[Federal Register: February 12, 2007 (Volume 72, Number 28)]
[Notices]
[Page 6624-6626]
[DOCID:fr12fe07-122]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55240; File No. SR-Amex-2007-07]

Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto
Amending Existing Rules for Portfolio Depositary Receipts and Index
Fund Shares

 February 5, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on January 11, 2007, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been substantially prepared by the
Exchange. On January 25, 2007, the Amex submitted Amendment No. 1 to
the proposed rule change. The Commission is publishing this notice to
solicit comments on the proposed rule change, as amended, from
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

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

    The Exchange proposes to amend its existing rules for portfolio
depositary receipts (Rule 1000) and index fund shares (Rule 1000A) to
eliminate the methodology standards for eligible indexes.
    The text of the proposed rule change is available at the Amex, the
Commission's Public Reference Room, and http://www.amex.com.

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

    In its filing with the Commission, the Amex included statements
concerning the purpose of and basis for the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Amex has substantially prepared summaries, set forth
in Sections A, B, and C below, of the most significant aspects of such
statements.

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

1. Purpose
    The purpose of this proposed rule change is to amend Amex's
existing generic listing standards pursuant to Rule 19b-4(e) under the
Act \3\ for portfolio depositary receipts (``PDRs'') and index fund
shares \4\ to eliminate the requirement that an eligible index be
calculated following a specified methodology.
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    \3\ 17 CFR 240.19b-4(e).
    \4\ PDRs and index fund shares are registered investment
companies under the Investment Company Act of 1940 and are referred
to in this filing as exchange traded funds (``ETFs'').
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    The Exchange currently has generic listing standards (within the
meaning of Rule 19b-4(e) under the Act \5\), which permit the listing
and trading of various qualifying ETFs subject to the procedures
contained in Rule 19b-4(e). The existence of generic listing standards
allows qualifying ETFs to list or trade without the need to file a rule
change for each security under Rule 19b-4 under the Act.\6\ By amending
its generic listing standards pursuant to Rule 19b-4(e), the Exchange
intends to reduce the time frame for listing ETFs that rely on indexes
that utilize methodologies not currently identified in the generic
listing standards and thereby reduce the burdens on issuers and other
market participants.
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    \5\ 17 CFR 240.19b-4(e).
    \6\ 17 CFR 240.19b-4.
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    The generic listing standards for ETFs presently provide that
eligible indexes be calculated based on the market capitalization,
modified market capitalization, price, equal-dollar, or modified equal-
dollar weighting methodology.\7\ The proposed rule change will
eliminate this standard and, as a result, the Exchange will no longer
consider index methodology in its review of an ETF's eligibility for
listing and trading pursuant to Rule 19b-4(e) under the Act.\8\
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    \7\ See Commentary .03(b)(i) to Amex Rule 1000 and Commentary
.02(b)(i) to Amex Rule 1000A.
    \8\ 17 CFR 240.19b-4(e).
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    The Exchange states that as the market for ETFs has grown and the
ETF product line matured, the Exchange has witnessed an increase in the
number of methodologies used to calculate indexes. In order for an
index that employs a novel methodology to satisfy the current generic
listing standards, either a traditional methodology must be substituted
for the intended methodology, or the Exchange must submit a proposed
rule change to the Commission amending the generic listing standards to
include the additional methodology. In this regard, the Exchange notes
that, recently, both The NASDAQ Stock Market LLC and NYSE Arca, Inc.
filed rule changes with the Commission in order to permit eligible
indexes to be calculated based on a methodology weighting components
based on their particular financial attributes.\9\
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    \9\ See Securities Exchange Act Release Nos. 54459 (September
15, 2006), 71 FR 55533 (September 22, 2006) (SR-NASDAQ-2006-035);
54490 (September 22, 2006), 71 FR 58034 (October 2, 2006) (SR-
NYSEArca-2006-61). Telephone conference among Courtney McBride,
Assistant General Counsel, Amex, Brian Trackman, Special Counsel,
and Michou Nguyen, Special Counsel, Division of Market Regulation,
Commission on February 2, 2007.
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    The Exchange believes that the proposed elimination of index
methodology from its generic listing standards for ETFs would
potentially reduce the time frame for bringing ETFs based on indexes
with nontraditional weighting techniques to the market, thereby
reducing the burdens on issuers and other market participants and
promoting competition. The Exchange notes that indexes underlying ETFs
would continue to be subject to the other requirements of the generic
listing standards pursuant to Rule 19b-4(e) under the Act.\10\ For
example, the generic listing standards for domestic indexes require,
without limitation, that the most heavily weighted component stock of
an index not exceed 30% of the weight of the index, and the five most
heavily weighted component stocks of an index not exceed 65% of the
weight of the index,\11\ and that an index include a minimum of 13
component stocks.\12\ Similarly, the generic listing standards for
international or global indexes require, without limitation, that the
most heavily weighted component stock of an index not exceed 25% of the
weight of the index, and the five most heavily weighted component
stocks of an index not exceed 60% of the weight of the index,\13\ and
that an index include a minimum of 20 component stocks.\14\ The
Exchange believes that such requirements will ensure that underlying
indexes are sufficiently diversified, and that their components are
sufficiently liquid to serve as the basis for an ETF.
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    \10\ 17 CFR 240.19b-4(e).
    \11\ See Commentary .03(a)(A)(3) to Amex Rule 1000 and
Commentary .02(a)(A)(3).
    \12\ See Commentary .03(a)(A)(4) to Amex Rule 1000 and
Commentary .02(a)(A)(4).
    \13\ See Commentary .03(a)(B)(3) to Amex Rule 1000 and
Commentary .02(a)(B)(3).
    \14\ See Commentary .03(a)(B)(4) to Amex Rule 1000 and
Commentary .02(a)(B)(4).
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2. Statutory Basis
    The Amex believes that the proposed rule change is consistent with
the requirements of Section 6(b) of the Act \15\ in general, and
furthers the objectives of Section 6(b)(5),\16\ of the Act in
particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, 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. The Exchange
believes that the proposed rule change will facilitate the listing and
trading of ETFs, thereby reducing the burdens on issuers and other
market participants.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change would not
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.

