[Federal Register Volume 84, Number 36 (Friday, February 22, 2019)]
[Notices]
[Pages 5754-5783]
[FR Doc No: 2019-03043]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85160; File No. SR-NYSE-2018-28]

Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment No. 1, To Make Permanent the Retail Liquidity Program Pilot,
Rule 107C, Which is Set To Expire on June 30, 2019, Notice of Filing of
Amendment No. 1, and Order Granting Limited Exemption Pursuant to Rule
612(c) of Regulation NMS

February 15, 2019.

I. Introduction

    On June 4, 2018, New York Stock Exchange LLC (``Exchange'') filed
with the Securities and Exchange Commission (``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange
Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to make
permanent Exchange Rule 107C governing the Exchange's Retail Liquidity
Program Pilot (``Program''). The proposed rule change was published for
comment in the Federal Register on June 21, 2018.\3\ On July 31, 2018,
pursuant to Section 19(b)(2) of the Act,\4\ the Commission extended to
September 19, 2018 the time period in which to approve the proposed
rule change, disapprove the proposed rule change, or institute
proceedings to

determine whether to disapprove the proposed rule change.\5\ On
September 18, 2018, the Commission issued an order instituting
proceedings under Section 19(b)(2)(B) of the Exchange Act,\6\ to
determine whether to approve or disapprove the proposed rule change.\7\
On December 10, 2018, pursuant to Section 19(b)(2) of the Act,\8\ the
Commission extended to February 16, 2019 the time period in which to
issue an order approving or disapproving the proposed rule change.\9\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 83454 (June 15,
2018), 83 FR 28874 (``Original Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 83749, 83 FR 38393
(August 6, 2018).
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 84183, 83 FR 48350
(September 24, 2018) (``Order Instituting Proceedings'').
    \8\ 15 U.S.C. 78s(b)(2).
    \9\ See Securities Exchange Act Release No. 84766, 83 FR 64414
(December 14, 2018).
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    The Commission received one comment letter on the proposed rule
change.\10\ On February 13, 2019, the Exchange filed Amendment No. 1 to
the proposed rule change, which supersedes and replaces the original
filing in its entirety.\11\ In connection with the proposed rule
change, as modified by Amendment No. 1, the Exchange requests exemptive
relief from Rule 612 of Regulation NMS,\12\ 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.\13\ The Commission is publishing this notice to solicit comments
on Amendment No. 1 from interested persons, issuing this order
approving the proposed rule change, as modified by Amendment No. 1, on
an accelerated basis, and issuing this order granting to the Exchange a
limited exemptive relief pursuant to Rule 612(c) of Regulation NMS.
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    \10\ See Letter from Tyler Gellasch, Executive Director, Healthy
Markets Association, dated December 20, 2018 (``HMA Letter'').
    \11\ See infra Section II.
    \12\ 17 CFR 242.612(c).
    \13\ See note 14 infra.
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II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1

    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 those statements may be examined at the places specified in
Item V below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant parts of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to make permanent Rule 107C, which sets forth
the Exchange's pilot Retail Liquidity Program (the ``Program''). In
support of the proposal to make the pilot Program permanent, the
Exchange believes it is appropriate to provide background on the
Program and an analysis of the economic benefits for retail investors
and the marketplace flowing from operation of the Program.
Background
    In July 2012, the Securities and Exchange Commission (the
``Commission'') approved the Program on a pilot basis.\14\ The purpose
of the pilot was to analyze data and assess the impact of the Program
on the marketplace. The pilot period was originally scheduled to end on
July 31, 2013. The Exchange filed to extend the operation of the pilot
on several occasions in order to prepare this rule filing. The pilot is
currently set to expire on the earlier of approval of this filing or
June 30, 2019.\15\
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    \14\ See Securities Exchange Act Release No. 67347 (July 3,
2012), 77 FR 40673 (July 10, 2012) (SR-NYSE-2011-55) (``RLP Approval
Order''). In addition to approving the 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 Martha Redding, Associate
General Counsel and Assistant Corporate Secretary, New York Stock
Exchange, to Brent J. Fields, Secretary, Securities and Exchange
Commission, dated February 13, 2019 (``Sub-Penny Rule Exemption
Request'').
    \15\ See Securities Exchange Act Release No. 84767 (December 10,
2018), 83 FR 64412 (December 14, 2018) (SR-NYSE-2018-59). See also
Securities Exchange Act Release No. 82230 (December 7, 2017), 82 FR
58667 (December 13, 2017) (SR-NYSE-2017-64) (extending pilot to June
30, 2018); Securities Exchange Act Release No. 80844 (June 1, 2017),
82 FR 26562 (June 7, 2017) (SR-NYSE-2017-26) (extending pilot to
December 31, 2017); Securities Exchange Act Release No. 79493
(December 7, 2016), 81 FR 90019 (December 13, 2016) (SR-NYSE-2016-
82) (extending pilot to June 30, 2017); Securities Exchange Act
Release No. 78600 (August 17, 2016), 81 FR 57642 (August 23, 2016)
(SR-NYSE-2016-54) (extending pilot to December 31, 2016); Securities
Exchange Act Release No. 77426 (March 23, 2016), 81 FR 17533 (March
29, 2016) (SR-NYSE-2016-25) (extending pilot to August 31, 2016);
Securities Exchange Act Release No. 75993 (September 28, 2015), 80
FR 59844 (October 2, 2015) (SR-NYSE-2015-41) (extending pilot to
March 31, 2016); Securities Exchange Act Release No. 74454 (March 6,
2015), 80 FR 13054 (March 12, 2015) (SR-NYSE-2015-10) (extending
pilot until September 30, 2015); Securities Exchange Act Release No.
72629 (July 16, 2014), 79 FR 42564 (July 22, 2014) (NYSE-2014-35)
(extending pilot until March 31, 2015); Securities Exchange Act
Release No. 70096 (Aug. 2, 2013), 78 FR 48520 (Aug. 8, 2013) (SR-
NYSE-2013-48) (extending pilot to July 31, 2014); and Securities
Exchange Act Release No. 83540 (June 28, 2018), 83 FR 31234 (July 3,
2018) (SR-NYSE-2018-29) (extending pilot to December 31, 2018).
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    The Exchange established the Program to attract retail order flow
to the Exchange, and allow such order flow to receive potential price
improvement.\16\ The Program is currently limited to trades occurring
at prices equal to or greater than $1.00 a share.
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    \16\ RLP Approval Order, 77 FR at 40674.
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    As described in greater detail below, under Rule 107C, a new class
of market participant called Retail Liquidity Providers (``RLPs'') \17\
and non-RLP member organizations are able to provide potential price
improvement to retail investor orders in the form of a non-displayed
order that is priced better than the best protected bid or offer
(``PBBO''), called a Retail Price Improvement Order (``RPI''). When
there is an RPI in a particular security, the Exchange disseminates an
indicator, known as the Retail Liquidity Identifier (``RLI''), that
such interest exists. Retail Member Organizations (``RMOs'') can submit
a Retail Order to the Exchange, which interacts, to the extent
possible, with available contra-side RPIs and Mid-Point Passive
Liquidity (``MPL'') Orders.\18\ The segmentation in the Program allows
retail order flow to receive potential price improvement as a result of
their order flow being deemed more desirable by liquidity
providers.\19\
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    \17\ The Program also allows for RLPs to register with the
Exchange. However, any firm can enter RPI orders into the system.
Currently, four firms are registered as RLPs but are not registered
in any symbols.
    \18\ The Exchange adopted MPL Orders in 2014 and amended Rule
107C to specify that MPL Orders could interact with incoming,
contra-side Retail Orders submitted by a RMO in the Program. See
Securities Exchange Act Release No. 71330 (January 16, 2014), 79 FR
3895 (January 23, 2014) (SR-NYSE-2013-71) (``Release No. 71330'').
    \19\ RLP Approval Order, 77 FR at 40679.
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    In approving the pilot, the Commission concluded that the Program
was reasonably designed to benefit retail investors by providing price
improvement opportunities to retail order flow. Further, while the
Commission noted that 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,\20\ which requires that

