below. See infra Sections II.C.2(b); II.D; II.E; II.F; II.G.
    \163\ See Proposing Release, 85 FR at 16735-76.
    \164\ See, e.g., T. Rowe Price Letter at 2 (``We believe the
addition of depth of book data (specifically, the five price levels
above the protected offer and below the protected bid) and auction
imbalance information, including opening, reopening, and closing
auctions, will make SIP data a much more viable alternative to
proprietary market data. . . . This additional data will help reduce
the information asymmetries that currently exist between SIP data
and proprietary data.''); ACS Execution Services Letter at 2 (``ACS
strongly supports expanding core data to include additional
information of significance to investors. As the proposal notes,
through the provision of such additional information, market
participants may have access to data to make better routing and
trading decisions.'').
    \165\ See, e.g., Virtu Letter at 5 (``[I]ncluding depth of book
information in the SIP will allow investors who cannot afford to pay
for costly Exchange proprietary feeds to trade more competitively in
the marketplace, and we believe five levels of depth of book is a
reasonable and appropriate place to land.''); Clearpool Letter at 11
(``[C]urrently, the `core data' provided through the SIP only
includes the NBBO and top-of-book data. For this reason, there
continues to be no viable alternatives for broker-dealers to paying
exchanges for their proprietary market data, both to provide
competitive execution services to clients and, equally important, to
meet best execution obligations. Clearpool therefore strongly
supports the inclusion of this additional information in core data,
which can reduce the reliance on exchanges' proprietary data feeds
and provide market participants with additional information to make
informed order routing and execution decisions.''); IEX Letter at 5-
6 (``For these reasons, the NBBO no longer encompasses the `core
data' that market participants need to stay competitive and satisfy
best execution responsibilities. The fact that depth of book data
can only be obtained through exchange proprietary data feeds allows
exchanges to charge extraordinarily high prices completely
disproportionate to any reasonable estimation of the cost of
producing that data. . . . Importantly, however, to the extent that
a significant subset of market participants could rely on this data
as a viable alternative to purchasing proprietary data, or could
viably choose to purchase less proprietary data than they need
today, it could help to harness market competition to restrain data
fee increases that today are largely unrestrained.''); letter from
James J. Angel, Associate Professor of Finance, Georgetown
University, to the Commission, dated June 12, 2020, (``Angel
Letter'') at 7-8 (``Providing data on a visibly level playing field
will increase public trust in the integrity of the markets. . . .
Freely available information about the entire market, including
orders inside the spread and the depth of book, will reduce the
asymmetry of information in the market between small retail
investors and larger players. This added transparency will reduce
the notion that markets are `rigged' in favor of larger players.'').
    \166\ See Proposing Release, 85 FR at 16735-59 (discussing
market developments such as rising stock prices and increased odd-
lot trading, decimalization, and the growth of auctions and the need
to expand core data to include smaller-sized orders in higher priced
stocks, depth of book data, and auction information to help market
participants use core data to trade in a more informed and effective
manner in light of these developments); infra Sections II.D through
II.G.
    \167\ See supra note 114 (describing the authority under Section
11A of the Exchange Act to specify additional information that must
be made available within the national market system); Section I.A
(explaining the need to improve and modernize the national market
system to fulfill the goals of Section 11A of the Exchange Act and
to meet the current core data needs of all market participants). As
stated below, some market participants stated that those who do not
buy the exchange proprietary DOB feeds and associated connectivity
and transmission offerings are at a competitive disadvantage
relative to market participants who purchase these feeds. See infra
note 1620 and accompanying text. See also infra Sections III.E.2(c);
V.C.2(b)(i)a (discussing how the amendments will affect data content
fees).
---------------------------------------------------------------------------

