[Federal Register Volume 88, Number 109 (Wednesday, June 7, 2023)]
[Notices]
[Pages 37293-37296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-12110]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97639; File No. SR-CboeBYX-2023-008]


Self-Regulatory Organizations; Cboe BYX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend 
Rule 11.24(e) To Modify When the Exchange Will Disseminate the Retail 
Liquidity Identifier

June 1, 2023.
    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 May 19, 2023, Cboe BYX Exchange, Inc. filed with the Securities and 
Exchange Commission the proposed rule change as described in Items I 
and II below, which Items have been prepared by the Exchange. The 
Exchange has designated the proposed rule change as constituting a 
``non-controversial'' rule change pursuant to Section 19(b)(3)(A)(iii) 
of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the 
proposal effective upon receipt of this filing by the Commission. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BYX Exchange, Inc. (the ``Exchange'' or ``BYX'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposal 
to modify Rule 11.24(e). The text of the proposed rule change is 
provided in Exhibit 5.
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/byx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

[[Page 37294]]

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 currently operates a Retail Price Improvement Program 
(``RPI Program'') \5\ that permits Retail Member Organizations 
(``RMOs'') \6\ to submit Retail Orders \7\ to the Exchange. Exchange 
Users \8\ are permitted to provide potential price improvement for 
Retail Orders through the use of Retail Price Improvement Orders (``RPI 
Orders'').\9\ When there is an RPI Order in a particular security that 
meets certain requirements (further described below), the Exchange 
disseminates an indicator, known as the Retail Liquidity Identifier 
(the ``Identifier'').\10\ The Exchange now proposes to amend Rule 
11.24(e), which describes when the Exchange will disseminate the 
Identifier.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 68303 (November 27, 
2012), 77 FR 71652 (December 3, 2012), SR-BYX-2012-019 (``Order 
Granting Approval to Proposed Rule Change, as Modified by Amendment 
No. 2, To Adopt a Retail Price Improvement Program'').
    \6\ See Rule 11.24(a)(1). An RMO is a Member (or a division 
thereof) that has been approved by the Exchange under Rule 11.24 to 
submit Retail Orders.
    \7\ See Rule 11.24(a)(2). A Retail Order is an agency or 
riskless principal order that meets the criteria of FINRA Rule 
5320.03 that originates from a natural person and is submitted to 
the Exchange by an RMO, provided that no change is made to the terms 
of an order with respect to price or side of market and the order 
does not originate from a trading algorithm or any other 
computerized methodology. A Retail Order is an Immediate or Cancel 
(``IOC'') Order and shall operate in accordance with Rule 11.24(f). 
A Retail Order can be an odd lot, round lot, or mixed lot.
    \8\ See Rule 1.5. The term ``User'' shall mean any Member or 
Sponsored Participant who is authorized to obtain access to the 
System pursuant to Rule 11.3.
    \9\ See Rule 11.24(a)(3). An RPI Order consists of non-displayed 
interest on the Exchange that is priced better than the Protected 
NBB or Protected NBO by at least $0.001 and that is identified as 
such. The System will monitor whether RPI buy or sell interest, 
adjusted by any offset and subject to the ceiling or floor price, is 
eligible to interact with incoming Retail Orders. An RPI Order 
remains non-displayed in its entirety (the buy or sell interest, the 
offset, and the ceiling or floor). An RPI Order may also be entered 
in a sub-penny increment with an explicit limit price. Any User is 
permitted, but not required, to submit RPI Orders. An RPI Order may 
be an odd lot, round lot or mixed lot.
    \10\ See Rule 11.24(e). The Retail Liquidity Identifier shall be 
disseminated through proprietary data feeds or as appropriate 
through the Consolidated Quotation System when RPI interest priced 
at least $0.001 better than the Exchange's Protected Bid or 
Protected Offer for a security is available in the System. The 
Retail Liquidity Identifier shall reflect the symbol for the 
particular security and the side (buy or sell) of the RPI interest, 
but shall not include the price or size of the RPI interest.
---------------------------------------------------------------------------

