.75%-1%........................................ 11,835 0.2907 4 0.0542
0.50%-0.75%..................................... 22,413 0.5506 10 0.1354
0.25%-0.50%..................................... 56,130 1.3789 91 1.2321
0.10%-0.25%..................................... 111,937 2.7499 559 7.5684
0.05%-0.10%..................................... 105,651 2.5955 951 12.8757
0.01%-0.05%..................................... 220,649 5.4206 3,181 43.0680
<0.01%.......................................... 3,514,320 86.3354 2,590 35.0663
----------------------------------------------------------------------------------------------------------------
Difference in Difference Analysis
The aim of this analysis was to compare the values of a set of
general market metrics prior to the December 2014 introduction of the
Program to those prevailing after. The Exchange follows what is
commonly termed the `difference-in-difference' approach (``DnD''). A
DnD analysis involves identifying a group of subjects (stocks in this
case) that receive a given `treatment.' In this case, the `treatment'
is the introduction of the BX RPI Program. The Exchange would then
observe the change (difference) in a set of empirical indicia of market
quality, before and after Program introduction. The analysis is
enhanced by observing the intertemporal change in the same indicia for
a set of stocks that did not receive the treatment. The non-treated
stocks would serve as `controls.' The impact of the Program could
therefore be assessed by comparing the pre/post changes in the treated
stocks with those from the control stocks, hence the difference in
differences. Observed changes in the control stocks would account for
environmental effects, such as changes in general market volatility,
that are unrelated to the introduction of the BX RPI Program.
The RPI introduction in December 2014 applied to all stocks traded
on BX. Thus, control stocks in the strict sense are not available. The
Exchange applies therefore a fallback approach, in which it identifies
stocks with relatively high levels of RPI participation and use these
as the `treatment' stocks. Those for which Program participation was
light serve as the `control' stocks. The approach suffers from the
limitation that Program participation is a determined by endogenous
choice. It is possible that stocks with high levels of participation
are systematically different from those with low participation. That
is, the controls may be different from the treated stocks in important
ways. With this caveat in mind, it is nevertheless of interest to see
differences in outcomes between the two groups of stocks.
While the treatment and control stocks differ substantially in
terms of RPI participation, the validity of the DnD analysis is
enhanced to the extent that the two groups are otherwise as similar to
each other as possible. To achieve this objective, the Exchange first
breaks its analysis into two parts: One dealing with active securities,
the other with less active securities. The Exchange's set of active
securities are those with consolidated average daily volume (``CADV'')
of 500,000 shares or more both before and after Program introduction.
The less active group have CADV between 50,000 and 500,000 shares both
before and after Program introduction. Then, within each volume
grouping, the Exchange conducts a `matched pairs' process to identify a
smaller set of treatment and control groups that are as close to each
other as possible across three dimensions: Consolidated average daily
share volume, average price, and average time-weighted quoted NBBO
dollar spread. The values of these variables prior to Program
introduction were used.
Data from the pre-treatment period was obtained from trading during
the three months of September through November 2014. The Exchange looks
at two post-treatment periods. The first is based on trading from
January through December 2015. The second is based on trading from the
two years from January 2017 through December 2018. Note that December
2014, the month of Program introduction, is not used. Further, the
Exchange excluded data from trading days when the Exchange closed early
(such as the day after Thanksgiving) from the analysis.
The overall set of four DnD analyses can be represented and
hereafter labeled as follows:
------------------------------------------------------------------------
Post-period dates
CADV -------------------------------------
2015 2018
------------------------------------------------------------------------
500,000 or more................... I III
Between 50,000 and 500,000........ II IV
------------------------------------------------------------------------
For each of the four DnD analyses, the specific matched-pairs
process employed the following steps:
1. Daily averages for a set of variables are computed for each
stock (excluding preferred stocks and warrants) listed on Nasdaq or
NYSE for the appropriate pre/post time frames. For the 2017-2018 post-
period, stocks trading with a nickel tick size pursuant to the Tick
Size Pilot were excluded.
[[Page 21877]]
2. The initial universe of stocks are identified as having, in the
post period, the appropriate CADV, an average share price greater than
$2, positive average daily BX share volume, and being listed during at
least 80% of the designated time frame. To exclude stocks that may have
experienced stock splits or other extreme price movement, stocks with
the 95th and 5th percentile of daily price within the period differed
by more than a factor of two were excluded.
3. These stocks are ranked on the percentage of consolidated volume
that was done in the Program (in the post period). Selection of the
treatment stocks starts with the top 100 stocks in terms of post-
introduction RPI Program volume as percentage of consolidated volume
for the stock.
4. Pre-period data for the provisional treatment stocks is
obtained. During the pre-period, the treatment stocks must also have
the appropriate CADV level, an average price greater than $2, positive
BX share volume, listed during the entire pre-period, and not have
experienced extreme price movement (measured as described in condition
2 above). This process will generally result in fewer than 100
remaining treatment candidates.
5. The candidate control stocks are selected from those with low
RPI Program volume as a percentage of consolidated volume. For the two
high-volume analyses (I. and III.), the control stocks were selected
from stocks whose RPI volume percentage was less than one-tenth that of
the lowest RPI percentage from the treatment stocks. For the lower-
volume analyses (II. and IV.), the control stocks were selected from
stocks whose RPI volume percentage was less than one-fifth that of the
lowest RPI percentage from the treatment stocks. This change was made
to ensure a sufficient number of control stocks.
6. The control stocks must also have similar restrictions to the
treatment stocks in both pre- and post-periods: CADV in the appropriate
range, price greater than $2, positive BX volume, sufficient presence,
and no extreme price movements during the period.
7. Each treatment stock was compared with each candidate control
stock. Using pre-period data, a discrepancy score was computed as:
[GRAPHIC] [TIFF OMITTED] TN15MY19.004
where the subscripts Tr and Cn refer to Treatment and Control values
of the indicated variable. In words, the score is the sum of the
absolute value of the percentage differences in the indicated
values. The lower the score, the closer the match.
8. Each treatment stock was paired with the best possible match,
subject to the constraint that a given control stock could be used only
once (often termed `sampling without replacement').
9. Finally, only stock pairs with reasonable discrepancy scores
were retained, recognizing the trade-off between quality of the matches
and the resulting sample size. For the high-volume/2015 analysis (I.)
the discrepancy scores were 1.2 or lower. For the low-volume/2015
analysis (II,), the larger set of control stocks led to an upper bound
of 0.6 for the discrepancy score. For both analyses with 2017-18 as the
post period (III. and IV.) an upper bound of 2.0 was used, due to a
smaller set of potential control stocks.
Once a set of matched pairs was determined for a given analysis,
the Exchange computed the DnD result using a standard linear regression
framework. A DnD regression model can be expressed as:
[gamma]it = [alpha] + [beta]1 DGrp + [beta]2 DPeriod + [beta]3
DGrp x DPrd + [epsi]it
where [gamma]it represents the metric of interest for
stock i in time period t (pre or post). The `dummy' variables DGrp
and DPrd are constructed such that DGrp = 1 when stock i is a
treatment stock, and zero otherwise. Variable Dprd has value = 1
when the observation is from the post period, zero otherwise. The
coefficient [beta]3 of the interaction term represents
the DnD result. Standard regression software provides both the
estimated coefficient as well as its standard error and t-statistic.
The level of statistical significance can be assessed using the t-
statistic.
The Exchange considered eight metrics of interest, all of which
were computed during standard 9:30 a.m.-4:00 p.m. (Eastern time)
trading hours:
The time-weighted NBBO quoted spread, measured in dollars;
The time-weighted NBBO relative (to the bid-ask midpoint)
quoted spread, measured in basis points;
The trade-weighted effective spread of all trades done on
BX, measured in dollars;
The trade-weighted relative effective spread of all trades
done on BX, measured in basis points;
As a measure of short-term volatility, the average high/
low range of consolidated trade prices during 5-minute windows. The
daily high/low range measure is divided by the VWAP each day to yield a
metric measured in percent;
As another measure of short-term volatility, the average
absolute change in consolidated trade-to-trade price changes. The
trade-to-trade measure is divided by the VWAP each day to yield a
metric measured in percent;
The average share volume market share of TRF volume,
including auctions and all trading hours; and
The average share volume market share of BX volume,
including auctions and all trading hours.
In assessing the results of the DnD analysis, two caveats are worth
bearing in mind. As shown above, BX RPI volume represents a very small
fraction of consolidated volume. Further, the Program was introduced at
a time when similar exchange-based retail programs were already in
place. Among those programs was Nasdaq's retail program, which was
discontinued at the time the BX RPI Program was introduced. To a large
extent, the BX RPI volume replaced that of Nasdaq.
It is also important to recognize that much, if not most,
marketable retail order flow is routed to off-exchange market makers.
For example, the Exchange examined Rule 606 disclosures from four
prominent retail brokerages: E-Trade, TD Ameritrade, Charles Schwab,
and Fidelity. For securities listed on the New York Stock Exchange LLC
(``NTSE'') in the fourth quarter of 2018, only Fidelity reported
routing any market orders to exchanges, and its total exchange
percentage was only 2.1%. This practice of routing retail marketable
orders to off-exchange venues has been in place for a long time, both
before and after the introduction of the Program.
Combining the smallness of the Program, the concurrent
discontinuation of the Nasdaq retail program, and the continuing
prevalence of off-exchange trading of retail orders, the incremental
impact of the Program on market quality generally would not be expected
to be large.
A second caveat stems from the way that the treatment and control
groups are created. The Exchange observes that some types of stocks
have higher BX RPI Program usage than others. For example,
[[Page 21878]]
consider Nasdaq- and NYSE-listed securities trading in 2015 with CADV
greater than 500,000 shares (a sample of 1,737 stocks, used in analysis
I.). The Exchange found the following concerning the percentage of BX
RPI volume relative to consolidated volume:
------------------------------------------------------------------------
RPI/consol.
Avg CADV of stock (percent)
------------------------------------------------------------------------
500,000-1,000,000....................................... 0.026
1,000,000-10,000,000.................................... 0.015
10,000,000+............................................. 0.010
------------------------------------------------------------------------
------------------------------------------------------------------------
RPI/consol.
Avg price level (percent)
------------------------------------------------------------------------
Less than $100.......................................... 0.017
$100-$200............................................... 0.032
$200-$500............................................... 0.074
$500+................................................... 0.127
------------------------------------------------------------------------
This sample shows higher Program percentages for less-active
stocks, and much higher percentages for higher-priced stocks. This
suggests that RPI usage across stocks does not randomly vary, but is
driven by certain stock characteristics, some of which may not be
directly observable.
As noted above, Rule 606 disclosures show that the majority of
retail market orders are routed off-exchange for execution. BX RPI
activity is therefore itself somewhat anomalous in the first place. Why
some retail flow reaches exchanges via the Program (or that of similar
exchange programs), and why it varies across stocks is not clear.