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

    The Exchange states that no written comments were solicited or
received with respect to the proposed rule change.

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

    Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.
    The Amex has requested accelerated approval of this proposed rule
change prior to the 30th day after the date of publication of the
notice of the filing thereof. The Commission has determined that a 15-
day comment period is appropriate in this case.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the 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 e-mail to<EMAIL_ADDRESS>Please include

File Number SR-Amex-2007-07 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Amex-2007-07. This file
number should be included on the subject line if e-mail 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 Web site (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 inspection and
copying in the Commission's Public Reference Room. Copies of the filing
also will be available for inspection and copying at the principal
office of the Amex. All comments received will be posted without
change; the Commission does not edit personal identifying information
from submissions. You should submit only information that you wish to
make available publicly. All submissions should refer to File Number
SR-Amex-2007-07 and should be submitted on or before February 27, 2007.

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-2252 Filed 2-9-07; 8:45 am]

BILLING CODE 8010-01-P


[Federal Register Volume 84, Number 66 (Friday, April 5, 2019)]
[Notices]
[Pages 13729-13734]
[FR Doc No: 2019-06720]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85482; File No. SR-CboeEDGX-2019-012]

Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing of a Proposed Rule Change To Introduce Retail Priority

April 2, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 18, 2019, Cboe EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    Cboe EDGX Exchange, Inc. (``EDGX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposed rule change to introduce order book priority for equity orders
submitted on behalf of retail investors. The text of the proposed rule
change is attached as Exhibit 5 [sic].
    The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