    In addition, the Commission disagrees with comments that the
definition of core data would require market participants, including
non-professional investors, to purchase or consume all data that would
be defined as core data, and thereby increase the cost of core data for
all.\168\ Competing consolidators are not required to offer a data
product that includes all consolidated market data,\169\ and the
Commission has explicitly stated that the proposed definitions of core
data and consolidated market data do not ``mandat[e] the consumption''
of particular data elements.\170\ Thus, the Commission believes it has
considered and addressed the needs of market participants that do not
directly need all elements of core data. The purpose of expanding core
data is to promote wider dissemination of data that will be useful in
meeting the needs of a broad array of market participants. As explained
below, the enhanced core data content will benefit all investors,
regardless of whether they directly consume it.\171\ Furthermore, the
Operating Committee of the effective national market system plan(s)
could develop fees for data content underlying consolidated market data
offerings for different subsets of consolidated market data to suit the
needs of various market participants, as one member of the Operating
Committee has already suggested.\172\ Within this framework, the
Commission believes that the market would develop to enable market
participants to consume and pay for the market data that best suits
their needs and that there would be downward pressure on data content
fees.\173\
---------------------------------------------------------------------------

    \168\ See TD Ameritrade Letter at 3; NYSE Letter II at 3-4;
Nasdaq Letter IV at 7-8.
    \169\ See infra Section III.C.8(a).
    \170\ Proposing Release, 85 FR at 16775.
    \171\ See infra notes 174-176 and accompanying text.
    \172\ See letter from Elizabeth K. King, Chief Regulatory
Officer, ICE, General Counsel and Corporate Secretary, NYSE to
Vanessa Countryman, Secretary, Commission, dated Feb. 5, 2020,
(``Feb. NYSE Letter'') (recommending that the Commission expand SIP
content and ``create products designed for modern use cases,
including a SIP product with depth-of-book quotes for institutional
traders and a National Best Bid and Offer (`NBBO') only version for
retail customers, with fees based on content entitlements (or
levels) instead of user type''). See also infra notes 1201-1208 and
accompanying text.
    \173\ See supra note 28 (describing comments received by the
Commission regarding the high cost of proprietary data products that
contain data needed for effective participation in the markets);
infra Sections III.E.2(c); V.C.2(b)(i)a (discussing how the
amendments will affect data content fees).
---------------------------------------------------------------------------

    Moreover, the Commission believes that all investors will benefit,
directly or indirectly, from the expanded definition of core data. Even
if only a subset of market participants may choose to acquire directly
a data product that includes the full set of data elements included
within the definition of core data, the Commission believes that there
will be ample demand for expanded core data \174\ and a corresponding
incentive for competing consolidators to offer more content-rich
products. The Commission expects that direct purchasers of such
products likely will include many broker-dealers that are
electronically routing orders for execution or executing orders
internally. As discussed below, the additional data elements included
within the definition of core data are useful to efficiently and
effectively route and execute orders in today's dispersed electronic
markets,\175\ and their widespread availability should facilitate
broker-dealers' ability to achieve best execution for customers.\176\
Thus, broker-dealers will be incentivized to acquire products
containing the expanded core data elements to compete effectively for
customer business. In addition, by including these additional,
important market data elements as part of expanded core data, this
rulemaking should help facilitate executing broker-dealers' access to
information, to the benefit of all investors. Accordingly, while the
Commission expects only some market participants to choose to purchase
a data product that includes the full set of core data, any market
participant that submits an order in an NMS stock should benefit
indirectly from their doing so because more executing broker-dealers
will receive the data elements that will help them place customer
orders in a more informed and effective manner.
---------------------------------------------------------------------------

    \174\ See infra notes 878-880; supra notes 163-167 and
accompanying text.
    \175\ See infra notes 878-880 and accompanying text.
    \176\ See supra Section I.E.
---------------------------------------------------------------------------

    Finally, in response to the comment recommending that a ``retail
interest indicator'' be added to quotes,\177\ the definition of self-
regulatory organization-specific program information already
incorporates retail interest indicators disseminated in current SIP
data and established pursuant to exchange retail liquidity programs in
the definition of consolidated market data.\178\
---------------------------------------------------------------------------

    \177\ See Clearpool Letter at 6.
    \178\ See infra Section II.K.
---------------------------------------------------------------------------