Since treatment and control stocks are determined on the basis of
observed RPI usage--resulting from participant choice--they may be
different in important ways. The DnD study attempts to take into
account differences in average share volume, price, and spread in the
pre-period. If, however, the two groups of stocks are nevertheless
still not properly fully matched, it is possible that results drawn
from the DnD may be spurious. `Spurious' in this context means a result
that is robust statistically, but nevertheless does not indicate the
impact of the intended factor. In other words, a spurious result is
caused by some extraneous factor.
Matching Summary
The full set of matched pairs data for each of the four analyses
will be provided below, but the following table provides summary
information. Shown are the number of matched pairs, and sample averages
for the three matching variables. Also shown is the average of the
discrepancy score used in the matching process.
Matched Pairs Averages
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Treatment Control
Analysis N ----------------------------------------------------------------------------------------------------------------------
RMO (percent) ADV Price Spread RMO (percent) ADV Price Spread Score
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
I............................................................. 44 0.0763 1,478,796 $50.79 $0.039 0.0033 1,464,376 $48.28 $0.031 0.492
II............................................................ 71 0.1534 156,902 26.92 0.062 0.0123 157,105 27.22 0.064 0.264
III........................................................... 41 0.0531 4,325,804 35.51 0.029 0.0023 3,329,018 38.94 0.019 0.812
IV............................................................ 49 0.0889 166,435 19.37 0.051 0.0082 179,551 23.95 0.046 0.684
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The table again illustrates the low level of Program participation,
even for the treatment stocks. The RMO percentages are especially low
for the higher volume samples (I and III). As intended, the RMO
percentages for the control stocks are much lower still, averaging at
least an order of magnitude lower than the treatment stocks.
Other than these differences, the pairs exhibit strong average
similarity in terms of the values of the pre-period matching variables.
It can be seen that the average quality of matches is lower for the
samples using 2017-18 as the post period (III and IV). As noted above,
the maximum allowable discrepancy score was increased for these
samples, needed to provide for a sample size similar to those of
samples I and II.
Regression Results
The following table provides the estimated coefficients for the DnD
regressions for the indicated market indicator and sample. In addition
to the estimated coefficient, the t-statistic is provided. This
statistic can be used to gauge the statistical significance of the
coefficient--the confidence that the true value of the coefficient is
different than zero. The t-statistics are accompanied, as appropriate,
with a set of asterisks indicating the associated level of
significance: * = 10%, ** = 5%, and *** = 1%.
It is useful to compare the results across the four samples to
assess their consistency.
Analysis Sample
--------------------------------------------------------------------------------------------------------------------------------------------------------
I. II. III. IV.
-------------------------------------------------------------------------------------------------------
Coeff t-stat Coeff t-stat Coeff t-stat Coeff t-stat
--------------------------------------------------------------------------------------------------------------------------------------------------------
NBBO Spreads:
Dollar...................................... $0.018 *** 3.16 $0.011 0.93 -$0.003 -0.31 -$0.030 * -1.91
bps......................................... 1.52 0.89 4.38 0.99 1.66 0.73 7.27 0.97
--------------------------------------------------------------------------------------------------------------------------------------------------------
BX Effective Spreads:
Dollar...................................... $0.014 *** 4.31 $0.008 1.32 -$0.001 -0.32 -$0.008 -1.45
bps......................................... 1.84 1.65 3.65 1.06 1.78 0.99 8.75 * 1.79
--------------------------------------------------------------------------------------------------------------------------------------------------------
Volatility:
Hi-Lo Range................................. -0.001% -0.02 0.008% 0.38 -0.014% -0.41 -0.022% -0.78
Trade-to-Trade.............................. 0.003% 0.99 0.009% 1.03 0.004% 1.19 0.023% 1.49
--------------------------------------------------------------------------------------------------------------------------------------------------------
Market Share Change:
TRF......................................... 2.86% 1.36 0.58% 0.24 3.13% 1.87* 1.75% 0.50
BX.......................................... 0.31% ** 2.23 0.42% ** 2.02 -0.56% *** -2.7 -0.16% -0.56
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 21879]]
Spreads
Four spread measures are analyzed: NBBO quoted spreads and BX
effective spreads, expressed in dollar and bps terms. The table above
shows substantial consistency between the NBBO quoted and BX effective
spread results across all samples.
Sample I. indicates increases in dollar quoted and effective
spreads of about 1\1/2\ cents. The results are statistically
significant. Relative (bps) spreads also increased about 1\1/2\ basis
points. The bps spread results do not meet the standards of statistical
significance, however. Compared to Sample I, Sample II shows increases
in dollar spreads of about the same amount and increases in bps spreads
of a higher amount, likely due to the fact that the Sample II stocks
tend to have lower share prices. None of the Sample II spread increases
meet the standard of statistical significance, however. Both samples
III and IV show small decreases in dollar spreads and increases in
relative spreads. None of the results from sample III are statistically
significant. From sample IV, one of the dollar spread decreases and one
of the relative spread increases indicate marginal statistical
significance.
Overall, the Exchange does not see sufficient consistency across
the four samples to conclude that the introduction of the Program
caused spreads to widen.
Volatility
Compared to the spread results, results on short-term volatility
are easier to characterize. Across the two metrics and four samples,
there is no evidence of a systematic increase or decrease in
volatility, some estimates are positive, some negative, and none meet
the standards of statistical significance.
Market Share
The market share coefficients are expressed in market share points.
For example, a value of 1% means that market share increased by one
point (e.g., 30% to 31%). The nearer-term samples I and II suggest
statistically significant increases in BX market share of about one-
third of a point. This increase may be partially reflective of the
transfer of Nasdaq's retail program to BX. The more distant-term
samples III and IV show, however, declines in BX share. The regressions
on TRF share all produce positive coefficients, though only one has any
level of statistical significance. Collectively, it can be safely
stated that the introduction of the BX RPI program did not work towards
decreasing TRF share. More likely what the results tell us is that the
treatment stocks with relatively high RMO volume also had high levels
of retail interest generally. As noted above, most retail flow is
executed off exchange, hence the increase in TRF share.
I. Active Stocks (CADV > 500,000) and Post-Period = 2015
For this sample, there were 44 matched pairs that emerged from this
process. The pairs, along with values of selected variables, pre- and
post-Program introduction, are shown as follows:
Table 1A--Retail Program Matched Sample CADV >500,000
[Sep-Nov 2014]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Treatment stocks Control stocks
--------------------------------------------------------------------------------------------------------------------------------------------------------
Avg sprd Avg sprd Avg sprd Avg sprd
Symbol ADV Avg price ($) (bps) Symbol ADV Avg price ($) (bps)
--------------------------------------------------------------------------------------------------------------------------------------------------------
ACAD............................ 1,301,549 $26.71 $0.035 13.20 RSPP............... 1,006,435 $25.41 $0.042 16.44
AFSI............................ 963,827 45.37 0.058 12.53 CNW................ 1,035,534 47.10 0.027 5.85
ALK............................. 1,421,387 48.80 0.025 5.26 AER................ 1,420,894 42.73 0.025 5.80
AVGO............................ 2,296,967 84.93 0.042 4.94 DLPH............... 2,274,323 67.10 0.022 3.28
BDX............................. 1,544,016 122.52 0.039 3.22 SIAL............... 1,139,858 128.25 0.034 2.81
CAMP............................ 712,958 18.53 0.027 14.71 MIK................ 633,004 18.48 0.032 17.24
CELG............................ 4,941,261 98.16 0.034 3.52 LYB................ 5,063,747 98.75 0.028 2.90
CI.............................. 1,621,670 95.17 0.033 3.45 MJN................ 1,416,148 98.05 0.033 3.41
CLX............................. 1,176,737 96.35 0.027 2.77 DTE................ 1,145,735 78.91 0.024 3.04
COST............................ 2,068,993 130.14 0.031 2.38 ITW................ 1,952,683 88.27 0.018 2.10
CRZO............................ 1,162,062 51.73 0.069 13.56 JAH................ 1,115,067 61.48 0.032 5.17
DXCM............................ 639,488 44.44 0.052 11.72 KMT................ 650,995 40.82 0.029 7.10
ENLK............................ 737,216 30.01 0.050 16.82 MYGN............... 756,758 36.29 0.054 14.74
FSC............................. 1,199,762 9.10 0.010 11.20 EXG................ 1,043,356 9.97 0.010 10.18
FSLR............................ 2,507,147 59.85 0.040 6.73 CAM................ 2,841,939 62.83 0.025 4.05
IBKR............................ 507,360 25.51 0.024 9.42 WERN............... 542,473 26.12 0.022 8.38
ICLR............................ 582,300 54.93 0.051 9.34 SLH................ 582,309 55.54 0.042 7.47
ISIS............................ 2,304,953 42.90 0.050 11.87 DO................. 2,028,802 37.29 0.026 6.93
JACK............................ 550,619 67.89 0.057 8.37 REG................ 509,779 57.69 0.031 5.39
LAZ............................. 704,069 50.59 0.045 9.02 HDB................ 834,887 49.84 0.025 5.12
MANH............................ 512,845 35.01 0.037 10.67 MR................. 610,957 30.32 0.030 9.83
MHK............................. 737,514 139.12 0.084 6.08 SLG................ 788,370 109.07 0.057 5.28
MNST............................ 1,194,231 96.92 0.051 5.33 EQT................ 1,625,380 91.54 0.059 6.48
NXPI............................ 4,256,770 68.85 0.031 4.48 CCI................ 3,275,501 80.56 0.024 2.93