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

1. Purpose
    The purpose of the proposed rule change is to introduce order book
priority for equity orders submitted on behalf of retail investors.
Forty three million U.S. households hold a retirement or brokerage
account,\3\ and these investors are increasingly turning to the
equities markets to fund important life goals. It is therefore critical
that our markets are sensitive to the needs of the investing public.
The Exchange continuously strives to innovate and improve market
structure in ways that facilitate ordinary investors achieving their
investment goals. The proposed introduction of retail priority is
designed with this objective in mind. The Exchange believes that
introducing retail priority may provide retail investors with better
execution quality and better position the Exchange as the ``home'' for
retail limit orders. This, in turn, will further allow retail liquidity
to contribute to overall price formation and attract more market
participants to the Exchange, creating a richer and more diverse
ecosystem with deeper liquidity. Retail priority would therefore be
consistent with the goals of the Commission to encourage markets that
are structured to benefit ordinary investors,\4\ while facilitating
order interaction and price discovery to the benefit of all market
participants.
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    \3\ See The Evolving Market for Retail Investment Services and
Forward-Looking Regulation--Adding Clarity and Investor Protection
while Ensuring Access and Choice, Chairman Jay Clayton, Commission
(May 2, 2018), available at https://www.sec.gov/news/speech/speech-clayton-2018-05-02.
    \4\ See e.g., U.S. Securities and Exchange Commission, Strategic
Plan, Fiscal Years 2018-2022, available at https://www.sec.gov/files/SEC_Strategic_Plan_FY18-FY22_FINAL_0.pdf (``Commission
Strategic Plan'').
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Background
    As defined in EDGX Rule 11.21, a ``Retail Order'' is an agency or
riskless principal order that meets the criteria of FINRA Rule 5320.03
\5\ that originates from a natural person and is submitted to the
Exchange by a Retail Member Organization, provided that no change is
made to the terms of the order with respect to price or side of market
and the order does not originate from a trading algorithm or any other
computerized methodology.\6\ A ``Retail Member Organization'' or
``RMO'' is a Member (or a division thereof) that has been approved by
the Exchange under EDGX Rule 11.21 to submit Retail Orders. Pursuant to
EDGX Rule 11.21(b), which describes the qualification and application
process for becoming a Retail Member Organization, any member may
qualify as a Retail Member Organization if it conducts a retail
business or routes retail orders on behalf of another broker-dealer.
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    \5\ FINRA Rule 5320.03 clarifies that an RMO may enter Retail
Orders on a riskless principal basis, provided that (i) the entry of
such riskless principal orders meet the requirements of FINRA Rule
5320.03, including that the RMO maintains supervisory systems to
reconstruct, in a time[hyphen]sequenced manner, all Retail Orders
that are entered on a riskless principal basis; and (ii) the RMO
submits a report, contemporaneously with the execution of the
facilitated order, that identifies the trade as riskless principal.
    \6\ Retail Member Organizations will only be able to designate
their orders as Retail Orders on either an order-by-order basis
using FIX ports or by designating certain of their FIX ports at the
Exchange as ``Retail Order Ports.'' Unless otherwise instructed by
the Retail Member Organization, a Retail Order will be identified as
Retail when routed to an away Trading Center. See EDGX Rule
11.21(d).
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    Today, the Exchange operates based on a price/display/time priority
execution algorithm that is similar to those employed by most other
U.S. equities exchanges.\7\ As such, the first Displayed \8\ order
resting on the EDGX Book \9\ at a particular price has priority over
the next order and so on based on the time of order entry. Non-

Displayed \10\ orders at that price are further categorized into a
number of priority bands, with orders within each priority band
prioritized again based on the time of order entry, as provided in EDGX
Rule 11.9. The generally applicable allocation bands for orders
executed on the Exchange are described in EDGX Rule 11.9(a)(2)(A), and
similar allocation bands applicable to orders executed at the midpoint
of the NBBO are described in EDGX Rule 11.9(a)(2)(B).\11\ The price
time allocation model has provided significant benefits to the equities
markets as it encourages increased efficiency by rewarding market
participants that are the first to provide liquidity at a particular