the rules of an exchange are not designed to permit unfair
discrimination. As the Commission recognized, retail order segmentation
was designed to create additional competition for retail order flow,
leading to additional retail order flow to the exchange environment and
ensuring that retail investors benefit from the better price that
liquidity providers are willing to give their orders.\21\
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    \20\ 15 U.S.C. 78f(b)(5).
    \21\ RLP Approval Order, 77 FR at 40679.
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    As discussed below, the Exchange believes that the Program data
supports these conclusions and that it is therefore appropriate to make
the pilot Program permanent.\22\
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    \22\ Rule 107C has been amended several times. See Securities
Exchange Act Release No. 68709 (January 23, 2013), 78 FR 6160
(January 29, 2013) (SR-NYSE-2013-04) (amending Rule 107C to clarify
that Retail Liquidity Providers may enter Retail Price Improvement
Orders in a non-RLP capacity for securities to which the RLP is not
assigned); 69103 (March 11, 2013), 78 FR 16547 (March 15, 2013) (SR-
NYSE-2013-20) (amending Rule 107C to clarify that a Retail Member
Organization may submit Retail Orders to the Program in a riskless
principal capacity as well as in an agency capacity, provided that
(i) the entry of such riskless principal orders meets the
requirements of FINRA Rule 5320.03, including that the RMO maintains
supervisory systems to reconstruct, in a time-sequenced manner, all
Retail Orders that are entered on a riskless principal basis; and
(ii) the RMO does not include non-retail orders together with the
Retail Orders as part of the riskless principal transaction); 69513
(May 3, 2013), 78 FR 27261 (May 9, 2013) (SR-NYSE-2013-08) (amending
Rule 107C to allow Retail Member Organizations to attest that
``substantially all,'' rather than all, orders submitted to the
Program qualifies as ``Retail Orders'' under the Rule); Release No.
71330, 79 FR at 3895 (amending Rule 107C to incorporate MPL Orders);
and 76553 (December 3, 2015), 80 FR 76607 (December 9, 2015) (SR-
NYSE-2015-59) (``Release No. 76553'') (amending Rule 107C to
distinguish between retail orders routed on behalf of other broker-
dealers and retail orders that are routed on behalf of introduced
retail accounts that are carried on a fully disclosed basis).
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Description of Pilot Rule 107C That Would Become Permanent
Definitions
    Rule 107C(a) contains the following definitions:
     First, the term ``Retail Liquidity Provider'' is defined
as a member organization that is approved by the Exchange under the
Rule to act as such and to submit Retail Price Improvement Orders in
accordance with the Rule.\23\
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    \23\ See Rule 107C(a)(1).
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     Second, the term ``Retail Member Organization'' (``RMO'')
is defined as a member organization (or a division thereof) that has
been approved by the Exchange to submit Retail Orders.\24\
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    \24\ Id. at (2).
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     Third, the term ``Retail Order'' means an agency order or
a riskless principal order meeting the criteria of FINRA Rule 5320.03
that originates from a natural person and is submitted to the Exchange
by a RMO, provided that no change is made to the terms of the order
with respect to price or side of market and the order does not
originate from a trading algorithm or any other computerized
methodology. A Retail Order is an Immediate or Cancel Order and may be
an odd lot, round lot, or partial round lot (``PRL'').\25\
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    \25\ Id. at (3).
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     Finally, the term ``Retail Price Improvement Order'' means
non-displayed interest in NYSE-listed securities that is better than
the best protected bid (``PBB'') or best protected offer (``PBO'') by
at least $0.001 and that is identified as a Retail Price Improvement
Order in a manner prescribed by the Exchange.\26\
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    \26\ Id. at (4). Exchange systems prevent Retail Orders from
interacting with Retail Price Improvement Orders if the RPI is not
priced at least $0.001 better than the PBBO. An RPI remains non-
displayed in its entirety (the buy or sell interest, the offset, and
the ceiling or floor). An RLP would only be permitted to enter a
Retail Price Improvement Order for the particular security or
securities to which it is assigned as RLP. An RLP is permitted, but
not required, to submit RPIs for securities to which it is not
assigned, and will be treated as a non-RLP member organization for
those particular securities. Additionally, member organizations
other than RLPs are permitted, but not required, to submit RPIs. An
RPI may be an odd lot, round lot, or PRL. See id.
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RMO Qualifications and Application Process
    Under Rule 107C(b), any member organization \27\ can qualify as an
RMO if it conducts a retail business or routes \28\ retail orders on
behalf of another broker-dealer. For purposes of Rule 107C(b),
conducting a retail business includes carrying retail customer accounts
on a fully disclosed basis. To become an RMO, a member organization
must submit: (1) An application form; (2) supporting documentation
sufficient to demonstrate the retail nature and characteristics of the
applicant's order flow; \29\ and (3) an attestation, in a form
prescribed by the Exchange, that any order submitted by the member
organization as a Retail Order would meet the qualifications for such
orders under Rule 107C.\30\
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    \27\ An RLP may also act as an RMO for securities to which it is
not assigned, subject to the qualification and approval process
established by the proposed rule.
    \28\ See Release No. 76553, 80 FR at 76607 (clarifying that one
way to qualify as an RMO is to route retail orders on behalf of
other broker-dealers).
    \29\ The supporting documentation may include sample marketing
literature, website screenshots, other publicly disclosed materials
describing the member organization's retail order flow, and any
other documentation and information requested by the Exchange in
order to confirm that the applicant's order flow would meet the
requirements of the Retail Order definition. See Rule 107C
(b)(2)(B).
    \30\ See id. at (b)(2)(A)-(C).
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    An RMO must 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 organization 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 Rule 107C, 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 customer's Retail Order flow continues to meet the applicable
requirements.\31\
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    \31\ Id. at (b)(6).
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    Following submission of the required materials, the Exchange
provides written notice of its decision to the member organization.\32\
A disapproved applicant can appeal the disapproval by the Exchange as
provided in Rule 107C(4), and/or reapply for RMO status 90 days after
the disapproval notice is issued by the Exchange. An RMO can also
voluntarily withdraw from such status at any time by giving written
notice to the Exchange.\33\
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    \32\ Id. at (b)(3).
    \33\ Id. at (b)(5).
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RLP Qualifications
    To qualify as an RLP under Rule 107C(c), a member organization
must: (1) Already be approved as a Designated Market Maker (``DMM'') or
Supplemental Liquidity Provider (``SLP''); (2) demonstrate an ability
to meet the requirements of an RLP; (3) have mnemonics or the ability
to accommodate other Exchange-supplied designations that identify to
the Exchange RLP trading activity in assigned RLP securities; and (4)
have adequate trading infrastructure and technology to support
electronic trading.\34\
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    \34\ Id. at (c)(1)-(4).

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RLP Application
    Under Rule 107C(d), to become an RLP, a member organization must
submit an RLP application form with all supporting documentation to the
Exchange, which would determine whether an applicant was qualified to
become an RLP as set forth above.\35\ After an applicant submits an RLP
application to the Exchange with supporting documentation, the Exchange
would notify the applicant member organization of its decision. The
Exchange could approve one or more member organizations to act as an
RLP for a particular security. The Exchange could also approve a
particular member organization to act as RLP for one or more
securities. Approved RLPs would be assigned securities according to
requests made to, and approved by, the Exchange.\36\
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    \35\ Id. at (d)(1).
    \36\ Id. at (d)(2).
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    If an applicant were approved by the Exchange to act as an RLP, the
applicant would be required to establish connectivity with relevant
Exchange systems before the applicant would be permitted to trade as an
RLP on the Exchange.\37\ If the Exchange disapproves the application,
the Exchange would provide a written notice to the member organization.
The disapproved applicant could appeal the disapproval by the Exchange
as provided in proposed Rule 107C(i) and/or reapply for RLP status 90
days after the disapproval notice is issued by the Exchange.\38\
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    \37\ Id. at (d)(3).
    \38\ Id. at (d)(4).
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Voluntary Withdrawal of RLP Status
    An RLP would be permitted to withdraw its status as an RLP by
giving notice to the Exchange under proposed NYSE Rule107C(e). The
withdrawal would become effective when those securities assigned to the
withdrawing RLP are reassigned to another RLP. After the Exchange
receives the notice of withdrawal from the withdrawing RLP, the
Exchange would reassign such securities as soon as practicable, but no
later than 30 days after the date the notice is received by the
Exchange. If the reassignment of securities takes longer than the 30-
day period, the withdrawing RLP would have no further obligations and
would not be held responsible for any matters concerning its previously
assigned RLP securities.\39\
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    \39\ See id. at (e).
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RLP Requirements
    Under Rule 107C(f), an RLP may only enter Retail Price Improvement
Orders electronically and directly into Exchange systems and facilities
designated for this purpose and only for the securities to which it is
assigned as RLP. An RLP entering Retail Price Improvement Orders in
securities to which it is not assigned is not required to satisfy these
requirements.\40\
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    \40\ Id. at (f)(1).
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    In order to be eligible for execution fees that are lower than non-
RLP rates, an RLP must maintain (1) a Retail Price Improvement Order
that is better than the PBB at least five percent of the trading day
for each assigned security; and (2) a Retail Price Improvement Order
that is better than the PBO at least five percent of the trading day
for each assigned security.\41\ An RLP's five-percent requirements is
calculated by determining the average percentage of time the RLP
maintains a Retail Price Improvement Order in each of its RLP
securities during the regular trading day, on a daily and monthly
basis.\42\ The Exchange determines whether an RLP has met this
requirement by calculating the following:
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    \41\ Id. at (f)(1)(A)-(B).
    \42\ Id. at (f)(2).
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     The ``Daily Bid Percentage,'' calculated by determining
the percentage of time an RLP maintains a Retail Price Improvement
Order with respect to the PBB during each trading day for a calendar
month;
     The ``Daily Offer Percentage,'' calculated by determining
the percentage of time an RLP maintains a Retail Price Improvement
Order with respect to the PBO during each trading day for a calendar
month;
     The ``Monthly Average Bid Percentage,'' calculated for
each RLP security by summing the security's ``Daily Bid Percentages''
for each trading day in a calendar month then dividing the resulting
sum by the total number of trading days in such calendar month; and
     The ``Monthly Average Offer Percentage,'' calculated for
each RLP security by summing the security's ``Daily Offer Percentage''
for each trading day in a calendar month and then dividing the
resulting sum by the total number of trading days in such calendar
month.
    Finally, only Retail Price Improvement Orders would be used when
calculating whether an RLP is in compliance with its five-percent
requirements.\43\
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    \43\ Id. at (f)(2)(A)-(E).
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    The five-percent requirement is not applicable in the first two
calendar months a member organization operates as an RLP and takes
effect on the first day of the third consecutive calendar month the
member organization operates as an RLP.\44\
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    \44\ Id. at (f)(3).
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Failure of RLP To Meet Requirements
    Rule 107C(g) addresses the consequences of an RLP's failure to meet
its requirements. If, after the first two months an RLP acted as an
RLP, an RLP fails to meet any of the Rule 107C(f) requirements for an
assigned RLP security for three consecutive months, the Exchange could,
in its discretion, take one or more of the following actions:
     Revoke the assignment of any or all of the affected
securities from the RLP;
     revoke the assignment of unaffected securities from the
RLP; or
     disqualify the member organization from its status as an
RLP.\45\
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    \45\ Id. at (g)(1)(A)-(C).
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    The Exchange determines if and when a member organization is
disqualified from its status as an RLP. One calendar month prior to any
such determination, the Exchange notifies an RLP of such impending
disqualification in writing. When disqualification determinations are
made, the Exchange provides a written disqualification notice to the
member organization.\46\ A disqualified RLP could appeal the
disqualification as provided in proposed Rule 107C(i) and/or reapply
for RLP status 90 days after the disqualification notice is issued by
the Exchange.\47\
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    \46\ Id. at (2).
    \47\ Id. at (3).
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Failure of RMO To Abide by Retail Order Requirements
    Rule 107C(h) 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 organization from its status as an
RMO.\48\ When disqualification determinations are made, the Exchange
shall provide a written disqualification notice to the member
organization.\49\ A disqualified RMO could appeal the disqualification
as provided in proposed Rule 107C(i) and/or reapply for RMO status 90
days after the disqualification notice is issued by the Exchange.\50\
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    \48\ Id. at (h)(1).
    \49\ Id. at (2).
    \50\ Id. at (3).