NYMT............................ 1,596,486 7.76 0.010 12.98 PMCS............... 1,483,102 7.49 0.011 14.09
OLED............................ 709,659 31.24 0.045 14.50 FET................ 713,162 28.85 0.033 11.66
PSEC............................ 3,891,913 9.79 0.010 10.25 SLM................ 4,532,083 9.17 0.010 11.09
Q............................... 739,497 56.41 0.039 6.96 OIS................ 913,560 59.56 0.048 7.97
RMTI............................ 677,364 9.70 0.031 32.18 COUP............... 770,002 14.10 0.031 22.28
SINA............................ 1,550,979 41.43 0.036 8.79 YPF................ 1,668,599 33.94 0.031 9.11
SKYW............................ 558,570 9.63 0.018 19.30 BEL................ 504,230 11.61 0.018 15.88
SMCI............................ 520,354 28.97 0.044 15.62 SERV............... 594,059 24.05 0.038 15.87
SNCR............................ 615,801 45.95 0.068 14.76 LTRPA.............. 688,159 30.63 0.069 22.17
SPLK............................ 2,740,926 60.05 0.054 9.13 FTI................ 2,360,200 54.47 0.024 4.39
SWKS............................ 4,301,104 56.96 0.024 4.33 NOV................ 4,357,777 75.03 0.023 3.04
TASR............................ 3,094,977 17.08 0.017 9.88 LPI................ 3,200,381 19.98 0.016 8.34
[[Page 21880]]
TGTX............................ 509,492 11.16 0.036 32.33 MEG................ 592,554 14.46 0.028 19.67
TSCO............................ 1,270,325 66.28 0.031 4.66 FLS................ 1,201,366 68.85 0.033 4.74
TUP............................. 527,236 68.49 0.044 6.47 KRC................ 535,203 63.70 0.037 5.78
UA.............................. 2,678,432 67.54 0.032 4.80 NBL................ 2,781,689 61.96 0.025 4.08
UBNT............................ 1,115,056 36.37 0.051 14.34 ERJ................ 1,106,399 37.84 0.021 5.52
VDSI............................ 851,633 21.13 0.035 17.03 LQ................. 827,960 19.86 0.025 12.65
YRCW............................ 750,968 20.65 0.036 17.55 STAY............... 627,766 21.90 0.029 13.44
ZLTQ............................ 720,533 24.55 0.041 16.88 CTLT............... 679,346 24.50 0.045 18.20
-------------------------------------------------- ------------------------------------------------
Avg......................... 1,478,796 50.79 0.039 10.76 Avg................ 1,464,376 48.28 0.031 8.91
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table 1B--Retail Program Matched Sample CADV >500,000
[2015]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Treatment stocks Control stocks
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
RMO % RMO % Avg sprd Avg sprd RMO % RMO % Avg sprd Avg sprd
Symbol BX Ind ADV Avg price ($) (bps) Symbol BX Ind ADV Avg price ($) (bps)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
ACAD................................... 3.07 0.06 1,448,310 $37.47 $0.050 13.46 RSPP...................... 0.04 0.00 1,491,504 $26.31 $0.037 14.38
AFSI................................... 2.13 0.06 563,733 60.48 0.061 10.07 CNW....................... 0.22 0.00 1,314,088 42.22 0.025 6.04
ALK.................................... 3.21 0.07 1,387,460 71.24 0.047 6.49 AER....................... 0.28 0.00 2,093,683 43.92 0.022 4.96
AVGO................................... 2.24 0.06 3,166,689 125.32 0.077 6.18 DLPH...................... 0.20 0.00 2,148,818 80.26 0.033 4.11
BDX.................................... 3.08 0.08 1,115,839 143.84 0.065 4.51 SIAL...................... 0.10 0.00 1,009,690 138.89 0.015 1.10
CAMP................................... 3.90 0.07 511,751 18.28 0.028 15.24 MIK....................... 0.17 0.00 769,285 25.40 0.030 11.79
CELG................................... 3.98 0.08 5,171,549 118.39 0.059 4.96 LYB....................... 0.25 0.00 3,973,998 91.43 0.037 4.11
CI..................................... 3.06 0.08 2,008,125 134.28 0.073 5.40 MJN....................... 0.21 0.00 1,810,637 89.46 0.038 4.21
CLX.................................... 3.17 0.08 891,999 113.19 0.048 4.24 DTE....................... 0.27 0.01 1,090,860 80.57 0.030 3.67
COST................................... 2.32 0.05 2,150,134 147.70 0.051 3.44 ITW....................... 0.16 0.00 1,750,442 92.38 0.025 2.76
CRZO................................... 2.40 0.06 1,330,366 42.86 0.055 13.12 JAH....................... 0.35 0.01 2,179,212 51.58 0.021 4.17
DXCM................................... 2.90 0.08 843,867 75.80 0.094 12.13 KMT....................... 0.29 0.00 940,811 31.32 0.026 8.52
ENLK................................... 2.54 0.06 771,866 21.79 0.047 22.55 MYGN...................... 0.15 0.00 830,603 36.81 0.052 13.95
FSC.................................... 2.17 0.06 1,166,959 6.75 0.010 15.32 EXG....................... 0.22 0.00 798,806 9.47 0.010 10.76
FSLR................................... 4.17 0.06 2,388,265 52.34 0.034 6.49 CAM....................... 0.17 0.00 3,147,765 54.73 0.021 3.96
IBKR................................... 4.22 0.09 565,525 37.70 0.037 9.90 WERN...................... 0.31 0.01 706,866 28.13 0.023 8.33
ICLR................................... 2.14 0.08 504,514 69.04 0.108 15.63 SLH....................... 0.23 0.00 1,070,428 50.40 0.034 7.00
ISIS................................... 3.14 0.06 2,342,444 59.10 0.065 11.39 DO........................ 0.29 0.00 2,342,540 26.18 0.023 8.44
JACK................................... 2.34 0.07 633,677 85.40 0.092 10.94 REG....................... 0.10 0.00 580,153 64.77 0.039 6.05
LAZ.................................... 3.93 0.10 859,575 50.54 0.053 10.52 HDB....................... 0.29 0.01 914,212 59.33 0.034 5.74
MANH................................... 3.77 0.10 539,552 59.23 0.077 12.82 MR........................ 0.21 0.00 623,598 27.00 0.025 9.47
MHK.................................... 3.17 0.09 689,602 187.12 0.182 9.68 SLG....................... 0.12 0.00 702,818 118.81 0.088 7.49
MNST................................... 2.37 0.07 1,228,688 136.21 0.105 7.65 EQT....................... 0.18 0.00 1,556,329 75.25 0.055 7.45
NXPI................................... 2.55 0.06 3,865,611 91.55 0.052 5.71 CCI....................... 0.30 0.01 2,336,521 83.67 0.025 2.97
NYMT................................... 3.82 0.07 1,196,276 7.05 0.010 14.71 PMCS...................... 0.13 0.00 3,442,623 9.05 0.010 12.01
OLED................................... 6.59 0.14 658,991 42.93 0.063 14.81 FET....................... 0.17 0.00 1,113,426 17.10 0.022 13.33
PSEC................................... 3.80 0.07 2,747,484 7.81 0.010 12.96 SLM....................... 0.06 0.00 3,593,895 8.77 0.010 12.01
Q...................................... 3.25 0.08 746,869 68.71 0.048 6.98 OIS....................... 0.07 0.00 1,109,903 35.88 0.037 10.89
RMTI................................... 4.62 0.07 726,795 11.47 0.031 27.33 COUP...................... 0.05 0.00 689,630 11.56 0.024 20.81
SINA................................... 3.74 0.06 1,351,205 42.49 0.041 9.53 YPF....................... 0.28 0.00 1,301,107 23.91 0.024 10.05
SKYW................................... 4.56 0.08 540,128 16.11 0.027 17.05 BEL....................... 0.05 0.00 520,858 11.45 0.015 13.50
SMCI................................... 4.34 0.10 623,673 30.57 0.044 14.48 SERV...................... 0.09 0.00 1,084,056 34.47 0.027 7.96
SNCR................................... 3.23 0.08 531,811 42.90 0.066 15.60 LTRPA..................... 0.04 0.00 570,674 29.05 0.034 11.75
SPLK................................... 3.13 0.07 1,908,069 62.58 0.053 8.53 FTI....................... 0.08 0.00 3,385,051 36.74 0.016 4.52
SWKS................................... 7.33 0.13 4,040,788 89.48 0.047 5.24 NOV....................... 0.26 0.00 5,929,343 45.85 0.015 3.23
TASR................................... 4.96 0.06 2,066,379 25.79 0.022 8.55 LPI....................... 0.34 0.00 3,845,352 11.60 0.013 11.79
TGTX................................... 7.27 0.12 597,807 14.62 0.042 29.22 MEG....................... 0.26 0.00 1,314,175 15.20 0.017 11.22
TSCO................................... 4.01 0.10 942,912 87.47 0.063 7.18 FLS....................... 0.33 0.00 1,488,778 50.86 0.025 4.96
TUP.................................... 3.09 0.07 583,728 61.66 0.054 8.90 KRC....................... 0.16 0.00 567,612 69.92 0.051 7.33
UA..................................... 5.23 0.09 2,652,795 85.27 0.038 4.39 NBL....................... 0.21 0.00 4,862,641 40.75 0.017 4.21
UBNT................................... 3.42 0.06 664,805 31.72 0.048 14.89 ERJ....................... 0.13 0.00 979,065 30.32 0.017 5.58
VDSI................................... 5.87 0.08 1,258,250 22.45 0.037 17.11 LQ........................ 0.09 0.00 1,511,426 20.36 0.014 6.87
YRCW................................... 3.30 0.06 640,874 16.21 0.028 17.65 STAY...................... 0.31 0.01 520,061 18.89 0.028 14.43
ZLTQ................................... 2.71 0.06 598,245 31.73 0.055 17.10 CTLT...................... 0.18 0.00 718,026 28.92 0.040 14.02
--------------------------------------------------------------- -------------------------------------------------------------
Avg................................ 3.64 0.08 1,391,454 62.38 0.054 11.59 Avg....................... 0.19 0.00 1,698,440 44.98 0.028 8.22
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 21881]]
II. Less Active Stocks (CADV Between 50,000 and 500,000) and Post-
Period = 2015
For this sample, there were 71 matched pairs that emerged from the
process. The pairs, along with values of the matching variables (pre-
period), are shown as follows:
Table 2A--Retail Program Matched Sample >50,000 and <500,000
[Sep-Nov 2014]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Treatment stocks Control stocks
--------------------------------------------------------------------------------------------------------------------------------------------------------
Avg sprd Avg sprd Avg sprd Avg sprd
Symbol ADV Avg price ($) (bps) Symbol ADV Avg price ($) (bps)
--------------------------------------------------------------------------------------------------------------------------------------------------------
AB.............................. 257,695 $26.20 $0.052 19.81 TBI................ 218,856 $25.33 $0.047 18.60
ACET............................ 201,593 20.49 0.053 26.13 DFRG............... 213,718 21.87 0.052 23.95
ADC............................. 65,799 29.22 0.072 24.58 ORA................ 66,867 27.55 0.069 25.05
AFOP............................ 354,650 13.00 0.027 20.64 LQDT............... 343,166 12.97 0.025 18.91
ALDW............................ 190,282 18.43 0.050 27.26 NEWP............... 171,264 17.79 0.044 24.54
APU............................. 310,097 45.68 0.046 10.16 WST................ 306,905 46.65 0.050 10.72
ARII............................ 258,499 70.06 0.171 24.73 AXE................ 240,764 85.14 0.162 19.11
AVAV............................ 259,080 29.89 0.052 17.50 MBFI............... 282,952 29.29 0.047 16.12
BEAT............................ 222,665 7.49 0.025 34.28 SPWH............... 227,710 6.86 0.025 35.76