    Currently, Rule 11.24(e) states that the Exchange may disseminate 
the 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.'' Exchange Rule 1.5(t) defines 
Protected Bid and Protected Offer as a bid or offer in a stock that is 
(i) displayed by an automated trading center; (ii) disseminated 
pursuant to an effective national market system plan; and (iii) an 
automated quotation that is the best bid or best offer of a national 
securities exchange or association.\11\ In other words, the Protected 
Bid or Protected Offer referenced in Rule 11.24(e) is the Protected Bid 
or Protected Offer on the Exchange and does not contemplate the 
Protected Bid or Protected Offer on any other exchanges.
---------------------------------------------------------------------------

    \11\ See Rule 1.5(t).
---------------------------------------------------------------------------

    The Exchange now proposes to amend Rule 11.24(e) so that the 
Identifier will be disseminated when there is RPI interest priced at 
least $0.001 better than the Protected NBB (``PBB'') or Protected NBO 
(``PBO'') \12\ available in the System. The Exchange notes that its 
proposed functionality is substantively identical to NYSE Rule 7.44(j), 
NYSE Arca Rule 7.44-E(j), and Nasdaq BX Rule 4780(e).\13\ The Exchange 
believes that removing the reference to the ``Exchange's Protected Bid 
or Protected Offer'' and providing for the dissemination of the 
Identifier to occur when there is RPI interest priced at least $0.001 
better than PBB or PBO may decrease the amount of false signals 
provided by the Identifier,\14\ as the Identifier would no longer be 
disseminated only when there is an RPI Order priced $0.001 better than 
the Exchange's (emphasis added) Protected Bid \15\ or Protected 
Offer.\16\ The Exchange further believes that permitting the Identifier 
to display when there is RPI interest priced at least $0.001 better 
than the PBB or PBO may attract additional retail order flow and create 
greater retail order flow competition, which helps ensure that retail 
investors benefit from competitive price improvement that liquidity 
providers provide.
---------------------------------------------------------------------------

    \12\ See Rule 1.5(s). ``Protected NBB'' shall mean the national 
best bid that is a Protected Quotation and the term ``Protected 
NBO'' shall mean the national best offer that is a Protected 
Quotation. The term ``Protected Quotation'' is defined in Rule 
1.5(t) and means a quotation that is a Protected Bid or a Protected 
Offer.
    \13\ See e.g., NYSE Rule 7.44(j) and NYSE Arca Rule 7.44-E(j). A 
Retail Liquidity Identifier will be disseminated through proprietary 
data feeds and through the Consolidated Quotation System or the UTP 
Quote Data Feed when RPI interest priced at least $0.001 better than 
the PBB or PBO for a particular security is available in the 
applicable exchange systems. See also Nasdaq BX Rule 4780(e), which 
states that an identifier shall be disseminated through proprietary 
data feeds and through the Securities Information Processor when RPI 
interest priced at least $0.001 better than the NBBO for a 
particular security is available in the Nasdaq BX system.
    \14\ The Exchange has been made aware of instances where the 
Identifier is disseminated because of an RPI Order priced better 
than the Exchange's Protected Bid or Protected Offer, but because 
the RPI Order is not priced at least $0.001 better than the PBB or 
PBO, it is ineligible to execute. When this occurs, Retail Orders 
submitted to the Exchange to execute against the RPI interest 
identified by the Identifier are rejected. The Exchange believes 
that by amending Rule 11.24(e), fewer false signals will occur 
because the Identifier will only display when there is RPI interest 
priced at least $0.001 better than the PBB or PBO.
    \15\ Supra note 11.
    \16\ Id.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Securities Exchange Act of 1934 (the ``Act'') and the rules and 
regulations thereunder applicable to the Exchange and, in particular, 
the requirements of Section 6(b) of the Act.\17\ Specifically, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \18\ requirements that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. Additionally, 
the Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \19\ requirement that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ Id.