price. At the same time, because this allocation methodology
preferences speed, retail investors may have a more limited ability to
secure an execution for their non-marketable orders under this model.
The Exchange believes that retail priority would improve trading
outcomes for Retail Orders and could perhaps encourage even more retail
order flow to be entered into the displayed market.
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    \7\ See EDGX Rule 11.12.
    \8\ ``Displayed'' is an instruction the User may attach to an
order stating that the order is to be displayed by the System on the
EDGX Book. See EDGX Rule 11.6(e)(1).
    \9\ ``EDGX Book'' means the System's electronic file of orders.
See EDGX Rule 1.5(d)
    \10\ ``Non-Displayed'' is an instruction the User may attach to
an order stating that the order is not to be displayed by the System
on the EDGX Book. See EDGX Rule 11.6(e)(2).
    \11\ In addition, EDGX Rule 11.9(a)(2)(C) describes the sequence
in which orders are timestamped when re-ranked by the System upon
clearance of a locking quotation.
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Retail Priority Proposal
    The Exchange proposes to introduce retail priority in order to
ensure that non-marketable orders submitted on behalf of retail
investors can more readily compete for execution with orders entered by
sophisticated market participants that may be better equipped to
optimize their place in the intermarket queue. Retail priority would be
in place during all trading sessions, and would also be available to
orders entered for participation in the Exchange's opening process and
the re-opening process following a halt.
    As proposed, the portion of a Retail Order with a Displayed
instruction would be given allocation priority ahead of all other
available interest on the EDGX Book. This would be true of both orders
executed pursuant to the regular priority bands described in EDGX Rule
11.9(a)(2)(A), and orders priced at the midpoint of the NBBO pursuant
to EDGX Rule 11.9(a)(2)(B) where Retail Orders subject to Display-Price
Sliding \12\ would have priority ahead of limit orders entered with
such an instruction as well as any other orders resting at the midpoint
of the NBBO.\13\ In addition, since Reserve Orders contain a Displayed
instruction but include both Displayed and Non-Displayed shares, the
Reserve Quantity \14\ of Retail Orders would be given priority ahead of
the Reserve Quantity of other limit orders on the EDGX Book.
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    \12\ Display-Price Sliding is an order instruction provided for
compliance with Rule 610(d) of Regulation NMS. See EDGX Rule
11.6(l)(B).
    \13\ The midpoint of the NBBO is a non-displayed price, and
therefore orders entered with Display-Price Sliding, which are
willing to be displayed at the applicable locking or crossing price
are given priority pursuant to current EDGX Rule 11.9(a)(2)(B).
    \14\ ``Reserve Quantity'' is the portion of an order that
includes a Non-Displayed instruction in which a portion of that
order is also displayed on the EDGX Book. See EDGX Rule 11.6(m).
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    Retail Orders that are not willing to be displayed, or are only
willing to be displayed at a less aggressive price than the execution
price, would not receive any special priority. For example, a Retail
Order that is entered as a MidPoint Peg Order,\15\ which by definition
is Non-Displayed, would be prioritized along with all other MidPoint
Peg Orders notwithstanding the fact that it is a Retail Order.
Similarly, a MidPoint Discretionary Order (``MDO'') \16\ executed
within its Discretionary Range would receive the same priority as other
orders entered with a Discretionary Range instruction, regardless of
whether the MDO is displayed at its pegged price.
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    \15\ A ``MidpPoint Peg Order'' is a non-displayed Market Order
or Limit Order with an instruction to execute at the midpoint of the
NBBO, or, alternatively, pegged to the less aggressive of the
midpoint of the NBBO or one minimum price variation inside the same
side of the NBBO as the order. See EDGX Rule 11.8(d).
    \16\ A ``MidPoint Discretionary Order'' is a Limit Order that is
executable at the NBB for an order to buy or the NBO for an order to
sell while resting on the EDGX Book, with discretion to execute at
prices to and including the midpoint of the NBBO. See EDGX Rule
11.8(g).
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    The following examples illustrate the proposed implementation of
retail priority: \17\
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    \17\ In each example, orders are shown in the order in which
they are entered.
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    Example 1: Displayed Retail Order has Priority at a Given Price.