BIP............................. 218,853 39.85 0.051 12.70 ALE................ 229,126 48.74 0.049 10.09
BOI............................. 103,890 16.93 0.030 17.74 MMD................ 101,908 17.98 0.034 18.95
BSTC............................ 51,863 36.16 0.264 73.16 OPB................ 51,453 29.37 0.201 67.86
BTO............................. 57,833 22.56 0.038 17.08 EMF................ 59,607 17.77 0.041 23.11
CLFD............................ 75,466 13.16 0.069 52.54 ZPIN............... 91,340 13.90 0.089 64.59
CLMS............................ 110,782 12.66 0.037 28.97 MHG................ 111,804 13.89 0.033 23.75
CLMT............................ 313,715 27.57 0.063 23.09 MRKT............... 401,812 23.98 0.059 24.76
CMP............................. 259,246 86.79 0.108 12.46 SPB................ 235,834 88.42 0.106 12.00
CODI............................ 217,722 17.82 0.036 20.41 HZO................ 176,311 17.93 0.036 20.33
CSCD............................ 110,524 10.99 0.056 51.94 UNTD............... 127,615 11.83 0.046 38.70
CTT............................. 223,611 11.18 0.022 19.48 FLY................ 205,417 12.99 0.022 17.28
CUI............................. 78,138 7.18 0.045 63.45 CRCM............... 98,265 8.40 0.047 56.22
CVTI............................ 219,409 18.92 0.076 41.35 KANG............... 277,438 18.93 0.074 39.12
DBL............................. 78,900 23.75 0.044 18.48 KIO................ 74,822 17.56 0.043 24.31
EDF............................. 65,045 18.69 0.053 28.45 BCA................ 71,870 19.26 0.055 28.43
EPAM............................ 395,347 43.65 0.063 14.35 HIBB............... 415,031 44.48 0.062 13.90
ETB............................. 60,457 15.78 0.023 14.75 ZF................. 53,909 15.10 0.022 14.95
EZCH............................ 158,140 22.41 0.058 25.94 CMRE............... 173,076 21.06 0.057 23.49
FDUS............................ 68,041 17.12 0.061 35.44 OKSB............... 58,803 16.97 0.066 38.50
FGP............................. 160,267 27.28 0.060 22.18 IBOC............... 172,092 26.03 0.060 23.28
FNHC............................ 271,398 27.32 0.079 28.80 WMS................ 260,316 21.05 0.066 31.32
GLAD............................ 128,184 9.02 0.026 28.43 IRR................ 101,145 9.95 0.026 25.71
GLRE............................ 136,838 32.52 0.059 18.18 STC................ 120,951 32.12 0.061 19.03
GNCMA........................... 193,608 11.39 0.026 22.57 PGI................ 204,861 11.66 0.025 21.87
GOOD............................ 112,763 17.57 0.031 17.67 CPF................ 114,830 18.46 0.031 16.70
GSIG............................ 72,335 12.22 0.049 40.42 XOXO............... 67,052 12.46 0.049 40.03
GSL............................. 66,072 3.78 0.031 85.13 CO................. 68,003 4.99 0.030 59.74
GSVC............................ 139,253 10.14 0.034 33.84 ICD................ 135,638 9.33 0.038 43.28
HII............................. 283,916 103.19 0.102 9.93 TFX................ 243,588 110.37 0.132 12.05
HIIQ............................ 96,520 10.25 0.090 88.44 EDN................ 94,386 11.67 0.104 89.69
HQH............................. 162,147 29.19 0.042 14.44 COLB............... 204,528 26.38 0.045 17.12
HQL............................. 103,968 22.85 0.040 17.48 CTY................ 93,639 23.60 0.036 15.29
IGOV............................ 69,992 99.56 0.179 17.99 KOF................ 62,191 102.39 0.183 17.93
IXYS............................ 141,164 11.00 0.036 32.65 BPI................ 133,490 11.62 0.027 23.09
LDP............................. 70,450 24.46 0.048 19.73 DFP................ 64,754 22.87 0.048 20.82
MAIN............................ 202,931 31.39 0.039 12.33 MLI................ 201,430 30.24 0.039 13.07
NDP............................. 93,945 24.11 0.067 28.08 ABCB............... 105,401 23.68 0.070 29.89
NNBR............................ 157,009 24.33 0.074 30.40 CVT................ 193,466 25.67 0.069 26.96
NTWK............................ 78,357 3.40 0.028 84.86 FCSC............... 68,500 2.82 0.035 122.37
ORBK............................ 134,253 15.36 0.034 22.01 AHP................ 142,241 16.22 0.034 20.99
OXLC............................ 80,719 15.90 0.045 28.60 CTS................ 82,703 17.22 0.044 25.67
PATK............................ 65,356 42.36 0.198 46.71 VRTV............... 64,527 46.69 0.243 52.21
PEO............................. 103,616 27.93 0.050 18.13 LADR............... 97,465 18.89 0.057 30.07
PGP............................. 131,368 23.08 0.086 37.58 EXLS............... 133,974 26.59 0.078 29.49
PICO............................ 71,762 20.61 0.069 33.51 VVI................ 79,994 22.39 0.065 28.97
PLOW............................ 205,124 20.54 0.035 17.05 CSU................ 217,750 22.23 0.035 15.69
RDI............................. 69,021 9.43 0.045 48.22 CNCO............... 75,311 8.59 0.050 59.16
RM.............................. 193,431 16.19 0.048 29.46 DL................. 202,788 14.91 0.053 36.12
RNST............................ 67,326 28.53 0.100 35.11 FBRC............... 65,432 26.48 0.125 47.49
SIGI............................ 144,844 24.23 0.046 19.12 CCU................ 144,842 21.38 0.044 20.58
SOCL............................ 122,280 19.37 0.029 15.22 PCN................ 121,440 16.22 0.027 16.49
SPH............................. 166,532 44.68 0.092 20.53 CCMP............... 152,708 44.34 0.100 22.72
[[Page 21882]]
STON............................ 153,931 25.88 0.054 21.03 FTGC............... 169,252 29.57 0.057 19.47
TCP............................. 344,465 64.50 0.174 26.97 REX................ 278,567 76.26 0.216 29.37
TSYS............................ 221,965 2.90 0.015 50.11 NWY................ 195,275 3.00 0.014 47.97
TYG............................. 139,676 46.69 0.068 14.62 RLI................ 127,939 46.15 0.073 15.77
TZOO............................ 69,120 14.37 0.053 36.99 TRNO............... 82,554 20.20 0.053 26.35
USAC............................ 112,111 23.46 0.086 36.95 FCB................ 112,509 22.70 0.068 30.05
VCIT............................ 350,756 86.24 0.050 5.74 IT................. 378,372 77.79 0.057 7.36
VICR............................ 102,170 10.56 0.047 46.34 MODN............... 101,103 9.77 0.040 41.39
VNQI............................ 180,925 55.63 0.065 11.80 TTC................ 172,945 60.46 0.069 11.38
WLDN............................ 180,819 13.99 0.061 43.65 CTRE............... 156,847 15.28 0.076 49.33
-------------------------------------------------- ------------------------------------------------
Avg......................... 156,902 26.92 0.062 29.52 Avg................ 157,105 27.22 0.064 29.67
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table 2B--Retail Program Matched Sample CADV >50,000 and <500,000
[2015]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Treatment stocks Control stocks
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
RMO % RMO % Avg sprd Avg sprd RMO % RMO % Avg sprd Avg sprd
Symbol BX Ind ADV Avg price ($) (bps) Symbol BX Ind ADV Avg price ($) (bps)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
AB......................................... 4.85 0.10 283,950 $27.72 0.057 20.57 TBI................... 0.99 0.018 327,753 $25.81 0.043 16.70
ACET....................................... 3.36 0.10 194,984 24.10 0.070 29.08 DFRG.................. 0.89 0.020 297,903 17.26 0.040 23.26
ADC........................................ 4.02 0.12 111,520 31.60 0.069 21.85 ORA................... 0.36 0.010 155,890 35.60 0.069 19.55
AFOP....................................... 4.21 0.12 187,767 17.48 0.047 26.62 LQDT.................. 0.66 0.018 295,434 8.67 0.023 26.90
ALDW....................................... 6.34 0.14 211,968 21.16 0.083 39.15 NEWP.................. 0.70 0.020 166,386 17.51 0.043 24.82
APU........................................ 9.81 0.22 241,899 45.41 0.088 19.29 WST................... 0.47 0.011 326,681 56.83 0.078 13.72
ARII....................................... 3.00 0.11 237,155 48.93 0.159 32.51 AXE................... 0.34 0.012 209,412 68.79 0.144 21.14
AVAV....................................... 4.46 0.13 168,446 25.36 0.058 22.75 MBFI.................. 0.47 0.010 325,804 32.33 0.042 13.17
BEAT....................................... 7.55 0.17 296,257 11.21 0.033 29.78 SPWH.................. 0.44 0.008 267,713 10.37 0.028 27.50
BIP........................................ 5.15 0.14 267,495 42.32 0.052 12.31 ALE................... 0.78 0.017 270,205 50.93 0.061 12.01
BOI........................................ 11.17 0.11 67,209 15.57 0.035 22.31 MMD................... 1.60 0.010 75,235 18.12 0.033 18.56
BSTC....................................... 3.99 0.16 62,235 46.54 0.384 84.03 OPB................... 0.42 0.010 105,939 33.95 0.148 45.12
BTO........................................ 11.38 0.13 63,715 25.43 0.067 25.78 EMF................... 1.71 0.009 64,025 13.71 0.039 29.43
CLFD....................................... 4.73 0.12 62,636 14.74 0.073 49.97 ZPIN.................. 0.00 0.000 115,886 14.97 0.092 60.98
CLMS....................................... 4.28 0.12 88,411 11.46 0.037 32.81 MHG................... 0.23 0.007 92,686 12.50 0.030 23.96
CLMT....................................... 11.61 0.27 382,050 25.64 0.068 26.69 MRKT.................. 0.48 0.009 489,213 27.57 0.034 12.38
CMP........................................ 3.54 0.13 261,808 85.71 0.117 13.76 SPB................... 0.59 0.018 305,016 95.53 0.125 13.39
CODI....................................... 6.63 0.11 136,610 16.50 0.036 21.86 HZO................... 0.55 0.014 292,698 20.59 0.046 23.22
CSCD....................................... 4.29 0.10 55,917 14.67 0.072 49.56 UNTD.................. 0.68 0.020 139,792 13.95 0.051 37.41
CTT........................................ 9.67 0.19 146,655 11.28 0.026 23.10 FLY................... 0.83 0.015 272,441 14.23 0.026 18.44
CUI........................................ 11.61 0.14 89,869 5.88 0.033 55.75 CRCM.................. 0.89 0.013 110,412 6.56 0.033 50.20
CVTI....................................... 3.22 0.11 228,099 25.99 0.086 33.45 KANG.................. 0.75 0.020 487,020 17.09 0.077 23.08
DBL........................................ 14.29 0.16 80,224 24.61 0.054 22.03 KIO................... 0.09 0.001 50,652 15.54 0.045 24.89
EDF........................................ 8.88 0.13 75,205 14.49 0.046 31.99 BCA................... 0.19 0.003 69,946 15.52 0.053 35.07
EPAM....................................... 4.16 0.12 406,072 68.22 0.118 17.42 HIBB.................. 0.60 0.015 436,936 42.95 0.064 14.94
ETB........................................ 17.61 0.16 67,536 15.99 0.036 22.28 ZF.................... 3.71 0.013 51,579 14.40 0.022 15.40
EZCH....................................... 4.09 0.11 211,056 20.50 0.045 22.80 CMRE.................. 0.44 0.014 155,171 16.42 0.053 32.86
FDUS....................................... 22.17 0.58 55,373 15.15 0.081 53.87 OKSB.................. 0.66 0.018 50,424 17.27 0.083 48.02