(b) Odd-Lot Quotations
    In the Proposing Release, the Commission solicited comment on
whether core data should include odd-lot quotations, but did not
include odd-lot quotes in the definition of core data other than by
incorporating them through the proposed definition of round lot.\179\
Several commenters recommended directly including odd-lots in core data
rather than doing so through the mechanism of the proposed definition
of round lot.\180\ Specifically, one commenter suggested including odd-
lots priced better than the PBBO in core data,\181\ and another
suggested including the best-priced odd-lot quotation from each
exchange.\182\ Another commenter supported the Commission's aim of
increasing odd-lot transparency for higher priced securities but
questioned doing so through the proposed definition of round lot.\183\
One commenter recommended adding unprotected odd-lots to core data,
combined with best execution guidance on broker-dealer obligations with
respect to odd-lot quotations, rather than redefining round lot.\184\
Similarly, another commenter recommended including odd-lot quotations
in core data while leaving the definition of round lot as it currently
stands.\185\ A

different commenter recommended delaying odd-lots to mitigate the
impact on processing times.\186\ On the other hand, one commenter
expressed concerns that adding odd-lot quotations to core data would
harm investor confidence in the markets resulting from confusion over
protected and unprotected quotes and increased costs and latency for
core data by adding more information that needs to be
disseminated.\187\ A different commenter presented data showing that,
for a significant percent of orders in each of the Commission's
proposed round lot tiers, there would still be a contra-side odd-lot
quote better than the NBBO.\188\
---------------------------------------------------------------------------

    \179\ See Proposing Release, 85 FR at 16746.
    \180\ See letter from Patrick Sexton, Executive Vice President,
General Counsel, and Corporate Secretary, Cboe, to Vanessa
Countryman, Secretary, Commission, dated May 26, 2020, (``Cboe
Letter'') at 15; NYSE Letter II at 5; Nasdaq Letter IV at 14; RBC
Letter at 5; letters to Vanessa Countryman, Secretary, Commission,
from Kimberly Unger, Chief Executive Officer and Executive Director,
STANY, dated June 11, 2020, (``STANY Letter II'') at 3; Anders
Franzon, General Counsel, MEMX LLC, dated May 26, 2020, (``MEMX
Letter'') at 2 (``[A]ll data currently made available through
proprietary data feeds should be available through NMS data feeds.
This includes complete depth-of-book data (and thus all odd lot
data). . . .'').
    \181\ See CBOE Letter at 15.
    \182\ See NYSE Letter II at 5.
    \183\ See Nasdaq Letter IV at 14.
    \184\ See RBC Letter at 5.
    \185\ See STANY Letter II at 3.
    \186\ See Data Boiler Letter I at 19.
    \187\ See TD Ameritrade Letter at 4-5.
    \188\ Memorandum from the Division of Trading and Markets
regarding a June 19, 2020, meeting with representatives of JP Morgan
(``JP Morgan Memo to File'') at 2 (``Under today's rules: 11.6% of
orders contain a contra-side oddlot [sic] quote better than the
NBBO. Under SEC's proposed round lot parameters: (i) Bucket A
($50.00 and less)-100 share round lot-6.3% of orders would still
contain a contra-side oddlot [sic] quote better than the NBBO; (ii)
Bucket B (between $50.01 and $100.00)-20 share round lot-10.9% of
orders would still contain a contra-side oddlot [sic] quote better
than the NBBO; (iii) Bucket C (between $100.01 and $500.00)-10 share
round lot-11.6% of orders would still contain a contra-side oddlot
[sic] quote better than the NBBO; (iv) Bucket D (between $500.01 and
$1,000.00)-2 share round lot-23% of orders would still contain a
contra-side oddlot [sic] quote better than the NBBO; (v) Bucket E
($1,000.01 and higher)-1 share round lot-all quotes are at round lot
levels.'').
---------------------------------------------------------------------------

    The Commission continues to be concerned that the availability of
odd-lot order information solely to market participants who have
purchased proprietary market data products creates a potentially
significant information asymmetry relative to market participants who
purchase only SIP data.\189\ For the reasons discussed below, the
Commission is also modifying the definition of round lot.\190\ While
the proposed definition of round lot, as modified, would incorporate a
substantial proportion of odd-lot quotations that occur at a price
better than the NBBO for certain higher-priced stocks, the Commission
is concerned that a significant amount of liquidity that could be
available at better prices would be excluded from core data.\191\ After
considering comments, and given that the adopted round lot definition,
on its own, would have resulted in less odd-lot information being
included in core data, the Commission is adopting a definition of core
data that includes all odd-lots that are priced at or better than the
NBBO, aggregated at each price level at each national securities
exchange and national securities association.
---------------------------------------------------------------------------