NBBO: $10.00 x $10.10
Order 1: Buy 100 shares @ $10.00--Displayed, Non-Retail Order
Order 2: Buy 100 shares @ $10.00--Displayed, Retail Order
Order 3: Sell 100 shares @ $10.00

    A Retail Order entered with a Displayed instruction would have
priority over Non-Retail Orders at the same price. As a result, Order 3
would trade with Order 2 for 100 shares @ $10.00, securing a timely
execution for the retail investor.
    Example 2: Better Priced Non-Retail Order has Priority.

NBBO: $10.00 x $10.10
Order 1: Buy 100 shares @ $10.00--Retail Order
Order 2: Buy 100 shares @ $10.01--Non-Retail Order
Order 3: Sell 100 shares @ $10.00

    Allocations would continue to be prioritized based on price.
Although Retail Orders entered with a Displayed instruction would have
priority over Non-Retail Orders at the same price, they would not have
priority over Non-Retail Orders at a better price. As a result, Order 3
would trade with the better priced Order 2 for 100 shares @$10.01.
    Example 3: No Retail Priority for Non-Displayed Orders.

NBBO: $10.00 x $10.10
Order 1: Buy 100 shares @ $10.01--Non-Displayed, Non-Retail Order
Order 2: Buy 100 shares @ $10.01--Non-Displayed, Retail Order
Order 3: Sell 100 shares @ $10.00

    A Retail Order entered with a Non-Displayed instruction is not
eligible for retail priority. As a result, Order 3 trades with Order 1
for 100 shares @ $10.01 based on time priority. Retail Orders would
need to be submitted with a Displayed or Reserve instruction to qualify
for the benefits of retail priority, which should encourage displayed
retail liquidity.
    Example 4: No Retail Priority in Discretionary Range.

NBBO: $10.00 x $10.10
Order 1: Buy 100 shares @ $10.00 + $0.03 Discretion--Non-Retail Order
Order 2: Buy 100 shares @ $10.00 + $0.03 Discretion--Retail Order
Order 3: Sell 100 shares @ $10.02

    Retail Orders would only have priority if willing to be displayed
at the execution price. Although orders entered with a Discretionary
Range instruction may be displayed at their ranked price, the execution
would occur at a non-displayed price within the Discretionary Range. As
a result, Order 3 trades with Order 1 for 100 shares @$10.02 based on
time priority.\18\
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    \18\ If Order 3 was to sell 100 shares @ $10.00 then retail
priority would be observed at the displayed price and Order 3 would
trade with Order 2 for 100 shares @ $10.00.
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    Example 5: Retail Reserve Order has Displayed and Non-Displayed
Priority.