FGP........................................ 6.51 0.11 308,815 21.93 0.056 25.44 IBOC.................. 0.68 0.018 198,814 26.18 0.066 25.39
FNHC....................................... 3.85 0.13 112,184 27.04 0.106 39.41 WMS................... 0.48 0.010 367,087 28.23 0.056 19.77
GLAD....................................... 14.23 0.13 123,421 8.40 0.026 30.82 IRR................... 1.22 0.004 84,619 7.47 0.028 36.62
GLRE....................................... 8.05 0.16 161,813 27.53 0.051 18.79 STC................... 0.49 0.018 99,664 39.07 0.105 27.08
GNCMA...................................... 5.95 0.23 209,254 17.12 0.047 27.32 PGI................... 0.72 0.016 367,369 11.00 0.025 21.53
GOOD....................................... 7.01 0.13 111,685 16.47 0.036 22.37 CPF................... 0.88 0.018 279,459 22.42 0.036 15.91
GSIG....................................... 7.36 0.19 66,110 13.76 0.063 45.96 XOXO.................. 0.64 0.018 96,502 16.14 0.052 32.59
GSL........................................ 13.49 0.12 77,050 4.97 0.039 78.15 CO.................... 1.17 0.012 214,376 5.90 0.025 44.07
GSVC....................................... 5.92 0.13 106,508 9.66 0.037 38.66 ICD................... 0.79 0.015 59,744 6.65 0.069 105.07
HII........................................ 3.59 0.12 320,027 122.86 0.181 14.90 TFX................... 0.29 0.008 274,659 126.57 0.161 12.63
HIIQ....................................... 9.88 0.13 54,023 5.90 0.062 107.65 EDN................... 0.01 0.000 71,865 14.27 0.138 97.30
HQH........................................ 5.60 0.11 131,438 33.75 0.071 21.24 COLB.................. 0.72 0.017 252,185 30.71 0.053 17.17
HQL........................................ 7.91 0.11 72,120 26.93 0.063 23.67 CTY................... 0.07 0.000 104,496 24.76 0.036 14.70
IGOV....................................... 9.75 0.15 64,028 91.31 0.228 24.92 KOF................... 0.27 0.011 77,285 78.17 0.152 19.49
IXYS....................................... 4.77 0.12 158,931 12.29 0.037 30.67 BPI................... 1.00 0.014 104,923 9.01 0.033 37.18
LDP........................................ 12.69 0.18 90,233 23.32 0.041 17.84 DFP................... 0.53 0.005 58,638 22.84 0.057 24.84
MAIN....................................... 11.52 0.18 250,344 30.21 0.039 13.05 MLI................... 0.76 0.020 169,670 32.97 0.060 18.41
NDP........................................ 16.50 0.20 80,808 17.27 0.073 42.22 ABCB.................. 0.72 0.019 174,169 27.51 0.062 23.20
NNBR....................................... 4.31 0.11 278,757 22.38 0.066 29.71 CVT................... 0.55 0.015 201,431 29.61 0.074 24.99
NTWK....................................... 31.44 0.18 59,023 5.45 0.054 100.56 FCSC.................. 0.55 0.009 225,454 4.86 0.032 69.06
ORBK....................................... 4.99 0.12 200,734 17.83 0.036 20.44 AHP................... 0.55 0.011 187,416 15.38 0.033 21.60
OXLC....................................... 7.91 0.14 94,543 13.68 0.062 46.48 CTS................... 0.69 0.017 91,415 18.20 0.055 29.86
PATK....................................... 3.49 0.11 103,595 46.14 0.195 42.49 VRTV.................. 0.03 0.001 74,483 41.62 0.212 50.66
PEO........................................ 8.37 0.12 83,844 21.78 0.060 27.53 LADR.................. 0.40 0.008 148,102 16.48 0.040 24.34
PGP........................................ 7.64 0.11 59,681 19.06 0.103 54.99 EXLS.................. 0.36 0.012 166,403 37.01 0.100 27.04
[[Page 21883]]
PICO....................................... 8.54 0.24 106,325 14.10 0.052 37.85 VVI................... 0.58 0.019 88,074 28.13 0.073 26.07
PLOW....................................... 3.71 0.11 129,709 21.61 0.056 25.71 CSU................... 0.42 0.011 211,558 23.61 0.047 20.09
RDI........................................ 8.49 0.24 56,701 13.43 0.062 45.66 CNCO.................. 0.46 0.003 83,811 6.80 0.041 61.30
RM......................................... 4.55 0.12 91,913 16.20 0.067 39.49 DL.................... 0.28 0.009 126,155 15.56 0.073 47.88
RNST....................................... 5.29 0.13 148,755 31.50 0.067 21.21 FBRC.................. 0.33 0.009 50,866 22.22 0.130 59.07
SIGI....................................... 4.57 0.12 212,634 30.13 0.053 17.68 CCU................... 0.34 0.007 138,285 21.45 0.048 22.78
SOCL....................................... 10.32 0.24 88,315 19.22 0.051 26.48 PCN................... 3.92 0.018 108,881 14.36 0.022 15.23
SPH........................................ 6.54 0.15 208,257 38.56 0.099 25.93 CCMP.................. 0.52 0.018 145,234 45.64 0.111 24.49
STON....................................... 4.23 0.13 160,946 28.62 0.092 32.56 FTGC.................. 0.23 0.003 134,541 23.49 0.053 22.65
TCP........................................ 4.12 0.14 171,426 58.19 0.292 52.28 REX................... 0.40 0.014 162,351 57.40 0.192 33.82
TSYS....................................... 3.48 0.11 375,242 3.64 0.014 40.50 NWY................... 1.34 0.009 94,970 2.45 0.017 71.30
TYG........................................ 8.09 0.17 279,394 36.74 0.075 21.32 RLI................... 0.55 0.020 139,447 53.38 0.113 21.01
TZOO....................................... 5.83 0.15 124,874 10.07 0.042 42.08 TRNO.................. 0.37 0.010 178,560 21.55 0.048 22.62
USAC....................................... 9.30 0.20 130,583 18.40 0.106 57.48 FCB................... 0.77 0.019 217,494 30.48 0.061 20.50
VCIT....................................... 4.89 0.12 451,992 85.91 0.053 6.15 IT.................... 0.61 0.016 406,922 85.95 0.081 9.42
VICR....................................... 7.09 0.18 56,688 11.89 0.070 62.03 MODN.................. 1.11 0.019 91,268 11.19 0.041 36.74
VNQI....................................... 13.04 0.33 374,913 54.84 0.055 10.17 TTC................... 0.63 0.019 265,760 69.75 0.082 11.78
WLDN....................................... 9.82 0.23 77,911 12.01 0.064 54.70 CTRE.................. 0.12 0.003 227,593 12.27 0.042 34.08
--------------------------------------------------------------- -------------------------------------------------------------
Avg.................................... 7.81 0.15 160,108 26.98 0.075 34.20 Avg................... 0.68 0.01 183,525 27.80 0.066 29.96
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
III. Active Stocks (CADV > 500,000) and Post-Period = 2017-2018
For this sample, there were 41 matched pairs that emerged from the
process. The pairs, along with values of the matching variables (pre-
period), are shown as follows:
Table 3A--Retail Program Matched Sample CADV >500,000
[Sep-Nov 2014]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Treatment stocks Control stocks
--------------------------------------------------------------------------------------------------------------------------------------------------------
Avg sprd Avg sprd Avg sprd Avg sprd
Symbol ADV Avg price ($) (bps) Symbol ADV Avg price ($) (bps)
--------------------------------------------------------------------------------------------------------------------------------------------------------
AA.............................. 19,848,728 $16.29 $0.010 6.17 ITUB............... 15,391,611 $15.06 $0.010 6.70
AG.............................. 1,868,134 7.10 0.010 15.21 CUZ................ 1,707,347 12.49 0.010 8.27
AINV............................ 1,804,765 8.30 0.010 12.24 BVN................ 1,783,634 11.21 0.011 10.10
AMBA............................ 2,103,392 42.35 0.062 14.79 PLD................ 2,692,357 39.81 0.011 2.90
APO............................. 1,356,506 23.15 0.021 9.23 BRX................ 1,278,575 23.37 0.017 7.12
AXAS............................ 2,961,152 4.58 0.010 22.80 CIG................ 5,661,208 6.35 0.010 16.10
BCRX............................ 1,244,583 11.27 0.021 18.89 CLI................ 899,677 19.58 0.016 8.08
BUD............................. 1,367,716 110.28 0.030 2.76 TOT................ 1,409,344 60.36 0.023 3.83
BX.............................. 4,891,093 31.38 0.014 4.46 COG................ 6,157,960 32.25 0.012 3.76
CLNE............................ 1,664,000 7.39 0.012 16.09 DRH................ 1,577,838 13.54 0.010 7.59
CMCM............................ 892,660 20.49 0.057 27.49 MDU................ 1,080,599 27.56 0.019 6.71
CSIQ............................ 3,978,563 32.55 0.034 10.54 CNQ................ 4,352,711 37.08 0.012 3.35
DO.............................. 2,028,802 37.29 0.026 6.93 HCP................ 2,538,605 42.25 0.012 2.73
DSX............................. 726,289 8.85 0.012 14.11 FNB................ 879,836 12.44 0.010 8.36
F............................... 34,678,316 15.13 0.010 6.65 FOXA............... 13,032,567 34.41 0.010 2.95
FEYE............................ 8,234,032 31.44 0.022 7.22 HST................ 6,716,845 22.14 0.010 4.62
FNSR............................ 2,320,485 16.88 0.012 7.33 TPH................ 2,159,710 13.94 0.012 8.68
GME............................. 2,808,482 41.86 0.018 4.25 SNY................ 2,182,012 51.81 0.018 3.45
GNW............................. 9,907,097 12.24 0.010 8.49 SAN................ 10,583,634 9.09 0.010 11.05
GRPN............................ 16,296,242 6.85 0.010 14.75 SLM................ 4,532,083 9.17 0.010 11.09
HAIN............................ 566,626 103.28 0.083 8.09 SLG................ 788,370 109.07 0.057 5.28
HALO............................ 1,250,394 9.12 0.011 12.49 HTA................ 1,419,408 12.29 0.010 8.48
IRBT............................ 712,902 33.02 0.045 13.54 LHO................ 859,601 36.72 0.018 5.05
JWN............................. 1,472,964 70.84 0.025 3.49 ETR................ 1,607,873 79.55 0.025 3.10
LSCC............................ 1,168,221 6.88 0.011 15.53 RPAI............... 1,047,067 15.36 0.011 6.95
LYG............................. 3,517,062 4.88 0.010 20.51 GGB................ 7,013,600 4.81 0.010 21.01
MMP............................. 839,403 82.37 0.094 11.51 AVB................ 926,288 150.78 0.072 4.79
NOK............................. 18,264,234 8.24 0.010 12.15 BBD................ 11,667,774 15.32 0.010 6.59
O............................... 2,027,017 44.15 0.014 3.16 NI................. 2,220,002 40.72 0.013 3.30
OHI............................. 1,490,422 36.76 0.013 3.43 AIV................ 1,214,436 34.32 0.013 3.71
RCII............................ 819,241 30.46 0.024 7.91 RLJ................ 735,277 30.37 0.016 5.38
SINA............................ 1,550,979 41.43 0.036 8.79 IBN................ 1,251,526 54.07 0.024 4.51
SNE............................. 3,075,849 18.86 0.010 5.40 DRE................ 2,595,753 18.25 0.010 5.62
SPWR............................ 2,347,451 32.45 0.025 7.78 FTI................ 2,360,200 54.47 0.024 4.39
STX............................. 2,989,069 59.38 0.022 3.76 NBL................ 2,781,689 61.96 0.025 4.08
[[Page 21884]]
SYNA............................ 1,066,414 71.57 0.092 12.64 CPT................ 642,738 72.84 0.031 4.31