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Appeal of Disapproval or Disqualification
    Rule 107C(i) describes the appeal rights of member organizations. A
member organization that disputes the Exchange's decision to disapprove
it under Rule 107C(b) or (d) or disqualify it under Rule 107C(g) or (h)
may request, within five business days after notice of the decision is
issued by the Exchange, that a Retail Liquidity Program Panel (``RLP
Panel'') review the decision to determine if it was correct.\51\ The
RLP Panel would consist of the NYSE's Chief Regulatory Officer
(``CRO''), or a designee of the CRO, and two officers of the Exchange
designated by the CoHead of U.S. Listings and Cash Execution.\52\ The
RLP Panel would review the facts and render a decision within the time
frame prescribed by the Exchange.\53\ The RLP Panel can overturn or
modify an action taken by the Exchange and all determinations by the
RLP Panel would constitute final action by the Exchange on the matter
at issue.\54\
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    \51\ Id. at (i)(1). In the event a member organization is
disqualified from its status as an RLP pursuant to proposed Rule
107C(g), the Exchange would not reassign the appellant's securities
to a different RLP until the RLP Panel has informed the appellant of
its ruling. Id. at (i)(1)(A).
    \52\ Id. at (i)(2).
    \53\ Id. at (3).
    \54\ Id. at (4).
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Retail Liquidity Identifier
    Under Rule 107C(j), the Exchange disseminates an identifier through
proprietary Exchange data feeds or the Securities Information Processor
(``SIP'') when RPI interest priced at least $0.001 better than the PBB
or PBO for a particular security is available in Exchange systems
(``Retail Liquidity Identifier''). 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.\55\
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    \55\ Id. at (j).
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Retail Order Designations
    Under Rule 107C(k), an RMO can designate how a Retail Order would
interact with available contra-side interest as follows:
     A Type 1-designated Retail Order interacts only with
available contra-side Retail Price Improvement Orders and MPL Orders
but would not interact with other available contra-side interest in
Exchange systems or route to other markets. The portion of a Type 1-
designated Retail Order that does not execute against contra-side
Retail Price Improvement Orders would be immediately and automatically
cancelled.\56\
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    \56\ Id. at (k)(1). See note 18, supra.
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     A Type 2-designated Retail Order interacts first with
available contra-side Retail Price Improvement Orders and MPL Orders
and any remaining portion of the Retail Order would be executed as a
Regulation NMS-compliant Immediate or Cancel Order pursuant to Rule
13.\57\
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    \57\ Id. at (2).
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     A Type 3-designated Retail Order interacts first with
available contra-side Retail Price Improvement Orders and MPL Orders
and any remaining portion of the Retail Order would be executed as an
NYSE Immediate or Cancel Order pursuant to Rule 13.\58\
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    \58\ Id. at (k)(3).
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Priority and Order Allocation
    Under Rule 107C(l), Retail Price Improvement Orders in the same
security are ranked and allocated according to price then time of entry
into Exchange systems. When determining the price to execute a Retail
Order, Exchange systems consider all eligible RPIs and MPL Orders. If
the only interest is RPIs, then the executions shall occur at the price
level that completes the incoming order's execution. If the only
interest is MPL Orders, the Retail Order shall execute at the midpoint
of the PBBO. If both RPIs and MPL Orders are present, Exchange systems
will evaluate at what price level the incoming Retail Order may be
executed in full (``clean-up price''). If the clean-up price is equal
to the midpoint of the PBBO, RPIs will receive priority over MPL
Orders, and the Retail Order will execute against both RPIs and MPL
Orders at the midpoint. If the clean-up price is worse than the
midpoint of the PBBO, the Retail Order will execute first with the MPL
Orders at the midpoint of the PBBO and any remaining quantity of the
Retail Order will execute with the RPIs at the clean-up price. If the
clean-up price is better than the midpoint of the PBBO, then the Retail
Order will execute against the RPIs at the clean-up price and will
ignore the MPL Orders. Any remaining unexecuted RPI interest and MPL
Orders will remain available to interact with other incoming Retail
Orders. Any remaining unexecuted portion of the Retail Order will
cancel or execute in accordance with Rule 107C(k).
    Examples of priority and order allocation are as follows:
    Example 1:
    PBBO for security ABC is $10.00-$10.05.
    RLP 1 enters a Retail Price Improvement Order to buy ABC at $10.01
for 500.
    RLP 2 then enters a Retail Price Improvement Order to buy ABC at
$10.02 for 500.
    RLP 3 then enters a Retail Price Improvement Order to buy ABC at
$10.03 for 500.
    An incoming Retail Order to sell ABC for 1,000 executes first
against RLP 3's bid for 500, because it is the best priced bid, then
against RLP 2's bid for 500, because it is the next best priced bid.
RLP 1 is not filled because the entire size of the Retail Order to sell
1,000 is depleted. The Retail Order executes at the price that
completes the order's execution. In this example, the entire 1,000
Retail Order to sell executes at $10.02 because it results in a
complete fill.
    However, assume the same facts above, except that RLP 2's Retail
Price Improvement Order to buy ABC at $10.02 is for 100. The incoming
Retail Order to sell 1,000 executes first against RLP 3's bid for 500,
because it is the best priced bid, then against RLP 2's bid for 100,
because it is the next best priced bid. RLP 1 then receives an
execution for 400 of its bid for 500, at which point the entire size of
the Retail Order to sell 1,000 is depleted. The Retail Order executes
at the price that completes the order's execution, which is $10.01.
    Example 2:
    PBBO for security DEF is $10.00-10.01.
    RLP 1 enters a Retail Price Improvement Order to buy DEF at $10.006
for 500.
    RLP 2 enters a Retail Price Improvement Order to buy DEF at $10.005
for 500.
    MPL 1 enters an MPL Order to buy DEF at $10.01 for 1000.
    RLP 3 enters a Retail Price Improvement Order to buy DEF at $10.002
for 1000.
    An incoming Retail Order to sell DEF for 2,500 arrives. The clean-
up price is $10.002. Because the midpoint of the PBBO is priced better
than the clean-up price, the Retail Order executes with MPL 1 for 1000
shares at $10.005. The Retail Order then executes at $10.002 against
RLP 1's bid for 500, because it is the best-priced bid, then against
RLP 2's bid for 500 because it is the next best-priced bid and then RLP
3 receives an execution for 500 of its bid for 1000, at which point the
entire size of the Retail Order to sell 2,500 is depleted.
    Assume the same facts above. An incoming Retail Order to sell DEF
for 1,000 arrives. The clean-up price is $10.005. Because the clean-up
price is

equal to the midpoint of the PBBO, RPIs will receive priority over MPL
Orders. As a result, the Retail Order executes first against RLP 1's
bid for 500, because it is the best-priced bid, then against RLP 2's
bid for 500 because it is the next best-priced bid, at which point the
entire size of the Retail Order to sell 1,000 is depleted.\59\
---------------------------------------------------------------------------

    \59\ Id. at (l).
---------------------------------------------------------------------------

Rationale for Making Pilot Permanent
    In approving the Program on a pilot basis, the Commission required
the Exchange to ``monitor the scope and operation of the Program and
study the data produced during that time with respect to such issues,
and will propose any modifications to the Program that may be necessary
or appropriate.'' \60\ As part of its assessment of the Program's
potential impact, the Exchange posted core weekly and daily summary
data on the Exchanges' website for public investors to review,\61\ and
provided additional data to the Commission regarding potential investor
benefits, including the level of price improvement provided by the
Program. This data included statistics about participation, frequency
and level of price improvement and effective and realized spreads.
---------------------------------------------------------------------------

    \60\ RLP Approval Order, 77 FR at 40681.
    \61\ See https://www.nyse.com/markets/liquidity-programs#nyse-nyse-mkt-rlp.
---------------------------------------------------------------------------

    In the RLP Approval Order, the Commission observed that the Program
could promote competition for retail order flow among execution venues,
and that this could benefit retail investors by creating additional
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.\62\ The Exchange
sought, and believes it has achieved, the Program's goal of attracting
retail order flow to the Exchange, and allowing such order flow to
receive potential price improvement. As the Exchange's analysis of the
Program data below demonstrates, the Program provided tangible price
improvement to retail investors through a competitive pricing process.
The data also demonstrates that the Program had an overall negligible
impact on ``broader market structure.'' \63\
---------------------------------------------------------------------------

    \62\ RLP Approval Order, 77 FR at 40679.
    \63\ See id. at 40682.
---------------------------------------------------------------------------

    Between August 1, 2012, when the Program began, and January 2,
2018, orders totaling in excess of 6.8 billion shares were executed
through the Program, providing retail investors with $12.3 million in
price improvement. As Table 1 shows, during 2016, an average of 2-3
million shares per day was executed in the Program. In 2017, an average
of 3-4 million shares per day were executed in the Program. During the
period 2016-17, average effective spreads in RLP executions ranged
between $0.012 and $0.019. Fill rates reached as high as 25.7% in May
2018. Overall price improvement averaged $0.0014 per share,
approximately 40% above the minimum of $0.001.\64\
---------------------------------------------------------------------------

    \64\ In 2016, the average price improvement reached as high as
$0.0017-$0.0018.

                                                Table 1--Summary Execution and Market Quality Statistics
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Average                  Effective/
                             Date                              RPI Average     daily      Effective      quoted       Price       Realized   Fill rate %
                                                                  volume       orders       spread       ratio     improvement     spread
--------------------------------------------------------------------------------------------------------------------------------------------------------
Jan-16.......................................................    3,257,495       11,495      $0.0167        0.736      $0.0017      $0.0051         14.7
Feb-16.......................................................    3,119,642       10,400       0.0163        0.713       0.0018       0.0041         15.3
Mar-16.......................................................    2,760,731        9,179       0.0142        0.706       0.0018       0.0029         16.5
Apr-16.......................................................    2,277,189        8,432       0.0143        0.703       0.0018       0.0042         17.6
May-16.......................................................    1,727,219        6,931       0.0151        0.693       0.0019       0.0054         16.4
Jun-16.......................................................    2,003,149        9,122       0.0134        0.667       0.0019       0.0060         14.4
Jul-16.......................................................    2,265,579        7,880       0.0126        0.668       0.0019       0.0034         18.1
Aug-16.......................................................    2,009,630        5,626       0.0122        0.699       0.0017      -0.0019         16.4
Sep-16.......................................................    1,620,236        4,801       0.0136        0.696       0.0017       0.0035         15.6
Oct-16.......................................................    2,355,292        8,055       0.0143        0.693       0.0017       0.0041         19.7
Nov-16.......................................................    2,702,894        9,915       0.0161        0.700       0.0018       0.0040         17.3
Dec-16.......................................................    4,380,164       15,036       0.0142        0.710       0.0017       0.0034         20.5
Jan-17.......................................................    2,921,604       11,184       0.0148        0.730       0.0016       0.0011         21.4
Feb-17.......................................................    2,508,810        9,801       0.0165        0.754       0.0015       0.0023         20.3
Mar-17.......................................................    2,585,694        9,517       0.0175        0.770       0.0015       0.0060         20.9
Apr-17.......................................................    2,875,573       10,174       0.0156        0.764       0.0014       0.0056         23.5
May-17.......................................................    3,741,955       15,179       0.0150        0.763       0.0014       0.0026         25.7
Jun-17.......................................................    5,040,922       17,245       0.0155        0.688       0.0018       0.0046         19.2
Jul-17.......................................................    3,906,133       14,582       0.0154        0.712       0.0017       0.0020         19.8
Aug-17.......................................................    3,803,586       14,841       0.0174        0.700       0.0018       0.0055         19.5
Sep-17.......................................................    3,398,110       12,782       0.0152        0.773       0.0014       0.0017         23.2
Oct-17.......................................................    3,839,683       13,467       0.0156        0.773       0.0014       0.0022         25.2
Nov-17.......................................................    4,193,873       14,499       0.0161        0.775       0.0014       0.0028         24.2
Dec-17.......................................................    3,673,405       19,036       0.0180        0.782       0.0014       0.0027         19.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As Table 2 shows, approximately 45% of all orders in the Program in
2016-17 were for a round lot or fewer shares. More than 60% of retail
orders removing liquidity from the Exchange were for 300 shares or
less. Further, the number of very large orders was relatively steady,
with orders larger than 7,500 shares typically accounting for 4-5% of
orders received. Despite relatively low fill rates, large orders
account for a sizable portion of the shares executed in the Program.