NBBO: $10.00 x $10.10
Order 1: Buy 500 @ $10.00--Non-Retail Reserve Order, 100 shares
displayed
Order 2: Buy 500 @ $10.00--Retail Reserve Order, 100 shares displayed
Order 3: Sell 300 @ $10.00

    A Retail Order entered as a Reserve Order would have retail
priority for both displayed and non-displayed size. However, any
Reserve Quantity would be executed after other orders with a higher
priority, including the displayed size available from Non-Retail
Orders. As a result, Order 3 would trade 100 shares @ $10.00 with Order
2 based on retail priority, then would trade 100 shares @ $10.00 with
Order 1. After exhausting the available displayed size, Order 3 would
trade the remaining 100 shares @ $10.00 with Order 2 based on retail
priority.
    Example 6: Display-Price Sliding Retail Orders are Eligible for
Priority at Midpoint.

NBBO: $10.00 x $10.01
EDGX BBO: $10.00 x $10.02
Order 1: Buy 100 shares @ $10.01--Book Only, Display-Price Sliding,
Non-Retail Order
Order 2: Buy 100 shares @ $10.01--Book Only, Display-Price Sliding,
Retail Order
Order 3: Sell 100 shares @ $10.01--Post Only
Order 4: Sell 100 shares @ $10.00

    Due to the Display-Price Sliding instruction, both Order 1 and
Order 2 are originally ranked at $10.01 and displayed at $10.00 to
avoid locking the National Best Offer at $10.01.\19\ Then, because of
the Post Only instruction, Order 3 posts and displays on the EDGX Book
at $10.01. Since there is displayed interest now resting on the same
side of the order book, Order 4 is eligible for execution on entry at
the midpoint price of $10.005--i.e., one-half minimum price variation
better than Order 3.\20\ At the midpoint of the NBBO, a Retail Order
subject to Display-Price Sliding that is willing but unable to display
at or better than the execution price would have priority over other
orders. As a result, Order 4 would trade with Order 2 for 100 shares @
$10.005, securing a timely execution for the retail investor.
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    \19\ An order with a Display-Price Sliding instruction that
would be a locking quotation on entry is instead ranked at the
locking price and displayed at a price that is one minimum price
variation less aggressive than the locking price. See EDGX Rule
11.6(l)(B).
    \20\ See EDGX Rule 11.6(l)(1)(B)(v); EDGX Rule 11.10(a)(4)(D).
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Retail Attribution
    A Retail Member Organization on EDGX has the option of designating
Retail Orders to be identified as such on the EDGX Book Feed,\21\ which
may increase potential execution opportunities for that order. Today,
pursuant to EDGX Rule 11.21(f), this designation may be made on either
an order-by-order or port-by-port basis,\22\ thereby giving members
flexibility in how they would like their Retail Orders attributed on
the Exchange. To support the introduction of retail priority, the
Exchange proposes to instead provide that Retail Orders will always be
designated as such on the EDGX Book Feed.\23\ Although Retail Member
Organizations have the choice today to determine which Retail Orders
would be marked as such on market data, the Exchange believes that it
is important to ensure that orders given retail priority would be
considered attributable. Designating Retail Orders on the EDGX Book
Feed will increase transparency by informing market participants when
there is retail investor interest available to trade on the Exchange,
thereby allowing market participants to make informed routing
decisions, including the decision to route contra-side interest to
trade with such Retail Orders. Although the Exchange would remove the
optionality previously available under EDGX Rule 11.21(f), based on the
Exchange's experience with attribution, this approach has the potential
to increase execution opportunities for Retail Orders (and other non-
marketable orders) by encouraging additional order flow to be routed to
the Exchange to trade with resting Retail Orders.\24\
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    \21\ See EDGX Rule 13.8.
    \22\ A Retail Member Organization that instructs the Exchange to
identify all its Retail Orders as Retail on a Retail Order Port is
able to override such setting and designate any individual Retail
Order from that port as Attributable or as Non-Attributable, as set
forth in Rule 11.6(a). See EDGX Rule 11.21(f).
    \23\ The retail indicator on the EDGX Book Feed would indicate
that the order is a Retail Order and would not provide the market
participant identifier (``MPID'') of the entering firm. Members may
separately include an Attributable instruction on their orders
pursuant to Rule 11.6(a) if they would also like MPID attribution.
    \24\ Prior to the original introduction of retail attribution,
the Exchange conducted a study that found that Retail Orders
received an 18% higher execution rate when members used Attributable
Orders to include their MPID in the published quote on the EDGX Book
Feed. See Securities Exchange Act Release No. 72016 (April 24,
2014), 79 FR 24463 (April 30, 2014) (SR-EDGX-2014-13).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with
the requirements of Section 6(b) of the Act,\25\ in general, and
Section 6(b)(5) of the Act,\26\ 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.
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    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(5).
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    The Commission has consistently emphasized the need to ensure that
the U.S. capital markets are structured with the interests of retail
investors in mind, and recently highlighted its focus on the ``long-
term interest of Main Street Investors'' as the agency's number one
strategic goal for fiscal years 2018 to 2022.\27\ The Exchange believes
that retail priority is consistent with the goals of the Commission to
ensure that the equities markets continue to serve the needs of the
investing public. Specifically, introducing retail priority would
protect investors and the public interest by giving retail investors
the tools needed to compete for executions on non-marketable order flow
submitted to a national securities exchange. The Exchange is committed
to innovation that improves the quality of the equities markets, and
believes that retail priority may increase the attractiveness of the
Exchange for the execution of Retail Orders submitted on behalf of the
millions of ordinary investors that rely on these markets for their
investment needs.
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    \27\ See Commission Strategic Plan, supra note 4.
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    Although the Commission has approved other allocation methodologies
for equities trading,\28\ most equities exchanges, including EDGX,
continue to determine priority based on a price/display/time allocation
model today. This has contributed to deep and liquid markets for equity
securities as liquidity providers compete to be the first to establish
a particular price. At the same time, ordinary investors may not be
able to compete with market makers and other automated liquidity
providers to be the first to set a new price. Importantly, retail
investors, in contrast to their professional counterparts, tend to have
longer investment time horizons and are not in the business of
optimizing queue placement under a time based allocation model. Thus,
in order to facilitate the needs of these ordinary investors, the
Exchange believes that an alternative approach is needed.
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    \28\ Nasdaq PSX, for example, operates with a price setter pro
rata model that rewards liquidity providers that set the best price
and then rewards other market participants that enter larger sized
orders. See Securities Exchange Act Release No. 72250 (May 23,
2014), 79 FR 31147 (May 30, 2014) (SR-Phlx-2014-24).
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    The proposed introduction of retail priority is designed, first and
foremost, to benefit retail investors by increasing both the likelihood
and speed with which their non-marketable orders are executed. Unlike
marketable retail order flow that is routinely executed in full on