TERP............................ 626,425 28.72 0.080 27.81 HR................. 601,104 25.09 0.015 6.18
UA.............................. 2,678,432 67.54 0.032 4.80 EQR................ 2,303,635 66.21 0.018 2.77
ULTA............................ 1,061,441 116.53 0.092 7.86 BXP................ 890,862 121.67 0.066 5.45
WPC............................. 525,756 66.30 0.034 5.07 KRC................ 535,203 63.70 0.037 5.78
X............................... 8,326,606 37.65 0.015 4.14 EXC................ 6,409,198 34.91 0.011 3.02
-------------------------------------------------- ------------------------------------------------
Avg......................... 4,325,804 35.51 0.029 10.49 Avg................ 3,329,018 38.94 0.019 6.27
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table 3B--Retail Program Matched Sample CADV >500,000
[2017--2018]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Treatment stocks Control stocks
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Avg Avg Avg
Symbol RMO % RMO % ADV Avg sprd Avg sprd Symbol RMO % RMO % ADV Avg sprd sprd
BX Ind price ($) (bps) BX Ind price ($) (bps)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
AA......................................... 1.30 0.04 4,075,295 $41.33 $0.022 5.27 ITUB.......................... 0.04 0.001 12,139,536 $12.55 $0.010 8.11
AG......................................... 1.71 0.04 3,361,556 7.04 0.010 14.70 CUZ........................... 0.02 0.001 3,842,736 8.86 0.010 11.51
AINV....................................... 1.93 0.06 865,116 6.18 0.011 17.22 BVN........................... 0.02 0.001 1,343,091 13.68 0.012 8.61
AMBA....................................... 3.68 0.10 1,006,023 48.50 0.062 12.93 PLD........................... 0.09 0.004 2,672,000 61.33 0.018 2.88
APO........................................ 1.38 0.04 1,098,761 29.62 0.030 9.93 BRX........................... 0.07 0.003 3,076,634 18.10 0.011 5.96
AXAS....................................... 1.33 0.04 1,492,938 2.15 0.010 48.85 CIG........................... 0.11 0.003 4,402,939 2.48 0.010 41.72
BCRX....................................... 1.86 0.06 1,176,068 6.02 0.013 21.42 CLI........................... 0.07 0.003 593,039 22.59 0.019 8.24
BUD........................................ 1.22 0.04 1,764,121 105.16 0.032 3.12 TOT........................... 0.09 0.002 1,764,192 55.96 0.012 2.08
BX......................................... 2.61 0.05 4,550,664 32.76 0.013 3.94 COG........................... 0.10 0.003 6,100,394 24.46 0.011 4.34
CLNE....................................... 1.31 0.04 1,346,149 2.36 0.010 45.01 DRH........................... 0.01 0.000 2,300,351 11.21 0.010 9.17
CMCM....................................... 1.85 0.05 1,059,402 10.70 0.023 21.69 MDU........................... 0.06 0.003 842,527 27.03 0.014 5.05
CSIQ....................................... 4.27 0.13 1,025,349 14.98 0.021 13.76 CNQ........................... 0.11 0.003 2,808,082 32.12 0.010 3.28
DO......................................... 1.05 0.04 2,326,499 15.80 0.013 8.14 HCP........................... 0.08 0.003 3,666,607 27.46 0.011 3.94
DSX........................................ 2.44 0.06 589,433 4.02 0.012 29.70 FNB........................... 0.09 0.004 2,706,799 13.63 0.010 7.60
F.......................................... 1.77 0.05 40,375,950 11.11 0.010 9.11 FOXA.......................... 0.13 0.003 10,396,614 35.77 0.010 3.02
FEYE....................................... 1.96 0.05 4,768,737 15.54 0.010 6.81 HST........................... 0.03 0.001 6,942,056 19.29 0.010 5.28
FNSR....................................... 2.49 0.06 3,459,073 21.85 0.015 6.74 TPH........................... 0.08 0.003 1,937,468 14.46 0.011 7.61
GME........................................ 1.35 0.04 3,433,058 18.21 0.011 6.34 SNY........................... 0.05 0.001 1,609,403 44.08 0.011 2.51
GNW........................................ 1.76 0.04 4,516,565 3.75 0.010 27.39 SAN........................... 0.10 0.002 6,841,859 6.04 0.010 16.83
GRPN....................................... 1.16 0.04 8,719,062 4.22 0.010 24.46 SLM........................... 0.08 0.003 3,172,237 11.18 0.010 9.37
HAIN....................................... 1.33 0.04 1,583,844 33.81 0.023 6.98 SLG........................... 0.05 0.002 803,572 100.37 0.074 7.37
HALO....................................... 1.60 0.05 1,125,888 16.21 0.021 12.87 HTA........................... 0.06 0.003 1,542,950 28.57 0.013 4.41
IRBT....................................... 2.76 0.07 906,753 79.44 0.114 14.03 LHO........................... 0.07 0.003 1,633,753 30.43 0.015 5.08
JWN........................................ 1.13 0.04 2,630,160 49.12 0.029 5.96 ETR........................... 0.08 0.003 1,375,231 79.52 0.032 3.97
LSCC....................................... 1.27 0.04 983,954 6.48 0.011 16.82 RPAI.......................... 0.05 0.002 1,794,420 12.83 0.010 8.10
LYG........................................ 1.86 0.06 6,256,365 3.44 0.010 29.36 GGB........................... 0.09 0.002 9,702,367 3.88 0.010 26.36
MMP........................................ 1.37 0.05 830,180 69.21 0.060 8.74 AVB........................... 0.08 0.003 680,029 178.52 0.138 7.73
NOK........................................ 3.01 0.08 14,759,305 5.62 0.010 17.95 BBD........................... 0.03 0.001 11,438,559 9.63 0.010 10.66
O.......................................... 1.09 0.04 1,910,582 56.53 0.021 3.69 NI............................ 0.08 0.003 3,013,746 25.14 0.011 4.20
OHI........................................ 1.17 0.04 2,090,596 30.98 0.012 3.77 AIV........................... 0.04 0.002 1,089,725 43.30 0.021 4.90
RCII....................................... 1.90 0.07 1,785,282 11.67 0.012 10.61 RLJ........................... 0.04 0.002 1,419,592 21.45 0.012 5.44
SINA....................................... 2.01 0.07 980,389 88.41 0.105 11.94 IBN........................... 0.07 0.002 7,497,988 9.05 0.010 11.20
SNE........................................ 1.21 0.04 983,669 44.35 0.016 3.55 DRE........................... 0.02 0.001 2,533,025 27.60 0.011 3.89
SPWR....................................... 3.72 0.10 2,639,031 7.70 0.011 13.99 FTI........................... 0.11 0.003 3,833,234 29.62 0.010 3.52
STX........................................ 1.33 0.04 4,569,307 45.84 0.017 3.69 NBL........................... 0.10 0.003 5,080,490 30.49 0.011 3.66
SYNA....................................... 1.26 0.04 798,985 45.96 0.064 14.12 CPT........................... 0.07 0.003 589,346 87.99 0.068 7.76
TERP....................................... 0.92 0.04 582,896 11.83 0.015 12.75 HR............................ 0.05 0.002 835,377 30.63 0.017 5.58
UA......................................... 2.66 0.06 4,079,322 17.47 0.011 6.29 EQR........................... 0.05 0.002 1,868,111 64.58 0.023 3.62
ULTA....................................... 1.29 0.04 1,064,638 251.09 0.229 9.18 BXP........................... 0.06 0.003 731,983 124.60 0.097 7.86
WPC........................................ 1.41 0.05 521,446 65.49 0.049 7.57 KRC........................... 0.04 0.002 552,027 72.00 0.060 8.31
X.......................................... 2.61 0.04 13,020,309 30.64 0.012 4.06 EXC........................... 0.05 0.002 5,496,241 39.40 0.010 2.66
----------------------------------------------------------- ---------------------------------------------------------
Avg.................................... 1.84 0.05 3,783,237 33.48 0.029 13.52 Avg........................... 0.07 0.00 3,479,764 36.88 0.022 7.64
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
IV. Less Active Stocks (CADV Between 50,000 and 500,000) and Post-
Period = 2017-2018
For this sample, there were 49 matched pairs that emerged from the
process. The pairs, along with values of the matching variables (pre-
period), are shown as follows:
[[Page 21885]]
Table 4A--Retail Program Matched Sample >50,000 and <500,000 CADV
[Sep-Nov 2014]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Treatment stocks Control stocks
--------------------------------------------------------------------------------------------------------------------------------------------------------
Avg sprd Avg sprd Avg sprd Avg sprd
Symbol ADV Avg price ($) (bps) Symbol ADV Avg price ($) (bps)
--------------------------------------------------------------------------------------------------------------------------------------------------------
AI.............................. 380,780 $26.88 $0.020 7.45 DSL................ 361,600 $21.43 $0.022 10.36
ANIK............................ 240,282 39.38 0.089 22.92 WABC............... 223,670 48.09 0.083 17.22
APU............................. 310,097 45.68 0.046 10.16 WST................ 306,905 46.65 0.050 10.72
AUDC............................ 153,063 4.91 0.022 45.54 RVT................ 191,392 14.93 0.020 13.56
BLX............................. 130,799 32.10 0.060 18.85 STC................ 120,951 32.12 0.061 19.03
COHU............................ 104,702 11.53 0.044 38.27 CSGS............... 157,547 26.18 0.047 18.17
DBL............................. 78,900 23.75 0.044 18.48 TRNO............... 82,554 20.20 0.053 26.35
DMB............................. 55,155 11.99 0.023 19.20 CHT................ 77,541 30.23 0.032 10.48
DSM............................. 126,484 8.06 0.014 16.91 FRA................ 131,349 13.84 0.013 9.68
FDUS............................ 68,041 17.12 0.061 35.44 LION............... 76,072 14.50 0.082 57.41
FRSH............................ 132,657 9.45 0.068 71.68 CBU................ 127,820 35.74 0.063 17.62
GAIN............................ 110,718 7.34 0.015 20.05 EOS................ 144,318 13.72 0.015 11.22
GASS............................ 155,935 8.44 0.028 33.44 CENTA.............. 144,524 8.25 0.032 39.17
GBDC............................ 188,201 16.89 0.029 16.92 NCI................ 176,055 14.60 0.028 19.24
GLAD............................ 128,184 9.02 0.026 28.43 TI................. 159,450 11.04 0.020 17.79
GMLP............................ 163,282 35.15 0.146 41.52 UMBF............... 157,424 56.89 0.146 25.85
GOOD............................ 112,763 17.57 0.031 17.67 CPF................ 114,830 18.46 0.031 16.70
GSVC............................ 139,253 10.14 0.034 33.84 NBHC............... 160,159 19.39 0.035 18.25
HTGC............................ 341,319 15.10 0.019 12.93 NFBK............... 271,599 13.78 0.019 13.77
IEP............................. 129,299 105.09 0.255 24.34 LANC............... 127,008 88.16 0.207 23.53
KCAP............................ 302,537 7.93 0.016 19.82 ETJ................ 306,544 11.54 0.015 13.14
LRAD............................ 234,963 2.87 0.020 71.58 MFG................ 335,904 3.60 0.010 28.25
MAGS............................ 352,530 4.58 0.052 114.83 RTRX............... 445,328 10.54 0.043 40.96
MAIN............................ 202,931 31.39 0.039 12.33 MLI................ 201,430 30.24 0.039 13.07
MUA............................. 52,623 13.29 0.023 17.06 GHY................ 173,681 16.48 0.020 12.16