                                           Table 2--Composition of Retail Taking Orders by Order Size Category
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        <100 %     101-300 %    301-500 %    501-1000 %  1001-2000 %  2001-4000 %  4001-7500 %   7500-15000    >15000 %
-------------------------------------------------------------------------------------------------------------------------------------%------------------
Jan-16.............................        36.31        19.06         9.74        11.64         7.60         6.48         4.38         2.70         2.09
Feb-16.............................        35.88        18.81         9.96        11.82         7.72         6.42         4.31         2.82         2.26
Mar-16.............................        35.67        18.69         9.90        11.83         7.82         6.70         4.52         2.92         1.94
Apr-16.............................        38.22        19.39         9.87        11.48         7.16         5.73         3.89         2.54         1.73
May-16.............................        37.64        19.81        10.12        11.57         7.51         5.60         3.74         2.35         1.65
Jun-16.............................        39.46        18.98         9.66        11.22         7.13         5.32         3.95         2.60         1.68
Jul-16.............................        40.22        18.59         9.45        11.10         6.75         5.40         4.05         2.65         1.78
Aug-16.............................        33.59        17.45         9.24        11.66         8.30         7.17         5.71         4.33         2.54
Sep-16.............................        33.40        17.83         9.13        11.55         8.33         7.32         5.69         4.17         2.59
Oct-16.............................        39.50        19.03         9.42        11.16         7.33         5.66         3.77         2.53         1.59
Nov-16.............................        38.72        19.67         9.80        11.40         7.19         5.27         3.63         2.64         1.70
Dec-16.............................        39.41        19.52         9.41        11.26         7.33         5.40         3.55         2.66         1.47
Jan-17.............................        42.16        19.82         9.22        10.62         6.92         4.84         3.05         2.08         1.30
Feb-17.............................        41.90        19.51         9.34        10.79         7.03         4.82         3.09         2.08         1.44
Mar-17.............................        41.55        18.98         9.12        11.04         7.30         5.18         3.40         2.07         1.36
Apr-17.............................        44.32        18.50         8.55        10.21         6.65         5.07         3.31         2.17         1.21
May-17.............................        52.39        17.82         7.14         8.08         5.32         4.03         2.64         1.72         0.87
Jun-17.............................        44.76        15.48         7.53         9.59         6.87         6.06         4.67         3.50         1.53
Jul-17.............................        45.33        15.98         8.05        10.21         7.08         5.61         3.70         2.62         1.43
Aug-17.............................        43.83        16.68         8.39        10.58         7.48         5.67         3.46         2.51         1.41
Sep-17.............................        46.15        17.81         8.26         9.93         6.78         4.85         2.93         2.09         1.20
Oct-17.............................        45.53        18.30         8.47        10.06         6.88         4.82         2.79         2.00         1.15
Nov-17.............................        45.14        17.37         8.63        10.37         7.13         5.02         2.90         2.15         1.29
Dec-17.............................        45.96        17.62         8.89        10.60         6.62         4.55         2.72         1.99         1.05
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Tables 3 and 4 show the distribution of orders received by size and
shares executed in 2016-17. During that period, the Program saw much
lower execution sizes due to smaller retail providing orders (typically
around 300 shares) breaking up fills and as a result of liquidity at
multiple price improvement points.

                                              Table 3--Composition of Shares Placed by Order Size Category
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        <100 %     101-300 %    301-500 %    501-1000 %  1001-2000 %  2001-4000 %  4001-7500 %   7500-15000    >15000 %
-------------------------------------------------------------------------------------------------------------------------------------%------------------
Jan-16.............................         1.11         2.17         2.28         5.01         6.21        10.14        12.73        14.71        45.64
Feb-16.............................         1.09         2.09         2.25         4.92         6.09         9.67        12.01        14.90        46.97
Mar-16.............................         1.15         2.23         2.40         5.28         6.61        10.79        13.50        16.37        41.68
Apr-16.............................         1.45         2.75         2.84         6.09         7.21        10.93        13.90        16.82        38.02
May-16.............................         1.47         2.81         2.93         6.16         7.59        10.70        13.39        15.81        39.14
Jun-16.............................         1.43         2.67         2.80         6.06         7.29        10.28        14.15        17.28        38.04
Jul-16.............................         1.38         2.50         2.61         5.67         6.57        10.05        13.95        16.71        40.57
Aug-16.............................         0.88         1.71         1.86         4.30         5.88         9.78        14.44        19.69        41.45
Sep-16.............................         0.92         1.78         1.84         4.24         5.89        10.04        14.44        19.38        41.48
Oct-16.............................         1.60         2.76         2.77         6.00         7.52        11.19        13.79        17.15        37.21
Nov-16.............................         1.49         2.70         2.72         5.84         6.99         9.77        12.62        16.97        40.90
Dec-16.............................         1.69         2.98         2.88         6.29         7.82        11.13        13.57        18.68        34.96
Jan-17.............................         2.08         3.51         3.29         6.89         8.59        11.57        13.51        17.30        33.26
Feb-17.............................         1.96         3.33         3.21         6.70         8.39        11.12        13.29        16.59        35.40
Mar-17.............................         1.90         3.16         3.05         6.72         8.50        11.64        14.12        15.93        34.97
Apr-17.............................         2.29         3.34         3.10         6.72         8.38        12.32        15.07        18.00        30.78
May-17.............................         4.06         4.02         3.23         6.65         8.42        12.26        14.97        17.66        28.74
Jun-17.............................         1.36         2.15         2.15         5.07         6.99        11.88        16.71        22.63        31.06
Jul-17.............................         1.45         2.49         2.58         6.02         8.03        12.20        14.85        19.55        32.83
Aug-17.............................         1.52         2.67         2.76         6.42         8.79        12.70        14.21        19.41        31.50
Sep-17.............................         2.01         3.29         3.08         6.74         8.98        12.38        13.73        18.52        31.27
Oct-17.............................         1.99         3.45         3.21         6.94         9.26        12.39        13.30        18.03        31.42
Nov-17.............................         1.85         3.10         3.11         6.80         9.07        12.20        13.06        18.30        32.51
Dec-17.............................         2.06         3.54         3.60         7.78         9.43        12.58        13.73        19.12        28.16
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                             Table 4--Composition of Shares Executed by Order Size Category
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        <100 %     101-300 %    301-500 %    501-1000 %  1001-2000 %  2001-4000 %  4001-7500 %   7500-15000    >15000 %
-------------------------------------------------------------------------------------------------------------------------------------%------------------
Jan-16.............................         6.25        10.48         9.45        17.31        14.62        10.14        10.60         8.43         8.90
Feb-16.............................         5.94         9.72         9.20        16.39        13.89         9.67        10.88         9.53        11.14
Mar-16.............................         5.79         9.59         9.07        16.56        14.13        10.79        11.31         9.99         9.13
Apr-16.............................         6.84        11.14        10.10        17.62        13.89        10.93        10.47         9.28         7.38

May-16.............................         7.38        11.61        10.14        17.20        13.47        10.70         9.84         8.47         8.99
Jun-16.............................         7.10        10.66         9.04        15.22        13.52        10.28        11.45        10.13        10.13
Jul-16.............................         6.18         9.52         8.28        14.74        12.55        10.05        13.28        11.29        10.57
Aug-16.............................         4.48         7.45         6.93        12.87        12.48         9.78        15.50        15.54        10.23
Sep-16.............................         4.73         7.83         6.94        12.86        12.43        10.04        16.13        14.42        10.16
Oct-16.............................         6.76        10.32         8.76        15.87        14.13        11.19        11.68        10.00         8.23
Nov-16.............................         7.02        11.19         9.76        17.17        14.19         9.77        10.31         8.99         8.58
Dec-16.............................         6.99        10.91         9.22        17.06        15.32        11.13        10.68         9.16         6.67
Jan-17.............................         8.21        12.23         9.82        17.25        15.76        11.57         9.59         7.24         6.40
Feb-17.............................         8.20        12.39        10.36        18.42        15.80        11.12         9.45         6.93         5.64
Mar-17.............................         7.67        11.72        10.02        19.32        16.40        11.64         9.76         6.64         4.93
Apr-17.............................         8.48        11.45         9.57        18.22        15.60        12.32        10.32         7.81         4.50
May-17.............................        14.15        12.70         9.29        16.65        14.45        12.26         9.45         7.18         3.52
Jun-17.............................         5.58         8.07         7.39        15.41        14.63        11.88        13.89        13.50         6.20
Jul-17.............................         5.67         9.03         8.53        17.83        16.45        12.20        11.56         9.71         6.11
Aug-17.............................         5.78         9.30         8.88        18.25        17.51        12.70        10.54         8.75         5.72
Sep-17.............................         7.32        10.97         9.79        18.78        17.26        12.38         9.53         7.60         4.98
Oct-17.............................         6.53        10.74         9.74        18.74        17.63        12.39         9.21         8.01         5.35
Nov-17.............................         6.28        10.18         9.41        18.28        17.38        12.20         9.80         8.44         6.08
Dec-17.............................         6.50        10.99        10.31        20.09        16.89        12.58         9.35         7.30         4.60
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As Table 5 shows, during 2016--17, fill rates trended near 80 for
orders up to 300 shares, while the average shares available at the
inside was 300 shares. Data published to the SIP indicates when
liquidity is available for retail liquidity seekers inside the spread,
and on which side.