entry at the national best bid or offer or better, non-marketable
retail order flow has to compete for execution with orders entered by
sophisticated market participants that may be quicker to establish a
new price. As shown in the chart below,\29\ the Exchange has found that
in 2018, of volume executed from retail limit orders, 28.3% joined the
national best bid or offer (``NBBO'') on entry, 17.8% were priced
better than the inside, and 49.4% were priced worse than the inside.
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    \29\ Based on Retail Orders entered by members that have
completed a retail attestation.
[GRAPHIC] [TIFF OMITTED] TN05AP19.001

    Although potentially beneficial for all Retail Orders that do not
trade immediately on entry, the Exchange believes that retail priority
would be particularly beneficial to Retail Orders that join the NBBO,
as there would often already be a queue at this price. Introducing
retail priority would thus give retail investors the ability to compete
for an execution for these orders, and may therefore improve trading
outcomes. As such, the Exchange believes that the proposed rule change
is consistent with the goals of the Exchange, and of the Commission, to
ensure that market structure evolves in ways that protect ordinary
investors that participate in the capital markets. Furthermore, since
retail priority is designed to improve trading outcomes for ordinary
investors, the Exchange also believes that it may encourage retail
brokers to route additional non-marketable retail order flow to the
EDGX Book, which may broaden execution opportunities for other market
participants. If successful in attracting retail order flow to the
Exchange, the proposed rule change would benefit market participants by
increasing the diversity of order flow with which other they can
interact on a national securities exchange, thereby increasing order
interaction and contributing to price formation.
    Giving queue priority to ordinary investors is not a novel concept
in the securities markets. In fact, customer priority has a long
tradition in the options market where orders entered on behalf of non-
broker dealer public customers have historically been afforded priority
over orders submitted by registered broker dealers. Today, most options
exchanges, including the Exchange's equity options platform (``EDGX
Options''),\30\ employ a customer priority execution algorithm where
orders submitted by a subset of public customers with more limited
trading activity (i.e., ``Priority Customers'') \31\ are provided order
book priority ahead of orders submitted by broker-dealers or other
market professionals at the same price. This allocation model, which
was first introduced by the International Securities Exchange LLC
(``ISE'') in its current retail focused form a decade ago,\32\ ensures
that orders from Priority Customers are executed ahead of similarly
priced interest from sophisticated market participants. The Exchange
believes that the time has come to introduce a similar concept for the
equities market in order to facilitate the needs of retail investors
that increasingly rely on these markets.
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    \30\ See EDGX Rule 21.8(d)(1).
    \31\ The term ``Priority Customer'' refers to any person or
entity that is not a broker or dealer in securities and does not
otherwise qualify as a ``Professional'' by virtue of placing more
than 390 orders in listed options per day on average during a
calendar month for its own beneficial account(s). See e.g., EDGX
Rules 16.1(a)(46),(47).
    \32\ See Securities Exchange Act Release No. 59287 (January 23,
2009), 74 FR 5694 (January 30, 2009) (SR-ISE-2006-26).
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    The Commission has approved other equities proposals to introduce
meaningful market structure benefits for retail investors in recent
years. For example, in 2012, the Commission approved proposals filed by
the New York Stock Exchange LLC (``NYSE'') and its affiliate NYSE Amex
LLC (``Amex'') to introduce retail price improvement programs.\33\
Those programs were designed to provide price improvement opportunities
for retail investors on a national securities exchange by allowing
liquidity providers to give sub-penny price improvement to their orders
pursuant to an exemption granted from Rule 612 of Regulation NMS.
Similar programs now exist on a number of exchanges, including the
Exchange's affiliate, Cboe BYX Exchange, Inc.