MUE............................. 65,631 13.24 0.017 13.04 ISF................ 67,500 25.39 0.019 7.65
NANO............................ 111,903 14.88 0.051 34.61 MG................. 120,243 18.37 0.049 26.63
NDP............................. 93,945 24.11 0.067 28.08 THR................ 115,353 24.59 0.057 23.42
NEP............................. 188,649 34.86 0.185 53.54 PLXS............... 171,711 38.76 0.084 21.71
OIA............................. 93,055 6.77 0.013 19.36 AWP................ 257,107 6.89 0.011 15.68
PBT............................. 145,410 12.85 0.030 23.84 DAKT............... 171,820 12.89 0.031 24.21
PCK............................. 59,924 9.45 0.024 25.50 ETV................ 207,431 14.89 0.019 12.73
PFLT............................ 67,807 14.02 0.045 31.98 DGRW............... 66,466 29.59 0.043 14.58
PFMT............................ 311,460 8.16 0.025 30.92 FSS................ 280,570 14.16 0.024 16.88
PGP............................. 131,368 23.08 0.086 37.58 EXLS............... 133,974 26.59 0.078 29.49
PMF............................. 58,501 14.07 0.025 17.56 SKYY............... 66,651 27.35 0.035 12.85
PMX............................. 73,074 10.85 0.020 18.60 CII................ 136,940 14.78 0.016 11.17
SDLP............................ 456,457 28.00 0.075 26.78 FUL................ 468,387 42.02 0.049 11.58
SHLO............................ 50,103 16.93 0.107 63.20 UFCS............... 56,599 29.25 0.125 42.48
SJT............................. 96,558 18.27 0.062 34.17 GRAM............... 92,291 14.22 0.057 40.66
SLRC............................ 214,437 18.95 0.025 13.39 PFS................ 201,034 17.16 0.023 13.22
SPH............................. 166,532 44.68 0.092 20.53 CNMD............... 162,637 40.04 0.086 21.35
TCPC............................ 332,634 16.60 0.028 16.75 NFJ................ 271,825 17.73 0.027 15.41
TOUR............................ 318,343 17.36 0.073 42.30 SYKE............... 253,700 21.34 0.040 18.74
TSLX............................ 138,306 16.95 0.043 25.68 FBC................ 136,538 16.29 0.038 23.25
VOC............................. 132,226 11.27 0.041 38.08 CCU................ 144,842 21.38 0.044 20.58
WBK............................. 174,452 29.49 0.034 11.61 IFGL............... 147,189 30.54 0.034 11.29
WLDN............................ 180,819 13.99 0.061 43.65 FTGC............... 169,252 29.57 0.057 19.47
WSR............................. 98,234 14.57 0.031 21.33 SOCL............... 122,280 19.37 0.029 15.22
-------------------------------------------------- ------------------------------------------------
Avg......................... 166,435 19.37 0.051 29.83 Avg................ 179,551 23.95 0.046 19.88
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table 4B--Retail Program Matched Sample CADV >50,000 and <500,000
[2017-2018]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Treatment stocks Control stocks
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
RMO % RMO % Avg Sprd Avg Sprd RMO % RMO % Avg Sprd Avg Sprd
Symbol BX Ind ADV Avg Price ($) (bps) Symbol BX Ind ADV Avg Price ($) (bps)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
AI..................................... 2.45 0.06 458,637 $11.93 $0.012 9.87 DSL....................... 0.85 0.011 373,997 $20.14 $0.015 7.60
ANIK................................... 2.03 0.06 123,465 46.77 0.191 40.89 WABC...................... 0.33 0.010 100,762 57.73 0.231 40.12
APU.................................... 3.36 0.08 237,312 42.89 0.077 17.90 WST....................... 0.29 0.010 367,026 96.31 0.129 13.20
AUDC................................... 1.72 0.06 117,591 7.79 0.032 42.65 RVT....................... 0.55 0.008 288,150 15.18 0.017 11.22
BLX.................................... 2.13 0.08 130,009 26.09 0.056 21.57 STC....................... 0.16 0.006 157,476 42.53 0.090 21.17
COHU................................... 2.33 0.09 284,253 20.78 0.049 24.11 CSGS...................... 0.10 0.004 197,396 40.89 0.083 20.47
DBL.................................... 4.52 0.07 74,432 22.32 0.049 21.63 TRNO...................... 0.11 0.005 345,017 34.66 0.034 10.00
DMB.................................... 9.72 0.07 58,671 12.71 0.021 16.46 CHT....................... 0.15 0.007 148,554 35.08 0.025 7.01
DSM.................................... 5.07 0.07 113,155 7.98 0.013 16.39 FRA....................... 0.54 0.010 163,372 14.05 0.013 9.26
[[Page 21886]]
FDUS................................... 3.45 0.09 97,448 15.30 0.044 28.40 LION...................... 0.26 0.011 109,864 23.17 0.074 32.01
FRSH................................... 3.36 0.08 110,611 5.09 0.044 86.28 CBU....................... 0.23 0.007 243,704 57.33 0.103 18.12
GAIN................................... 3.01 0.08 172,450 10.23 0.019 18.48 EOS....................... 0.66 0.009 131,800 15.50 0.022 14.38
GASS................................... 4.18 0.06 57,778 3.70 0.035 94.13 CENTA..................... 0.16 0.007 234,333 34.78 0.075 21.63
GBDC................................... 3.77 0.10 211,753 18.77 0.023 12.44 NCI....................... 0.22 0.009 296,999 21.09 0.027 13.06
GLAD................................... 2.68 0.07 134,680 9.33 0.020 21.33 TI........................ 0.18 0.003 149,165 8.43 0.020 23.55
GMLP................................... 2.77 0.08 357,537 19.24 0.039 20.40 UMBF...................... 0.32 0.009 222,813 73.14 0.177 24.31
GOOD................................... 2.19 0.09 152,848 19.98 0.037 18.77 CPF....................... 0.21 0.008 139,636 29.65 0.060 20.33
GSVC................................... 6.04 0.15 137,911 6.04 0.030 51.88 NBHC...................... 0.13 0.005 139,900 34.36 0.070 20.52
HTGC................................... 3.95 0.10 476,844 13.11 0.012 9.55 NFBK...................... 0.20 0.008 99,333 16.56 0.047 28.86
IEP.................................... 8.34 0.13 100,497 59.83 0.232 38.77 LANC...................... 0.33 0.010 105,903 134.53 0.506 37.19
KCAP................................... 11.65 0.18 117,403 3.41 0.017 49.08 ETJ....................... 0.43 0.008 276,325 9.37 0.013 13.59
LRAD................................... 11.15 0.13 60,046 2.17 0.032 152.85 MFG....................... 0.13 0.005 367,028 3.57 0.010 28.38
MAGS................................... 6.89 0.12 59,713 5.48 0.055 103.25 RTRX...................... 0.13 0.005 334,303 23.33 0.066 28.37
MAIN................................... 4.44 0.13 245,561 38.49 0.032 8.32 MLI....................... 0.29 0.010 207,388 31.27 0.053 17.02
MUA.................................... 12.42 0.07 55,118 14.03 0.027 19.28 GHY....................... 0.50 0.011 169,952 14.32 0.013 9.08
MUE.................................... 5.46 0.06 63,559 12.96 0.020 15.65 ISF....................... 1.87 0.011 60,764 25.70 0.024 9.32
NANO................................... 3.12 0.11 251,457 29.99 0.067 22.73 MG........................ 0.12 0.006 71,628 20.70 0.082 40.44
NDP.................................... 4.23 0.07 75,449 13.12 0.051 39.75 THR....................... 0.17 0.008 123,398 21.67 0.057 25.99
NEP.................................... 3.02 0.09 255,681 40.17 0.093 23.05 PLXS...................... 0.30 0.010 174,481 57.60 0.125 21.74
OIA.................................... 16.93 0.10 73,578 7.67 0.017 22.76 AWP....................... 0.69 0.012 402,327 6.15 0.011 17.48
PBT.................................... 4.83 0.10 100,106 8.91 0.033 37.49 DAKT...................... 0.20 0.010 173,399 9.13 0.023 25.10
PCK.................................... 18.47 0.07 71,701 9.15 0.021 23.21 ETV....................... 0.49 0.008 205,388 15.31 0.016 10.33
PFLT................................... 3.58 0.11 197,419 13.65 0.020 14.98 DGRW...................... 0.09 0.002 226,271 39.48 0.016 3.99
PFMT................................... 8.21 0.07 68,953 2.11 0.054 265.29 FSS....................... 0.24 0.008 271,757 20.34 0.032 15.75
PGP.................................... 6.66 0.07 65,178 15.61 0.071 46.24 EXLS...................... 0.26 0.009 149,278 56.40 0.142 24.91
PMF.................................... 8.46 0.07 79,512 13.26 0.024 18.20 SKYY...................... 0.42 0.008 219,272 46.15 0.032 7.24
PMX.................................... 14.86 0.06 65,449 11.50 0.019 16.19 CII....................... 0.61 0.010 130,256 15.59 0.018 11.60
SDLP................................... 6.34 0.09 377,760 3.42 0.017 50.24 FUL....................... 0.31 0.012 362,459 51.90 0.062 12.11
SHLO................................... 1.77 0.06 135,927 9.68 0.058 60.99 UFCS...................... 0.36 0.012 76,492 47.53 0.233 48.58
SJT.................................... 5.54 0.10 186,679 6.96 0.028 40.45 GRAM...................... 0.41 0.008 236,863 3.44 0.044 134.58
SLRC................................... 2.38 0.09 103,705 21.28 0.040 18.90 PFS....................... 0.18 0.007 184,245 25.94 0.043 16.64
SPH.................................... 5.60 0.15 279,196 24.42 0.046 18.83 CNMD...................... 0.36 0.012 154,890 58.57 0.184 31.64
TCPC................................... 4.35 0.11 227,052 15.54 0.019 11.89 NFJ....................... 0.46 0.007 264,566 12.95 0.014 10.78
TOUR................................... 1.30 0.07 200,307 7.59 0.031 43.03 SYKE...................... 0.17 0.007 155,555 29.58 0.075 25.34
TSLX................................... 2.64 0.08 244,727 19.71 0.022 11.23 FBC....................... 0.23 0.008 249,281 32.55 0.052 16.08
VOC.................................... 12.82 0.11 56,733 4.58 0.042 92.38 CCU....................... 0.17 0.008 182,729 26.46 0.053 19.89
WBK.................................... 1.96 0.07 265,250 23.11 0.017 7.36 IFGL...................... 0.04 0.001 110,807 28.91 0.028 9.67
WLDN................................... 3.13 0.10 91,458 29.62 0.155 52.79 FTGC...................... 0.35 0.007 92,367 20.22 0.031 15.42
WSR.................................... 1.66 0.07 363,836 12.96 0.019 15.03 SOCL...................... 0.55 0.011 63,186 31.00 0.075 24.28
--------------------------------------------------------------- -------------------------------------------------------------
Avg................................ 5.53 0.09 164,212 16.33 0.045 39.05 Avg....................... 0.34 0.008 198,201 32.45 0.070 21.82
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2. Economic Impact of the BX RPI Program on Execution Quality
To assess the execution quality of the Program, BX focused on
symbol-day combinations when during market hours: (i) An RMO execution
occurred on BX, (ii) a non-RMO execution occurred on BX, and (iii) a
tape-eligible trade occurred on BX. Symbol day combinations are
aggregated to overall daily statistics by either a simple average or by
volume weighting by RMO executed volume during market hours.\25\ This
results in the number and identity of symbols captured in each daily
average changing from day to day. Using this data, the Exchange
examined whether the economic outcomes for RMO trades differs from non-
RMO trades and/or all trades.