                                                      Table 5--Fill Rates by Retail Take Order Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        <100 %     101-300 %    301-500 %    501-1000 %  1001-2000 %  2001-4000 %  4001-7500 %   7500-15000    >15000 %
-------------------------------------------------------------------------------------------------------------------------------------%------------------
Jan-16.............................        85.30        72.92        62.76        52.36        35.67        20.84        12.61         8.68         2.95
Feb-16.............................        83.81        71.47        62.76        51.21        35.07        21.18        13.92         9.84         3.65
Mar-16.............................        82.78        70.92        62.38        51.69        35.25        22.06        13.80        10.06         3.61
Apr-16.............................        83.19        71.37        62.58        50.99        33.95        21.41        13.27         9.72         3.42
May-16.............................        82.49        67.65        56.62        45.70        29.09        19.75        12.04         8.77         3.76
Jun-16.............................        71.79        57.72        46.59        36.28        26.76        17.91        11.69         8.46         3.84
Jul-16.............................        80.95        68.80        57.26        46.92        34.50        24.39        17.19        12.20         4.71
Aug-16.............................        83.54        71.79        61.39        49.17        34.92        24.40        17.64        12.97         4.06
Sep-16.............................        80.06        69.04        59.19        47.50        33.04        22.58        17.49        11.65         3.83
Oct-16.............................        83.10        73.58        62.22        52.05        36.97        25.09        16.67        11.48         4.35
Nov-16.............................        81.40        71.75        62.28        50.90        35.15        22.68        14.15         9.18         3.63
Dec-16.............................        84.73        75.04        65.56        55.67        40.18        25.76        16.14        10.06         3.91
Jan-17.............................        84.49        74.69        64.07        53.69        39.35        24.97        15.22         8.98         4.13
Feb-17.............................        84.49        75.25        65.39        55.64        38.16        23.34        14.40         8.46         3.23
Mar-17.............................        84.31        77.43        68.69        60.00        40.26        24.26        14.42         8.70         2.95
Apr-17.............................        86.84        80.63        72.49        63.69        43.71        26.79        16.10        10.19         3.44
May-17.............................        89.57        81.19        73.95        64.31        44.07        26.41        16.22        10.45         3.15
Jun-17.............................        78.80        72.17        66.04        58.35        40.20        24.80        15.96        11.46         3.83
Jul-17.............................        77.45        71.84        65.58        58.68        40.59        24.56        15.42         9.85         3.69
Aug-17.............................        74.17        67.92        62.76        55.48        38.88        23.48        14.48         8.80         3.54
Sep-17.............................        84.30        77.24        73.73        64.64        44.56        25.81        16.11         9.51         3.69
Oct-17.............................        82.84        78.51        76.55        68.14        48.06        28.59        17.47        11.21         4.30
Nov-17.............................        82.32        79.42        73.12        65.08        46.34        28.08        18.16        11.17         4.52
Dec-17.............................        81.62        80.19        74.12        66.68        46.28        28.70        17.60         9.86         4.22
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Table 6 shows the development of orders sizes received in the
Program over time. Orders adding liquidity to the Exchange averaged in
the mid-300 share range for most of the Program's recent history,
although the median size has increased since August 2016. (The Exchange
notes that the median order size is the average of the daily median
order sizes across all orders received on a trade date for NYSE
symbols). After averaging near 2,000 shares at times, the size of
retail orders removing liquidity from the Exchange has dropped over
time, with median sizes periodically exceeding 300 shares. The slightly
smaller take order sizes helps explain the better overall fill rates
and improved effective spreads in the Program's recent history.
However, as shown by the occasional oversized orders, there remains
ample liquidity and opportunity in the Program to satisfy liquidity
takers with meaningful price improvement.

                                           Table 6--Order Size Details
----------------------------------------------------------------------------------------------------------------
                                                          Provide orders                    Take orders
                                                 ---------------------------------------------------------------
                                                      Average         Median          Average         Median
----------------------------------------------------------------------------------------------------------------
Jan-16..........................................             297             157           1,941             259
Feb-16..........................................             314             191           1,958             272
Mar-16..........................................             312             182           1,787             267
Apr-16..........................................             306             176           1,523             215
May-16..........................................             294             100           1,542             217
Jun-16..........................................             314             100           1,508             207
Jul-16..........................................             323             105           1,585             202
Aug-16..........................................             340             194           2,230             338
Sep-16..........................................             338             200           2,212             336
Oct-16..........................................             357             200           1,494             204
Nov-16..........................................             382             200           1,623             212
Dec-16..........................................             367             200           1,398             206
Jan-17..........................................             361             200           1,217             199
Feb-17..........................................             350             200           1,264             200
Mar-17..........................................             360             200           1,304             200
Apr-17..........................................             353             200           1,223             189
May-17..........................................             416             200             961             105
Jun-17..........................................             370             200           1,517             190
Jul-17..........................................             355             200           1,364             180
Aug-17..........................................             360             200           1,310             196
Sep-17..........................................             391             200           1,141             164
Oct-17..........................................             444             200           1,127             172
Nov-17..........................................             422             200           1,193             184
Dec-17..........................................             395             200           1,026             195
----------------------------------------------------------------------------------------------------------------

    Although the Program provides the opportunity to achieve
significant price improvement, the Program has not generated
significant activity. As Table 1 shows, the average daily volume for
the Program has hovered in the three to four million share range, and
has accounted for less than 0.1% of consolidated NYSE-listed volume in
2016-17. The Program's share of NYSE volume during that period was
below 0.4%. Moreover, no symbol during the past two years achieved as
much as 1.6% of their consolidated average daily volume (``CADV'') in
the Program. As Table 7 shows, during the 2016-2017 period, less than
0.5% of all day/symbol pairs exceeded 5% share of CADV, with another
3.7% of day/symbol pairs achieving a share of CADV between 1% and 5%.
Fully 88% of all day/symbol pairs exhibited RLP share of 0.25% or less
during that time. For ticker symbols that traded at least 100 days
during the two-year period, more than half of all symbols over that
period had less than 0.10% of their consolidated volume executed in the
program, and 96% less than 0.50%. Of the symbols that achieved greater
than 0.50% CADV in the Program during 2016-2017, only two had a CADV
above 500,000, and neither was chosen in the matched sample described
below. The Program's share of the total market in NYSE-listed
securities is tiny considering that non-ATS activity in the U.S. equity
markets, based on FINRA transparency data and NYSE Trade and Quote
(``TAQ'') volume statistics, is estimated to be approximately 20-25% of
all US equity volume.
    In short, the Program represents a minor participant in the overall
market to price improve marketable retail order flow. While
participation was low, as noted above, retail investors that
participated in the Program received price improvement on their orders,
which was one of the stated goals of the Program. The NYSE therefore
believes that this pilot data supports making the Program permanent.

[GRAPHIC] [TIFF OMITTED] TN22FE19.002

    Moreover, beyond providing a meaningful price improvement to retail
investors through a competitive and transparent pricing process
unavailable in non-exchange venues, the data collected during the
Program supports the conclusion that the Program has not had any
significant negative market impact. As set forth in Table 8, the
Exchange measured the correlation between several critical market
quality statistics and either RLP share of CADV, shares posted dark by
providers seeking to interact with retail orders or the amount of time
during the trading day that RLP liquidity was available. The
correlations the Exchange measured were levels, not changes. As a
result, fairly high correlation coefficients should suggest that the
Program had a meaningful impact on the statistics. In no case did the
Exchange observe a single correlation greater than an absolute value of
0.10, and even at the 90th percentile of all symbols, there was no
correlation of even 0.30. In short, these results support the
conclusion that the Program does not negatively impact market quality.

                                                     Table 8
----------------------------------------------------------------------------------------------------------------
                                                                                90th
                  Statistic 1                              Statistic 2                Average       Percentile
                                                                                correlation     correlation
----------------------------------------------------------------------------------------------------------------
% Time With RLP Liquidity.....................  Consolidated Spread.............          0.0001          0.0003
% Time With RLP Liquidity.....................  Eff. Sprd. Ex RPI...............          0.0943          0.2925
RLP Size at PBBO..............................  Consolidated Spread.............          0.0003          0.0005
RLP Size at PBBO..............................  Eff. Sprd. Ex RPI...............          0.0617          0.2348
RLP Share of CADV.............................  Eff. Sprd. Ex RPI...............          0.0010          0.1091
RLP Share of CADV.............................  Share wtd. NBBO Spread..........          0.0152          0.1357
RLP Share of CADV.............................  Time wtd. NBBO Spread...........          0.0002          0.0002
RLP Share of CADV.............................  Time wtd. NYSE BBO Spread.......          0.0002          0.0002
----------------------------------------------------------------------------------------------------------------

Difference in Differences Analysis
    In addition to demonstrating that changes in Program activity had
no impact on market quality on a day-to-day basis, the Exchange also
analyzed market quality impact by using the difference in differences
statistical technique.
    Difference in differences (``DID'') requires studying the
differential effect of data measured between a treatment group and a
control group. The two groups are measured during two or more different
time periods, usually a period before ``treatment'' and at least one
time period after ``treatment,'' that is, a time period after which the
treatment group is impacted but the control group is not. The
assumption is that the control group and the treatment group are
otherwise impacted equally by extraneous factors, i.e., that the other
impacts are parallel. For example, when measuring average quoted
spreads, if spreads increased by 10 basis points in the control group
and by 12 basis points in the test group, the assumption would be that
the two basis point differential was caused by the treatment.
    Because all Exchange-traded symbols were eligible to participate in
the Program, a natural control group does not exist for the securities
participating in the Program. Hence, there is a possibility that the
lack of activity in the Program could have been the result of factors
that DID cannot measure. Nonetheless, to produce a control group, the
Exchange identified the 50 most active ticker symbols in the Program as
measured by share of consolidated volume following launch of the
Program. The Exchange then determined a matched sample, without
replacement, using consolidated volume, volume weighted average price,
and consolidated quoted spread in basis points. The matched sample
compared the 50 most active ticker symbols in the Program with all
securities that had very low Program volume. The matching criteria
minimized the sum of the squares of the percent difference between the
top 50 active ticker symbols and potential matches.
    The Exchange executed four DID analyses:

    1. Six months prior to launch of the Program (February 2012-July
2012) compared to six months following launch, excluding the first
month of the Program (September 2012-February 2013) for securities with
a CADV of at least 500,000 during the pre-treatment and treatment
periods.
    2. Six months prior to launch of the Program (February 2012-July
2012) compared to all of 2016 and 2017 for securities with a CADV of at
least 500,000 during the pre-treatment and treatment periods.
    3. Six months prior to launch of the Program (February 2012-July
2012) compared to six months following launch, excluding the first
month of the program (September 2012-February 2013) for securities with
a CADV of at least 50,000 and less than 500,000, during the pre-
treatment and treatment periods.
    4. Six months prior to launch of the Program (February 2012-July
2012) compared to all of 2016 and 2017 for securities with a CADV of at
least 50,000 and less than 500,000, during the pre-treatment and
treatment periods.
    Because there was no natural control group, the Exchange employed
flexible matching criteria. In addition to the CADV restrictions, the
Exchange utilized a control of CADV ratio of 3:1, a volume weighted
average price (``VWAP'') of 2:1, and a spread of 2:1. The Exchange also
required potential control group stocks to have a share of Program
trading less than 1/10th of the lowest of the top 50 securities for the
first trading period. The Exchange excluded securities that were in the
test groups of the Tick Size Pilot Program from consideration in
matching securities for the DID analysis of the 2016-2017 period.\65\
Preferred stocks, warrants and rights were excluded from the DID
analysis for both periods. Finally, because the Program is only valid
for stocks trading at or above $1.00, any security with a low price
during the pre-treatment or the treatment period below $1.00 was also
excluded. Securities also had to be listed on the NYSE during the pre-
treatment period and during the treatment period.
---------------------------------------------------------------------------

    \65\ The Tick Size Pilot Program is a National Market System
(``NMS'') plan designed to allow the Commission, market participants
and the public to assess the impact of wider minimum quoting and
trading increments--or tick sizes--on the liquidity and trading of
the common stocks of certain small capitalization companies.
---------------------------------------------------------------------------

    The Exchange selected the top 25 securities by minimum differences
as described above.
Results for Securities With CADV at Least 500,000 Shares
    As noted above, the Program began in August 2012. The Exchange
selected February-July 2012 as the relevant six month pre-period. The
first post-period used was September 2012-February 2013, as the Program
was not rolled out to all securities immediately. Tables 9A and 9B show
the matched sample securities with key attributes for the first
comparison period for symbols with a CADV of at least 500,000. Tables
10A and 10B show the selected securities for the second comparison
period with CADV of at least 500,000.