---------------------------------------------------------------------------

[[Page 37295]]

    In particular, the proposed change promotes just and equitable 
principles of trade and removes impediments to and perfects the 
mechanism of a free and open market and a national market system 
because the proposed change is reasonably designed to attract retail 
order flow to the Exchange, which in turn may allow retail investors to 
benefit from the better price that liquidity providers are willing to 
give their orders. The Exchange believes its proposed amendment to Rule 
11.24(e) will provide fewer false signals, as the RPI interest signaled 
by the Identifier would no longer be based on the Exchange's Protected 
Bid or Protected Offer, but rather will be based on the PBB or PBO. By 
displaying the Identifier based on the PBB or PBO, the Exchange expects 
fewer instances in which Retail Orders submitted to execute against RPI 
Orders based on the Identifier would be rejected due to the RPI Order 
being inexecutable.\20\ This may help attract additional retail order 
flow to the Exchange, which will create greater retail order flow 
competition amongst exchanges and provide more opportunities for 
competitive price improvement for retail orders, benefitting market 
participants as a whole.
---------------------------------------------------------------------------

    \20\ Supra note 14.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposal does not impose any burden on intramarket competition that 
is not necessary or appropriate in furtherance of the purposes of the 
Act. Particularly, the proposal will apply equally to all RPI interest 
on the Exchange that is priced at least $0.001 better than the PBB or 
PBO. Furthermore, the Exchange believes its proposal will promote 
intramarket competition as additional retail order flow may be 
submitted to the Exchange with the potential to interact with other 
price improving liquidity or resting orders, subject to RMO order 
designation.
    The Exchange also believes the proposed rule change does not impose 
any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the Act. As discussed above, NYSE, NYSE 
Arca, and Nasdaq BX each disseminate similar indicators of RPI interest 
under their respective retail price improvement programs and the 
Exchange believes that its proposed rule change will allow it to 
compete for additional retail order flow with the aforementioned 
exchanges.\21\ Given that the Exchange's Identifier is proposed to be 
displayed in an almost identical manner to the competitor exchanges 
mentioned above rather than its current state of being displayed only 
when there is RPI interest priced $0.001 better than the Exchange's 
(emphasis added) Protected Best Bid or Protected Best Offer, the 
Exchange believes its proposal to permit the Identifier to display when 
there is RPI interest priced at least $0.001 better than the PBB or PBO 
will promote competition between the exchanges, hence fostering 
innovation within the market, and increasing the quality of the 
national market system by allowing national securities exchanges to 
compete both with each other and with off-exchange venues for order 
flow.
---------------------------------------------------------------------------

    \21\ Supra note 13.
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange neither solicited nor received comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \22\ and Rule 19b-
4(f)(6) \23\ thereunder.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \24\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\25\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative upon filing. The Exchange states that 
waiver of the operative delay does not present market participants with 
any new or novel issues, as other exchanges already utilize the PBB, 
PBO, or NBBO to determine when to disseminate their retail liquidity 
identifiers, and that accordingly, the proposed rule change does not 
significantly affect the protection of investors or the public 
interest.\26\ The Exchange also states that the proposed amendment to 
its Rule 11.24(e) will result in fewer instances in which Retail Orders 
submitted to execute against RPI Orders based on the Identifier would 
be rejected due to the RPI Order being inexecutable. For these reasons, 
the Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Therefore, the Commission hereby waives the operative delay and 
designates the proposal operative upon filing.\27\
---------------------------------------------------------------------------

    \24\ 17 CFR 240.19b-4(f)(6).
    \25\ 17 CFR 240.19b-4(f)(6)(iii).
    \26\ The Exchange also states that NYSE, NYSE Arca, and Nasdaq 
BX each disseminate similar indicators of RPI interest under their 
respective retail price improvement programs, and the Exchange 
believes that its proposed rule change will allow it to compete for 
additional retail order flow with the aforementioned exchanges. See 
supra note 21 and accompanying text.
    \27\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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. 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-CboeBYX-2023-008 on the subject line.

[[Page 37296]]

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-CboeBYX-2023-008. 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 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the principal office of the Exchange. Do not include 
personal identifiable information in submissions; you should submit 
only information that you wish to make available publicly. We may 
redact in part or withhold entirely from publication submitted material 
that is obscene or subject to copyright protection. All submissions 
should refer to File Number SR-CboeBYX-2023-008 and should be submitted 
on or before June 28, 2023.
---------------------------------------------------------------------------

    \28\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-12110 Filed 6-6-23; 8:45 am]
BILLING CODE 8011-01-P