---------------------------------------------------------------------------
\25\ Both RMO and non-RMO execution quality values are weighted
by RMO volume and a very small number of extreme outlier symbol-day
stats have been removed from the analysis.
---------------------------------------------------------------------------
When comparing average price improvement for RMO and non-RMO
executions for a subset of 100 stocks with the largest number of RMO
shares executed, the price improvement seen in RMO and non-RMO trades
is comparable over the life of the Program. When volume weighting the
average price improvement by RMO volume to emphasize those stock/day
combinations with the highest volume traded in RMO, average price
improvement on BX for both RMO and non-RMO trades appear generally
comparable over time, with RMO price improvement generally beating non-
RMO. Note that this price improvement measure does not take rebates
into account.
In the subset of active RMO symbols, RMO volume-weighted effective
and realized spreads for RMO and all executions, which includes RMO
executions, are generally comparable throughout the duration of the
Program.
Similar to regular, liquidity-taking orders on BX, the Program
offers inverted pricing where RMO orders receive a rebate (on top of
the price improvement they receive) when executing against RPI
liquidity, while there is a fee associated with RPI orders which post
non-displayed, price-improving liquidity. RPI orders are charged
$0.0025 per share. Retail Orders currently receive a rebate of $0.0021
per share when executing against RPI liquidity, a rebate of $0.0000 per
share when executing against other hidden, price-improvising liquidity,
and a rebate of $0.0017 per share when executing against other
displayed liquidity on the BX book.
3. Are Only Eligible Participants Accessing Program Liquidity
Only RMOs that have been approved by BX can enter RMO orders that
access the Program liquidity, and the System does not allow non-RMO
orders to access RPI providing orders. The System
[[Page 21887]]
does not allow non-RMO orders to access RPI providing orders. BX Rule
4780(c) enables BX at its sole discretion to disqualify RMO members
that submit orders that fail to meet any of the requirements of the
rule.
4. Is the Program Attracting Retail Participation
The Program has attracted some retail orders to the Exchange and
participation in the Program has continued to increase over time. The
Exchange believes that the Program provided tangible price improvement
and transparency to retail investors through a competitive pricing
process.
Brokers route retail orders to a wide range of different trading
systems. The Program offers a transparent and well-regulated option
providing competition and price improvement. BX believes that it has
achieved its goal of attracting retail order flow to BX and, as stated
above, it has resulted in a significant price improvement to retail
investors through a competitive pricing process. The Exchange also has
not detected any negative impact to market quality or to retail
investors as the Program has continued to grow over time.
On average, an RMO execution continues to get more price
improvement than the minimum $0.001 price improvement required of an
RPI liquidity-providing order in the Program, and over time the price
improvement seen on BX in non-RMO orders does not appear to be
negatively impacted by the introduction of the Program.
5. Net Benefits of the Program on Participants
The Exchange believes that the Program through retail order
segmentation does create greater retail order flow competition and
thereby increases the amount of this flow to BX. This helps to ensure
that retail investors benefit from the price improvement that liquidity
providers are willing to provide. The Program promotes competition for
retail order flow by allowing Exchange members to submit RPI Orders to
interact with Retail Orders. Such competition promotes efficiency by
facilitating the price discovery process and generating additional
investor interest in trading securities, thereby promoting capital
formation.
The Program also promotes competition for retail order flow among
execution venues, and this benefits retail investors by creating
additional price improvement opportunities for marketable retail order
flow, most of which is currently executed in the OTC markets without
ever reaching a public exchange. The Exchange believes that it has
achieved its goal of attracting retail order flow to BX, and has
resulted in price improvement to retail investors through a competitive
pricing process. The data also demonstrates that the Program has
continued to grow over time and the Exchange has not detected any
negative impact to market quality or to retail investors.
The price improvement chart below demonstrates retail firms have
received price improvement through their use of the Program that they
otherwise may not have received. This is a net benefit to the retail
firms as well as the firms who are able to compete to interact with the
retail firms.
[GRAPHIC] [TIFF OMITTED] TN15MY19.005
6. Overall Success in Achieving Intended Benefits
The Program has demonstrated the effectiveness of a transparent,
on-exchange retail order price improvement functionality, and while
small relative to total consolidated volume, has achieved its goals of
attracting retail order flow and providing those orders with price
improvement totaling tens of thousands of dollars each month.
The Program provides additional competition to the handling of
retail orders. The added opportunity for price improvement provides
pressure on other more established venues to increase the price
improvement that they provide. By doing this, the
[[Page 21888]]
Exchange believes that the Program may have a greater positive effect
than the market share would directly indicate.
Can the Program Be Improved
The Program provides a transparent, well-regulated, and competitive
venue for retail orders to receive price improvement. The size of the
Program is somewhat limited by the rules that prevent BX from matching
features offered by non-exchange trading venues. Nonetheless, the
Exchange believes the Program is worthwhile and it will continue to
look for ways to further innovate and improve the Program. The Exchange
believes that making the pilot permanent is appropriate and through
this filing seeks to make permanent the current operation of the
Program.
Conclusion
In conclusion, the Exchange notes the Program provided
opportunities for retail investors to get significant price improvement
on an exchange where they otherwise would not have had the opportunity
to do so. The Exchange believes the Program did not have a negative
impact on the market quality as evidenced by the lack of consistent
statistical evidence of an impact and the small size of the Program.
Accordingly, the Exchange believes that the pilot Program's rules,
as amended, should be made permanent. Additionally, the Exchange notes
that the proposed change is not otherwise intended to address any other
issues and the Exchange is not aware of any problems that member
organizations would have in complying with the proposed rule change.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\26\ in general, and with
Section 6(b)(5) of the Act,\27\ in particular, in that it is designed
to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general to protect investors and the
public interest and not to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78f.
\27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that making the pilot Program permanent is
consistent with these principles because the Program is reasonably
designed to attract retail order flow to the exchange environment,
while helping to ensure that retail investors benefit from the better
price that liquidity providers are willing to give their orders. During
the pilot period, BX has provided data and analysis to the Commission,
and this data and analysis, as well as the further analysis in this
filing, shows that the Program has operated as intended and is
consistent with the Act. The data and analysis provided to the
Commission staff demonstrates that the Program provided tangible price
improvement to retail investors through a competitive pricing process
unavailable in non-exchange venues and otherwise had an insignificant
impact on the marketplace. Making the Program permanent would encourage
the additional utilization of, and interaction with, the Exchange and
provide retail customers with an additional venue for price discovery,
liquidity, competitive quotes, and price improvement.
Additionally, the Exchange believes the proposed rule change is
designed to facilitate transactions in securities and to remove
impediments to, and perfect the mechanisms of, a free and open market
and a national market system because the competition promoted by the
Program facilitates the price discovery process and potentially
generate additional investor interest in trading securities. Making the
pilot Program permanent will allow the Exchange to continue to provide
the Program's benefits to retail investors on a permanent basis and
maintain the improvements to public price discovery and the broader
market structure. The data provided by BX to the SEC staff demonstrates
that the Program provided tangible price improvement and transparency
to retail investors through a competitive pricing process.
For the reasons stated above, the Exchange believes that making the
Program permanent would promote just and equitable principles of trade
and remove impediments to and perfect the mechanism of a free and open
market.
As described below in BX's statement regarding the burden on
competition, the Exchange also believes that it is subject to
significant competitive forces and it would increase competition among
execution venues, encourage additional liquidity, and offer the
potential for price improvement to retail investors.
For all of these reasons, the Exchange believes that the proposal
is consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended. BX
believes that making the Program permanent would continue to enhance
competition for retail order flow among execution venues and contribute
to the public price discovery process.
The Exchange believes that the data supplied to the Commission and
experience gained over the life of the pilot have demonstrated that the
Program creates price improvement opportunities for retail orders that
are equal to what would be provided under OTC internalization
arrangements, thereby benefiting retail investors and increasing
competition between execution venues. BX also believes that making the
Program permanent will promote competition between execution venues
operating their own retail liquidity programs. Such competition will
lead to innovation within the market, thereby increasing the quality of
the national market system.
Additionally, the Exchange notes that it operates in a highly
competitive market in which market participants can easily direct their
orders to competing venues, including off-exchange venues. In such an
environment, the Exchange must continually review, and consider
adjusting the services it offers and the requirements, it imposes to
remain competitive with other U.S. equity exchanges.
For the reasons described above, BX believes that the proposed rule
change reflects this competitive environment.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act.
[[Page 21889]]
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-BX-2019-011 on the subject line.
Paper Comments
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-BX-2019-011. 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 (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal offices of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-BX-2019-011, and should be submitted on
or before June 5, 2019.
---------------------------------------------------------------------------
\28\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-09966 Filed 5-14-19; 8:45 am]
BILLING CODE 8011-01-P