[GRAPHIC] [TIFF OMITTED] TN22FE19.003

[GRAPHIC] [TIFF OMITTED] TN22FE19.004

    The Exchange's DID analysis utilized the 25 securities noted above
on the following 15 statistics:
     Time-weighted NYSE quoted spread in basis points.
     Time-weighted NYSE quoted spread in dollars and cents.
     Time-weighted Consolidated quoted spread in basis points.
     Time-weighted Consolidated quoted spread in dollars and
cents.
     Volume-weighted Effective spread in basis points *
measured against the NYSE quote.
---------------------------------------------------------------------------

    * Volume weighted basis points were estimated using cents
spreads and dividing by daily VWAPs.
---------------------------------------------------------------------------

     Volume-weighted Effective spread in basis points *
measured against the NBBO.
     Volume-weighted Effective spread in basis points *
measured against the PBBO.
     Volume-weighted Quoted spread in basis points * measured
against the NYSE quote.
     Volume-weighted Quoted spread in basis points * measured
against the NBBO.
     Volume-weighted Quoted spread in basis points* measured
against the PBBO.
     Trade Reporting Facility (``TRF'') share of volume during
regular trading hours, excluding auctions.
     TRF share of volume, full day, including auctions.
     NYSE share of volume during regular trading hours,
excluding auctions.
     NYSE share of volume, full day, including auctions.

     Trade-to-trade price change in basis points.
    The Exchange calculated the DID regression for each of these
statistics using the following formula:

    Yit = B0 + B1T + B2I +
B3IT

where T equals 0 during the pre-period and equals 1 during the
treatment period, and where I is the Intervention.
[GRAPHIC] [TIFF OMITTED] TN22FE19.005

    As Table 11 shows, none of the 15 regressions performed by the
Exchange showed statistical significance for the September 2012-
February 2013 period.
    The Exchange also calculated the DID regression for the 2016-2017
period, as shown in Table 12. Several spread measures showed
statistically significant increases at the 99% confidence level, as did
the full-day share of trading on the TRF. However, time-weighted
consolidated dollar spreads fell and were significant at the 90%
confidence level. NYSE dollar spreads fell and were significant at the
95% level. As described below, the Exchange believes that the apparent
spread widening and TRF market share increase are an artifact of the
study methodology and not attributable to the Program.

[GRAPHIC] [TIFF OMITTED] TN22FE19.006

    As noted above, because all Exchange-traded symbols were eligible
to participate in the Program when it began as a pilot in August 2012,
there was no control group that would permit a classic DID examination
of the results. Instead, for purposes of making the Program permanent,
the Exchange created an artificial control group and treatment group by
coming up with a matched sample based on the securities with the
highest share of consolidated volume in the Program and matching these
securities based on volume weighted average price, time-weighted quoted
spread, and CADV during the pre-treatment period (subject to the
criteria noted above). By necessity, however, the percent of activity
in the Program itself had to be based on the post-treatment period.
    This methodology provided several insights and permitted the
Exchange to offer a more thorough analysis of the Program's impact.
However, the Exchange believes that selection of securities with the
highest share of consolidated volume in the Program for the treatment
group created a biased treatment group. Securities with lower prices
tend to trade more actively in the TRF as well as in the Program; the
percentage value of price improvement on a low-price stocks provides
greater savings to investors. For example, $0.0010 price improvement
per share for a $5.00 stock saves an investor $2.00 per $10,000
invested. The same per share price improvement on a $50 stock is worth
just $0.20. Table 13 shows this relationship for the 2016-2017
treatment period used in the analysis.

                                                      Table 13--Share of Volume Based on Daily VWAP
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            <$5.00 (%)      $5-$10 (%)      $10-$25 (%)     $25-$50 (%)    $50-$100 (%)      >$100 (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
TRF Share...............................................           41.86           37.97           36.02           32.92           30.97           31.58
NYSE RLP % of CADV......................................            0.30            0.23            0.20            0.13            0.10            0.11
--------------------------------------------------------------------------------------------------------------------------------------------------------

    By utilizing securities that traded more heavily in the Program,
the treatment stocks selected for the DID analysis were mostly lower
priced securities. However, the matching criteria does not restrict
stock price during the pre-treatment period. The large time gap between
the pre-treatment and treatment period resulted in the selection of
many stocks that were relatively lower-priced during the treatment
period, but may not have been in that category during the pre-treatment
period. Since the study period also sought control stocks that were not
heavily traded in the Program, this resulted in a concentration of
mostly higher priced treatment period securities in the control group.
    Many of the treatment securities chosen for the 2016-2017 period
suffered sharp price declines compared to their 2012 pre-treatment
period levels. On its own, a price drop would not necessarily be
problematic. However, many of these stocks were already tick
constrained--that is, they traded with time-weighted quoted spreads
near $0.01. As a consequence, any price drop would necessarily result
in an almost equal and opposite percentage increase in the spread. This
change in spread was not caused by the Program but rather by the fact
the symbols were already tick constrained.
    Table 14 details the VWAP, dollar and basis point spreads of all of
the stocks in the 2016-2017 treatment and control group samples. The
final two columns show the ratio of pre-period VWAP to post-period VWAP
and compares that to the post- and pre-treatment period spreads in
basis points. While, on average, control stock prices rose, treatment
stock prices fell. In most

cases, treatment group basis point spreads increased, although often by
less than by the percentage that VWAPs dropped, thus highlighting the
impact of tick constraints on our results. However, the DID approach
compared the raw increase in spreads, resulting in a statistically
significant increase in spreads due to differing price performance
between the control group and treatment group.
    The Exchange further notes that the average pre-treatment VWAP
price of the treatment stocks was $25.51 versus $24.96 for the control
group stocks. However, the average post-period prices were $13.75and
$37.74, respectively. The Exchange believes that these differences
explain the statistically significant increase in TRF market share for
the treatment stocks as well as the increases in spreads in basis
points (due to the lower prices) in treatment securities versus the
more than 50% average price increase in control stocks. As detailed in
Table 15, this difference in performance was not present in the matched
sample produced for the study covering the initial launch of the
program. The treatment group saw prices rise from $20.11 to $20.26
during the treatment period. Control group securities saw a slightly
larger increase, rising from $20.07 to $22.60.

[GRAPHIC] [TIFF OMITTED] TN22FE19.007

[GRAPHIC] [TIFF OMITTED] TN22FE19.008

DID Analysis for Lower Volume Securities
    The Exchange also performed a set of DID analyses for securities
with average daily volumes between 50,000 and 500,000 shares for the
two post-treatment periods covered above.
    Table 16 shows the results for the analysis of eligible securities
for the six-month pre-period, and the six months following the complete
rollout of the Program. Although spreads increased, except for NYSE
spreads in dollars, neither the spread-based, market share or trade-to-
trade price change studies showed statistical significance. Table 17
shows pre- and post-treatment statistics for the control group and the
treatment group. Ten of the 25 treatment securities spreads narrowed,
while 14 of 25 control stocks narrowed. There is too much noise in the
result to produce statistical significance.
[GRAPHIC] [TIFF OMITTED] TN22FE19.009

[GRAPHIC] [TIFF OMITTED] TN22FE19.010

    Tables 18A and 18B summarize data used to create the matched
sample: VWAP, CADV, and spread in basis points. The tables also provide
information on the Program's share of consolidated volume since the
sample was created by finding the stocks with the highest share of
volume over the treatment period in the Program, and required control
stocks to exhibit share of CADV no more than 1/10th the lowest security
chosen for the matched sample.

[GRAPHIC] [TIFF OMITTED] TN22FE19.011

    Table 19 shows the results for the lower volume stocks study
comparing the six month pre-Program period to 2016-2017. Time-weighted
consolidated and NYSE spreads in basis points increased and were
statistically significant at the 95% level. Other basis point spreads
were also statistically significant at either the 95% or 99% level. TRF
share excluding auctions increased at the 99% level, and including
auctions increased at the 99.9% level. NYSE share changes were not
statistically significant. Trade-to-trade price changes (in basis
points) rose and were significant at the 95% level. The Exchange notes,
however, that time-weighted consolidated spreads in dollars decreased
and were significant at the 90% level. NYSE dollar spreads also
decreased, but were not statistically significant.
[GRAPHIC] [TIFF OMITTED] TN22FE19.012

    Table 20 provides evidence for the possible cause of the
inconsistency in the results. The average dollar spread in the
treatment stocks dropped slightly, while dollar spreads in the control
stocks rose 82%. Spreads in basis points were unchanged for treatment
stocks, but dropped 30% in the control group. Price changes tended to
be positive in the control stocks and were little changed in the
treatment group. The statistical significance appears to be driven by
changes in the control stocks.