(``BYX''),\34\ and have provided millions of dollars of price
improvement to ordinary investors.\35\ When approving such retail price
improvement programs on a pilot basis, the Commission consistently
found that the pilots were consistent with the Act because they were
``reasonably designed to benefit retail investors'' and could ``promote
competition for retail order flow among execution venues.'' The
benefits to retail investors in the form of meaningful price
improvement opportunities similarly animated the Commission's recent
approval of the NYSE retail liquidity program on a permanent basis.\36\
Although retail priority is designed to increase fill rates and speed
of execution rather than price improvement, the Exchange believes that
it could have a similarly meaningful impact on execution quality for
ordinary investors that trade in the public market. Furthermore, retail
priority would complement existing retail price improvement programs by
offering market structure benefits to non-marketable retail order flow
that cannot participate in those programs.
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    \33\ See Securities Exchange Act Release No. 67347 (July 3,
2012), 77 FR 40673 (July 10, 2012) (SR-NYSE-2011-55; SR-NYSEAmex-
2011-84).
    \34\ See Securities Exchange Act Release No. 68303 (November 27,
2012), 77 FR 71652 (December 3, 2012) (SR-BYX-2012-019). Nasdaq BX
Inc. (``BX'') similarly operates its own retail price improvement
program. See Securities Exchange Act Release No. 73702 (November 28,
2014), 79 FR 72049 (December 4, 2014) (SR-BX-2014-048).
    \35\ See e.g. Securities Exchange Act Release No. 83831 (August
13, 2018), 83 FR 41128 (August 17, 2018) (SR-CboeBYX-2018-014).
    \36\ See Securities Exchange Act Release No. 85160 (February 15,
2019), 84 FR 5754 (February 22, 2019) (SR-NYSE-2018-28).
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    Similarly, in 2017, the Commission approved a proposed rule change
by The Nasdaq Stock Market LLC (``Nasdaq'') to introduce the ``Extended
Life Priority Order Attribute'' for Retail Orders that were willing to
remain on the book unaltered for a period of one second (``Retail
Extended Life Order'' or ``Retail ELO'').\37\ As proposed, displayed
orders entered on Nasdaq with the Retail ELO attribute were to be
provided a higher priority than other orders resting on the Nasdaq
order book. When the Commission approved this proposed rule change, it
opined that the proposal ``should benefit retail investors by providing
enhanced order book priority to retail order flow that is not
marketable upon entry,'' and that ``[s]uch enhanced order book priority
could result in additional or more immediate execution opportunities on
the [e]xchange for resting retail orders that otherwise would be
farther down in the order book queue, and thereby enhance execution
opportunities for retail investors.'' \38\ The same is true of the
Exchange's retail priority proposal, which would provide similar
benefits to retail investors without the additional complexity of
requiring that the order be willing to exist unaltered on the order
book for a specified period of time. While the Exchange believes that
the majority of retail investors have a longer investment time horizon
and therefore do not actively manage their trading interest at sub-
second time intervals, the Exchange believes that a broader principle
of retail priority may be more effective in encouraging retail brokers
to route order flow to the Exchange.
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    \37\ See Securities Exchange Act Release No. 81097 (July 7,
2017), 82 FR 32386 (July 13, 2017) (SR-NASDAQ-2016-161) (``Retail
ELO Approval''). Nasdaq ultimately decided not to implement Retail
ELO following Commission approval, and has since introduced a
``Midpoint Extended Life Order'' that is not limited to retail
participation.
    \38\ Id.
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    The Exchange also believes that it is appropriate and not unfairly
discriminatory to provide enhanced priority benefits solely to Retail
Orders as the proposal is designed specifically to ensure that retail
investors can compete for executions with sophisticated market
participants. In today's highly automated and efficient market, retail
investors have a more limited opportunity to compete for an execution
based purely on the time an order is placed. While sophisticated,
latency sensitive market participants can compete to be the first at
any particular price, retail investors with longer investment horizons
cannot compete in the same fashion. The proposed introduction of retail
priority would ensure that non-marketable Retail Orders get filled
first when there is available contra-side interest, and thereby improve
investment outcomes for ordinary investors. The Commission has
consistently held that it is consistent with the Act to offer certain
advantages to retail customers,\39\ and the proposal follows a line of
other initiatives to improve the retail investor experience in the
public markets. The Exchange believes that it is an important goal of
both the Exchange and the Commission to ensure that our market
structure continues to benefit retail investors by providing the tools
that they need to invest in the capital markets. Although there are
many ways to achieve that goal, the Exchange believes that doing so
requires innovation in how Retail Orders are handled on the national
securities exchanges in order to attract that order flow back to the
displayed market.
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    \39\ Where the interest of long-term investors, such as the
retail investors whose experience this filing is attempting to
improve, diverges from that of short-term professional traders, the
Commission ``repeatedly has emphasized that its duty is to uphold
the interests of long-term investors.'' See Securities Exchange Act
Release No. 61358 (January 14, 2010), 75 FR 3593 (January 21, 2010)
(File No. S7-02-10) (``Concept Release on Equity Market
Structure'').
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    The Exchange also believes that it is consistent with the public
interest and the protection of investors to provide retail priority
exclusively to those orders that contain a Displayed or Reserve
instruction. The goals of the proposed rule change are twofold. First,
the proposed change is designed to facilitate better trading outcomes
for retail investors, which may encourage retail brokers to send
additional retail order flow to the Exchange. Second, the proposed
change is designed to encourage additional displayed retail liquidity,
which could contribute to price discovery and encourage additional
order flow and liquidity from other market participants. Although the
first purpose could be achieved without limiting retail priority to
orders that contain a Displayed component at a particular price, the
second is only achieved when such orders are displayed to the broader
market. For that reason, recent priority enhancements for retail
investors, such as Nasdaq's Retail ELO, have also focused on displayed
interest that could improve quote quality and contribute to a vibrant
market.
    Finally, the Exchange believes that it is consistent with just and
equitable principles of trade to require that all Retail Orders that
are eligible for retail priority be considered retail attributable as
this would allow other market participants to gauge the available size
in orders that would be eligible for retail priority. Today, Retail
Member Organizations are given the choice as to whether to designate an
order on the EDGX Book Feed as attributable to a retail investor, which
may improve the chance of securing an execution. Although Retail Member
Organizations would no longer have the option to submit eligible Retail
Orders as non-attributable, the transparency achieved by so designating
these orders is important to the proper functioning of a market where
such orders would be eligible for priority. Furthermore, members would
ultimately be able to decide which orders to designate into the EDGX
Book as Retail Orders, thereby retaining the ability to control which
orders are publicly attributed to retail investors. Priority Customer
orders entered on the EDGX Options platform are similarly designated as
such on the Exchange's market data feeds today, and the Exchange
believes that this has contributed positively to the overall market
environment.

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

    The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Rather, the proposed rule
change is designed to increase inter-market competition for retail
order flow, and intra-market competition for orders as market
participants compete to transact with Retail Orders entered on the EDGX
Book. The proposed rule change represents an effort by the Exchange to
enhance the ability for retail investors to participate effectively on
a national securities exchange without unnecessarily burdening
competition. Although retail priority would be limited to retail
investors, the Exchange does not believe that this produces an
unnecessary burden on competition as these changes are necessary to
attract Retail Orders to a national securities exchange where they may
interact with a wide range of market participants. If successful, the
Exchange believes that retail priority would enhance competition by
encouraging retail brokers to route increased order flow to the public
markets, creating a more vibrant and competitive trading environment
that benefits all market participants.

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

    No comments were solicited or received on the proposed rule change.

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

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-CboeEDGX-2019-012 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-CboeEDGX-2019-012. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal 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-CboeEDGX-2019-012 and should be
submitted on or before April 26, 2019.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-06720 Filed 4-4-19; 8:45 am]
BILLING CODE 8011-01-P