    \189\ Proposing Release, 85 FR at 16741.
    \190\ See infra Section II.D (explaining that the Commission is
adopting a four-tiered definition of round lot rather than the five-
tiered definition that was proposed).
    \191\ See JP Morgan Memo to File at 2.
---------------------------------------------------------------------------

    As summarized in Tables 1 and 2 below, staff analyzed data on the
portion of all corporate stock and ETF volume executed on an exchange,
transacted in a quantity less than 100 shares, at a price better than
the prevailing NBBO, occurring in a quantity that would be defined as a
round lot under both the adopted and proposed definitions of round lot.

                                 Table 1
------------------------------------------------------------------------
                                                       Portion of all
                                                     corporate stock and
                                                     ETF volume executed
                                                       on an exchange,
                                                       transacted in a
                                                     quantity less than
                                                      100 shares, at a
   Adopted round lot tier       Adopted round lot     price better than
                                   definition       the prevailing NBBO,
                                                       occurring in a
                                                     quantity that would
                                                       be defined as a
                                                     round lot under the
                                                     adopted definition
                                                        of round lot
------------------------------------------------------------------------
$0-$250.00..................  100 Shares..........  0%.
$250.01-$1,000..............  40 Shares...........  65.35%.
$1,000.01-$10,000.00........  10 Shares...........  88.28%.
$10,000.01 or more..........  1 share.............  100.00%.
------------------------------------------------------------------------
Source: Equity consolidated data feeds (CTS and UTDF), as collected by
  MIDAS (May 2020); NYSE Daily TAQ.

                                 Table 2
------------------------------------------------------------------------
                                                       Portion of all
                                                     corporate stock and
                                                     ETF volume executed
                                                       on an exchange,
                                                       transacted in a
                                                     quantity less than
                                                      100 shares, at a
   Proposed round lot tier     Proposed round lot     price better than
                                   definition       the prevailing NBBO,
                                                       occurring in a
                                                     quantity that would
                                                       be defined as a
                                                     round lot under the
                                                     proposed definition
                                                        of round lot
------------------------------------------------------------------------
$0-$50......................  100 shares..........  0%.
$50.01-$100.................  20 shares...........  86.32%.
$100.01-$500................  10 shares...........  93.57%.
$500.01-$1,000..............  2 shares............  98.85%.
$1,000.01 or more...........  1 share.............  100%.
------------------------------------------------------------------------
Source: Equity consolidated data feeds (CTS and UTDF), as collected by
  MIDAS (May 2020); NYSE Daily TAQ.

    In comparison to the proposed tiers, the round lot tiers in the
final rule would have excluded a significant proportion of better-
priced odd-lot liquidity, particularly for stocks priced between $50.01
and $250.00, and thus would not have included this liquidity in core
data absent the Commission also including certain odd-lots in the
definition of core data.
    The Commission believes that this better-priced odd-lot liquidity
needs to be reflected in core data because it will help investors and
other market participants to trade in a more informed and effective
manner and to achieve better executions and reduce the information
asymmetries that currently exist between subscribers to SIP data and
subscribers to proprietary data. However, the Commission continues to
be concerned that adding all odd-lot quotations, particularly those at
less aggressive price levels, could ``burden systems, increase
complexity, and degrade the usefulness of information in a manner that
may not be warranted by the relative benefit of the additional
information to investors and market participants'' and that the
inclusion of

odd-lot quotations in proposed core data should be ``reasonably
calibrated.'' \192\
---------------------------------------------------------------------------

    \192\ Proposing Release, 85 FR at 16741.
---------------------------------------------------------------------------