[GRAPHIC] [TIFF OMITTED] TN22FE19.013

    As previously noted, the Exchange's selection methodology focused
on finding securities that traded most heavily in the Program. As
discussed above in the section covering higher volume securities and as
shown in

Table 13, both TRF share and Program activity are higher in low priced
stocks. This constraint did not impact the control stocks, as the
selection methodology requires control stocks to have significantly
lower share of the market. However, it did result in control stocks
that traded largely in line with the overall market, resulting in price
increases over the 2012 to 2016-2017 time period. Table 21B highlights
the constraint on Program share for the treatment and control stocks.
Table 21A presents additional matched sample population statistics.
[GRAPHIC] [TIFF OMITTED] TN22FE19.014

    In conclusion, the Exchange believes that the Program was a
positive experiment in attracting retail order flow to a public
exchange. The order flow the Program attracted to the Exchange provided
tangible price improvement to retail investors through a competitive
pricing process unavailable in non-exchange venues. As such, despite
the low volumes, the Exchange believes that the Program satisfied the
twin goals of attracting retail order flow to the Exchange and allowing
such order flow to receive potential price improvement. Moreover, the
Exchange believes that the data collected during the Program supports
the conclusion that the Program's overall impact on market quality and
structure was not negative. Although the results of the Program
highlight the substantial advantages that broker-dealers retain when
managing the benefits of retail order flow, the Exchange believes that
the level of price improvement guaranteed by the Program justifies
making the Program

permanent. The Exchange accordingly believes that the pilot Program's
rules, as amended, should be made permanent.
    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 the proposed rule change is consistent with
the requirements of Section 6(b) of the Act,\66\ in general, and
Section 6(b)(5) of the Act,\67\ in particular, in that it is designed
to remove impediments to and perfect the mechanism of a free and open
market and a national market system, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest and not to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \66\ 15 U.S.C. 78f(b).
    \67\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes the proposal is consistent with these
principles because it seeks to make permanent a pilot and associated
rule changes that were previously approved by the Commission as a pilot
for which the Exchange has subsequently provided data and analysis to
the Commission, and that 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 Exchange also believes
that the proposed rule change is consistent with these principles
because it would increase competition among execution venues, encourage
additional liquidity, and offer the potential for price improvement to
retail investors.
    The Exchange also 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 making the Program permanent would attract retail order
flow to a public exchange and allow such order flow to receive
potential price improvement. The data provided by the Exchange 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. The Exchange believes that making the
Program permanent would encourage the additional utilization of, and
interaction with, the NYSE and provide retail customers with an
additional venue for price discovery, liquidity, competitive quotes,
and price improvement. For the same reasons, 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.
    Finally, the Exchange believes that it is subject to significant
competitive forces, as described below in the Exchange's statement
regarding the burden on competition. For 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. The Exchange
believes that making the Program permanent would continue to promote
competition for retail order flow among execution venues. The Exchange
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.
Finally, 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, the Exchange 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 solicited or received with respect to the
proposed rule change.

III. Summary of Comment Letter

    After the Commission instituted proceedings, the Commission
received a comment letter on the proposed rule change.\68\ In support
of the proposal to the make the Program permanent, the commenter states
that the Program seems to have offered significant price improvement
during the course of its pilot period.\69\ Citing the Exchange's
analysis in the Original Notice of trading activity during the pilot
period, the commenter notes that between August 1, 2012 and January 2,
2018, orders totaling in excess of 6.8 billion shares were executed
through the Program, providing improvements of $12.3 million
dollars.\70\ The commenter observes that these statistics indicate that
the Program has provided greater than the average price improvement
provided through other common execution avenues.\71\ The commenter
notes that fill rates have also been, at times, significant.\72\ The
commenter also believes that the Program offers the Commission a unique
opportunity to explore brokers' fulfillment of their best execution
obligations.\73\
---------------------------------------------------------------------------

    \68\ See HMA Letter, supra note 10.
    \69\ See id. at 2.
    \70\ See id. at 3.
    \71\ See id.
    \72\ See id.
    \73\ See id. at 2-3.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's
proposal to make permanent the Retail Liquidity Program Pilot, Rule
107C, as modified by Amendment No. 1, is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to a national securities exchange.\74\ In
particular, the Commission finds that the proposed rule change, as
modified by Amendment No. 1, is consistent with Sections 6(b)(5) \75\
and 6(b)(8) \76\ of the Exchange Act. Section 6(b)(5) of the Exchange
Act requires that the rules of a national securities exchange be
designed, among other things, 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 be designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers. Section 6(b)(8) of the Exchange Act requires that the rules of
a national securities exchange not impose any burden on competition
that is not

necessary or appropriate in furtherance of the purposes of the Exchange
Act.
---------------------------------------------------------------------------

    \74\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
    \75\ 15 U.S.C. 78f(b)(5).
    \76\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    As noted above, the Commission approved the Program on a pilot
basis to allow the Exchange and market participants to gain valuable
practical experience with the Program during the pilot period, and to
allow the Commission to determine whether modifications to the Program
were necessary or appropriate prior to any Commission decision to
approve the Program on a permanent basis.\77\ Indeed, the Exchange has
modified aspects of the Program on several occasions since initial
approval of the Program on a pilot basis.\78\ As set forth in the RLP
Approval Order, the Exchange agreed to provide the Commission with a
significant amount of data to assist the Commission's evaluation of the
Program prior to any permanent approval of the Program.\79\
Specifically, the Exchange represented that it would ``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.'' \80\
The Commission expected the Exchange to monitor the scope and operation
of the Program and study the data produced during that time with
respect to such issues.\81\
---------------------------------------------------------------------------

    \77\ See RLP Approval Order supra note 14, at 40674.
    \78\ See supra, note 22.
    \79\ See RLP Approval Order, supra note 14, at 40681.
    \80\ See id.
    \81\ See id.
---------------------------------------------------------------------------

    Although the pilot period was originally scheduled to end on July
31, 2013, the Exchange filed to extend the operation of the pilot on
several occasions.\82\ The pilot is now set to expire on June 30, 2019,
and the Exchange proposes to make the Program, Rule 107C, permanent. In
its proposal, as modified by Amendment No. 1, the Exchange provides
data and analysis which it believes justifies permanent approval of the
Program.
---------------------------------------------------------------------------

    \82\ See supra, note 15.
---------------------------------------------------------------------------

    In the Original Notice, the Exchange provided data indicating that
the Program provided $12.3 million in price improvement to retail
investors between August 21, 2012 and January 2, 2018, as well as data
showing overall average price improvement of $0.0014 per share
(approximately 40% above the minimum of $0.001), with average price
improvement exceeding that level in 2016.\83\ In the Original Notice,
the Exchange also stated its belief that receipt of price improvement
by retail investors, the Program's low volume levels, and other data,
similar to that provided in Tables 1 through 8 above, were sufficient
to conclude that the Program had achieved its goals without negatively
impacting the broader market.\84\ In the Commission's Order Instituting
Proceedings, the Commission questioned whether the information and
analysis provided by the Exchange in the Original Notice supported the
Exchange's conclusions that the Program had achieved its goals,
including whether the Exchange had provided data and analysis to
support its conclusion that the Program had an overall negligible
impact on broader market structure.\85\
---------------------------------------------------------------------------

    \83\ See Original Notice, supra note 3, at 28879.
    \84\ See id. at 2882-83.
    \85\ See Order Instituting Proceedings, supra note 7, at 48352.
In the Order Instituting Proceedings, the Commission sought
additional information and analysis concerning the Program's impact
on the broader market, for example, additional information to
support the view that the Program has not had a material adverse
impact on market quality and consideration of any effects that fees
and rebates may have had on the operation of the Program. See id.
---------------------------------------------------------------------------

    In Amendment No. 1, the Exchange has provided data and analysis
concerning the Program during the pilot period in addition to that
provided in the Original Notice. In particular, the Commission notes
that in Amendment No. 1, the Exchange undertook to provide a more in-
depth analysis of the Program's impact on market quality by using the
difference-in-differences (``DID'') statistical technique, the
methodology for which it explains above.\86\ Although the Program was
not initially designed to produce a DID analysis, the Exchange
identified the most active stocks in the Program to establish a
treatment group of stocks and then used securities with similar pre-
treatment spread, price, and CADV but very low Program activity as a
control group. Using this methodology, the Exchange produced four DID
analyses that the Commission believes are useful to assess the
Program's impact on market quality, as measured by a variety of market
quality statistics including: (1) Time-weighted NYSE quoted spread in
basis points; (2) time-weighted NYSE quoted spread in dollars and
cents; (3) time-weighted consolidated quoted spread in basis points;
(4) time-weighted consolidated quoted spread in dollars and cents; (5)
volume-weighted effective spread in basis points measured against the
NYSE quote; (6) volume-weighted effective spread in basis points
measured against the national best bid or offer (``NBBO''); (7) volume-
weighted effective spread in basis points measured against the
protected best bid or offer (``PBBO''); (8) volume-weighted quoted
spread in basis points measured against the NYSE quote; (9) volume-
weighted quoted spread in basis points measured against the NBBO; (10)
volume-weighted quoted spread in basis points measured against the
PBBO; (11) Trade Reporting Facility (``TRF'') share of volume during
regular trading hours, excluding auctions; (12) TRF share of volume,
full day, including auctions; (13) NYSE share of volume during regular
trading hours, excluding auctions; (14) NYSE share of volume, full day,
including auctions; and (15) trade-to-trade price change in basis
points of the Program.\87\
---------------------------------------------------------------------------

    \86\ A DID statistical technique allows studying the
differential effect of a treatment on data measured between a
treatment group and a control group. The two groups are measured
during two or more different time periods, usually a period before
``treatment'' and at least one time period after ``treatment,'' that
is, a time period after which the treatment group is impacted but
the control group is not. For each group, the difference between a
measure in the pre-treatment and the treatment period is computed.
Those differences for a measure for the two groups are then compared
to each other by taking the difference between them.
    \87\ In its analyses, the Exchange notes that lower-priced
securities tend to be most active in the Program, and as a result,
its artificially created treatment group includes securities that
were relatively low-priced during the treatment period, but may not
have been similarly low-priced during the pre-treatment period.
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    In its first set of DID analyses, the Exchange studies stocks that
had a CADV of at least 500,000 shares during both a pre-treatment and a
treatment period. For these stocks, the Exchange compares changes in
market quality statistics between the pre-treatment and treatment
period for the treatment group stocks and the control group stocks. The
Exchange conducts this study using two different treatment periods.
More specifically, the Exchange examines market quality statistics for:
     Six months prior to launch of the Program (February 2012-
July 2012) as compared to six months following launch, excluding the
first month of the Program (September 2012-February 2013) for
securities with a CADV of at least 500,000 during the pre-treatment and
treatment periods, and
     Six months prior to launch of the Program (February 2012-
July 2012) as compared to all of 2016 and 2017 for securities with a
CADV of at least 500,000 during the pre-treatment and treatment
periods.
    As summarized in Table 11 above, when analyzing stocks with a CADV
of at least 500,000 shares, and when comparing changes between the pre-
treatment period and the 2012-2013 treatment period, the Exchange finds
no statistically significant differences between treatment and control
group

stocks for the changes in time-weighted NYSE or time-weighted
consolidated spreads (whether measured in basis points or in
dollars).\88\
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    \88\ More broadly, the Exchange finds no statistically
significant difference between treatment and control group stocks
for any of the analyzed measures of market quality when comparing
the pre-treatment period with the 2012-2013 treatment period.
---------------------------------------------------------------------------

    As summarized in Table 12 above, when comparing changes between the
pre-treatment period and the 2016-2017 treatment period, the analysis
shows statistically significant positive differences between treatment
and control stocks for changes in several spread measures in basis
points, as well as for changes in the share of trading on the TRF,
which could suggest a negative effect of the Program.\89\ However, the
Exchange's analysis further reveals that the treatment stocks for the
2016-2017 treatment period saw sharp price declines as compared to
their 2012 pre-treatment period levels.\90\ In addition, many of the
treatment stocks traded with quoted spreads near $0.01 (i.e., they were
tick-constrained), so that any price drop would necessarily result in
an almost equal and opposite percentage increase in the spreads
measured in basis points. After careful consideration, the Commission
believes that the DID and additional analysis performed by the Exchange
for stocks with a CADV of at least 500,000 shares, support the
conclusion that positive DID results for spreads and TRF activity
observed in Table 12 above are unlikely to be caused by the Program.
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    \89\ In addition, the results in Table 12 show negative
differences between the treatment and control stocks for changes in
time-weighted consolidated dollar spreads (statistically significant
at the 90% confidence level) and for changes in time-weighted NYSE
dollar spreads (statistically significant at the 95% confidence
level).
    \90\ Table 14 above shows a decrease in the average value
weighted average price (VWAP) of treatment stocks from $25.51 (pre-
treatment period) to $13.75 (2016-2017 treatment period) and an
increase in the average VWAP of control group stocks from $24.96
(pre-treatment period) to $37.74 (2016-2017 treatment period). In
contrast, Table 15 above shows that similar price changes are not
present in the analysis focusing on the 2012-2013 treatment period.
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    In its other set of DID analyses, the Exchange studies stocks that
had a CADV of at least 50,000 shares and less than 500,000 shares
during both a pre-treatment and a treatment period, for the same two
treatment time periods. For these stocks, the Exchange likewise
compares changes in market quality statistics between the pre-treatment
and the treatment periods for the treatment group stocks and the
control group stocks. Specifically, to assess whether the results
differ for lower-volume stocks, the Exchange examines the same market
quality statistics for:
     Six months prior to launch of the Program (February 2012-
July 2012) compared to six months following launch, excluding the first
month of the Program (September 2012-February 2013) for securities with
a CADV of at least 50,000 and less than 500,000, during the pre-
treatment and treatment periods; and
     Six months prior to launch of the Program (February 2012-
July 2012) compared to all of 2016 and 2017 for securities with a CADV
of at least 50,000 and less than 500,000, during the pre-treatment and
treatment periods.
    As summarized in Table 16 above, when analyzing these lower-volume
stocks, and when comparing changes between the pre-treatment period and
the 2012-2013 treatment period, the Exchange similarly finds no
statistically significant differences between treatment and control
group stocks for the changes in time-weighted NYSE or time-weighted
consolidated spreads (whether measured in basis points or in
dollars).\91\
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    \91\ More broadly, the Exchange finds no statistically
significant difference between treatment and control group stocks
for any of the analyzed measures of market quality when comparing
the pre-treatment period with the 2012-2013 treatment period.
---------------------------------------------------------------------------

    As summarized in Table 19 above, when comparing changes between the
pre-treatment period and the 2016-2017 treatment period, the analysis
shows statistically significant positive differences between treatment
and control stocks for changes in several spread measures in basis
points, as well as for changes in the share of trading on the TRF. In
assessing the observed positive differences for changes in spread
measures in basis points, the Exchange's analysis further reveals that
these differences are attributable mostly to changes in the control
stocks rather than to changes in the treatment stocks. In particular,
as shown in Table 20, between the pre-treatment period and the 2016-
2017 treatment period, the treatment stocks experienced virtually no
change in dollar spreads and only a small increase in spreads measured
in basis points (driven by a small decline in their prices (VWAP)).\92\
In contrast, in the same time period, the control stocks experienced a
large decrease in spreads measured in basis points, driven by the fact
that their average price (VWAP) more than doubled.\93\ Thus, the large
increase in the prices of the control stocks (which did not occur for
the treatment stocks) contributes significantly to the observed
positive differences between treatment and control stocks for changes
in basis point spread measures. After careful consideration, the
Commission believes that the DID and additional analysis performed by
the Exchange for stocks with a CADV of at least 50,000 and less than
500,000 shares support the conclusion that the positive DID results in
spreads and TRF observed in Table 19 are unlikely to be caused by the
Program.
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    \92\ Table 20 shows that between the pre-treatment period and
the 2016-2017 treatment period, the treatment stocks experienced a
slight decrease in average dollar spread from $0.024 to $0.023, a
small decline in average VWAP from $13.84 to $12.09, and a small
increase in basis point spread from 18.84 to 21.69 basis points.
    \93\ Table 20 shows that between the pre-treatment period and
the 2016-2017 treatment period, the control stocks experienced a
large increase in average VWAP from $16.70 to $35.92, a smaller
percentage increase in average dollar spread from $0.034 to $0.061,
and a large decrease in basis point spread from 22.04 to 15.41 basis
points.
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    As noted, in the Order Instituting Proceedings, the Commission
questioned whether the Exchange provided sufficient data and analysis
in the Original Notice to support its conclusions that the Program had
achieved its goals and had an overall negligible impact on broader
market structure.\94\ In Amendment No. 1, the Exchange provides data
and analysis to further support its assertions in the Original Notice.
The Commission believes that the data and analysis provided by the
Exchange support the conclusion that the Program provides meaningful
price improvement to retail investors on a regulated exchange venue and
has not demonstrably caused harm to the broader market. Based on the
foregoing, and after careful consideration of the Exchange's analysis
of the data generated by the Program and the comment received, the
Commission finds that the proposed rule change, as modified by
Amendment No. 1, is consistent with the requirements of the Exchange
Act.
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    \94\ See supra note 85 and accompanying text.
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V. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
to the proposed rule change is consistent with the Exchange 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_ADDRESS>Please include
File Number SR-NYSE-2018-28 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-NYSE-2018-28. 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 this filing will also be available for inspection
and copying at the principal office 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-NYSE-2018-28 and should be submitted on
or before March 15, 2019.

VI. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1

    The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the 30th day after the
date of publication of notice of Amendment No. 1 in the Federal
Register. Amendment No. 1 supplements the proposal by providing
additional analysis of the Program's impact on the market to address
concerns raised in Commission's Order Instituting Proceedings.
Specifically, in Amendment No. 1, the Exchange presents and discusses
four DID analyses it performed to assess the Program, as measured by a
variety of market quality statistics. These DID analyses and the
additional analysis provided by the Exchange assisted the Commission in
evaluating the Program's impact on the broader market and in
determining that permanent approval of the Program, Rule 107C, is
reasonably designed to perfect the mechanism of a free and open market
and the national market system, protect investors and the public
interest, and not be unfairly discriminatory, or impose an unnecessary
or inappropriate burden on competition. Accordingly, pursuant to
Section 19(b)(2) of the Exchange Act,\95\ the Commission finds good
cause to approve the proposed rule change, as modified by Amendment No.
1, on an accelerated basis.
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    \95\ 15 U.S.C. 78s(b)(2).
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VII. Limited Exemption From the Sub-Penny Rule

    Pursuant to its authority under Rule 612(c) of Regulation NMS,\96\
the Commission hereby grants the Exchange a limited exemption from the
Sub-Penny Rule to operate the Program. For the reasons discussed below,
the Commission determines that such action is necessary or appropriate
in the public interest, and is consistent with the protection of
investors.
---------------------------------------------------------------------------

    \96\ 17 CFR 242.612(c).
---------------------------------------------------------------------------

    When the Commission adopted the Sub-Penny Rule in 2005, the
Commission identified a variety of problems caused by sub-pennies that
the Sub-Penny Rule was designed to address:
     If investors' limit orders lose execution priority for a
nominal amount, investors may over time decline to use them, thus
depriving the markets of liquidity.
     When market participants can gain execution priority for a
nominal amount, important customer protection rules such as exchange
priority rules and the Manning Rule \97\ could be undermined.
---------------------------------------------------------------------------

    \97\ See Financial Industry Regulatory Authority Rule 5320
(Prohibition Against Trading Ahead of Customer Orders).
---------------------------------------------------------------------------

     Flickering quotations that can result from widespread sub-
penny pricing could make it more difficult for broker-dealers to
satisfy their best execution obligations and other regulatory
responsibilities.
     Widespread sub-penny quoting could decrease market depth
and lead to higher transaction costs.
     Decreasing depth at the inside could cause institutions to
rely more on execution alternatives away from the exchanges,
potentially increasing fragmentation in the securities markets.\98\
---------------------------------------------------------------------------

    \98\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
---------------------------------------------------------------------------

    The Commission believes that the limited exemption granted today
should continue to promote competition between exchanges and OTC market
makers in a manner that is reasonably designed to minimize the problems
that the Commission identified when adopting the Sub-Penny Rule. Under
the Program, sub-penny prices will not be disseminated through the
consolidated quotation data stream, which should avoid quote flickering
and its reduced depth at the inside quotation.
    Furthermore, the Commission does not believe that granting this
limited exemption and approving the proposal would reduce incentives
for market participants to display limit orders. As noted in the RLP
Approval Order, market participants that displayed limit orders at the
time were not able to interact with marketable retail order flow
because that order flow was almost entirely routed to internalizing OTC
market makers that offered sub-penny executions,\99\ and, as noted in
Amendment No. 1, the Program has attracted a small volume from the OTC
market makers. As a result, enabling the Exchange to continue to
compete for retail order flow through the Program should not materially
detract from the current incentives to display limit orders, while
potentially resulting in greater order interaction and price
improvement for marketable retail orders on a public national
securities exchange. To the extent that the Program may raise Manning
and best execution issues for broker-dealers, these issues are already
presented by the existing practices of OTC market makers.
---------------------------------------------------------------------------

    \99\ See RLP Approval Order, supra note 14, at 40682.
---------------------------------------------------------------------------

    This permanent and limited exemption from the Sub-Penny Rule is
limited solely to the operation of the Program by the Exchange. This
exemption does not extend beyond the scope of Exchange Rule 107C. In
addition, this exemption is conditioned on the Exchange continuing to
conduct the Program, in accordance with Exchange Rule 107C and
substantially as described in the Exchange's request for exemptive
relief and the proposed rule change, as modified by Amendment No.
1.\100\ Any changes in Exchange Rule 107C may cause the Commission to
reconsider this exemption.
---------------------------------------------------------------------------

    \100\ See supra note 13.

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VIII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\101\ that the proposed rule change (SR-NYSE-2018-28), as
modified by Amendment No. 1, be, and it hereby is, approved on an
accelerated basis.
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    \101\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    It is further ordered that, pursuant to Rule 612(c) under
Regulation NMS, that the Exchange shall be exempt from Rule 612(a) of
Regulation NMS with respect to the operation of the Program as set
forth in Exchange Rule 107C as described herein.
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    \102\ 17 CFR 200.30-3(a)(12) and 17 CFR 200.30-3(a)(83).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\102\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-03043 Filed 2-21-19; 8:45 am]
BILLING CODE 8011-01-P