    Therefore, the Commission is modifying the proposed definition of
core data to include odd-lots that are priced at or more aggressively
than the NBBO.\193\ Specifically, pursuant to the revised definition of
core data that the Commission is adopting, core data will include odd-
lot quotations priced greater than or equal to the national best bid
and less than or equal to the national best offer, aggregated at each
price level at each national securities exchange and national
securities association, in addition to odd-lot transaction data.\194\
Making the best priced quotations available in core data is consistent
with the Commission's goals in expanding the content of NMS
information: Enhancing the availability and usefulness of the
information, reducing information asymmetries, and facilitating best
execution. In addition, this modification is reasonably calibrated to
include the odd-lot quotation data that would be of the most interest
to investors and other market participants--namely, quotations that
offer pricing at or superior to the NBBO--thus limiting complexity and
systems burdens, and therefore costs, relative to alternatives such as
including all odd-lot quotations.\195\
---------------------------------------------------------------------------

    \193\ As discussed below, the Commission is adopting a standard
odd-lot aggregation methodology for all elements of core data,
including the NBBO, wherein odd-lots across multiple price levels
would be aggregated and disseminated at the least aggressive price.
See infra Section II.C.2(d). As a result, odd-lots priced at or
better than the NBBO could be both included in the NBBO and
displayed in the aggregate at each price level by exchange. The
Commission believes that this is appropriate, since the NBBO and
odd-lot interest at or better than the NBBO provide independently
valuable information to market participants. For example, odd-lots
priced at or better than the NBBO are beneficial for order routing
and achieving best execution, while the NBBO is protected under Rule
611 and must be provided in certain contexts pursuant to the Vendor
Display Rule (Rule 603(c)). Additionally, as discussed below,
competing consolidators will have the ability to customize data
products for their customers, allowing investors to receive only the
information they are able to process, so the Commission does not
believe that including better-priced odd-lots both at each price
level at each exchange and as part of an aggregated round lot would
confuse investors.
    \194\ The Commission is adding odd-lots priced at or better than
the NBBO through a new definition, ``odd-lot information,'' that is
included in the definition of core data. The definition of odd-lot
information will include both odd-lots priced at or better than the
NBBO and odd-lot transaction data. Odd-lot transaction data, which
was added to SIP data by the national market system plans in 2013
(see Proposing Release, 85 FR at 16739), was proposed to be included
in core data as a separate element, but the Commission believes it
will simplify the definition of core data to include in a single
defined term as ``odd-lot information'' odd-lots priced at or better
than the NBBO and odd-lot transaction data. See infra Section VIII.
    \195\ As discussed below, odd-lots priced less aggressively than
the NBBO are not included in core data unless they aggregate to a
round lot and are within the first five price levels after the NBBO.
See infra Section II.F.2(e) (discussing odd-lot aggregation in the
depth of book context).
---------------------------------------------------------------------------

    The Commission is also adopting the proposed inclusion of odd-lot
transaction data in the definition of core data, through the definition
of odd-lot information.\196\ Odd-lot transaction data is included in
SIP data today, and it constitutes part of the baseline information
that provides the foundation of transparency and price discovery in the
U.S. securities markets.\197\ The Commission therefore believes that it
should be included in the definition of core data so that investors and
other market participants who consume core data can continue to use it
to make informed trading and investment decisions.\198\
---------------------------------------------------------------------------

    \196\ See supra note 194.
    \197\ See Proposing Release, 85 FR at 16736, 16739.
    \198\ See also infra Section II.C.2(c) (discussing why certain
other data that is included in SIP data today is not included in
core data but will be available through other means).
---------------------------------------------------------------------------

    To further limit the cost and complexity of the inclusion of odd-
lots priced at or better than the NBBO in core data, the definition of
core data requires these odd-lots to be represented in the aggregate at
each price level at each national securities exchange or national
securities association rather than on an order-by-order basis.\199\
Finally, as discussed below, the Commission is modifying the proposed
definition of round lot, which, relative to the proposal, will reduce
the number of round lot tiers and eliminate certain better priced
quotation information from the NBBO.\200\ However, the inclusion of
odd-lot quotes priced at or better than the NBBO will make available
additional quotation information market participants can use to trade
in a more informed and effective manner, which counterbalances this
reduction in information.
---------------------------------------------------------------------------

    \199\ This would not reintroduce a single-price-only odd-lot
aggregation methodology in the same sense that prompted concerns
from some commenters. See infra note 232 and accompanying text;
Section II.C.2(d). Aggregating better-priced odd-lots at each price
level at each exchange is not the same as aggregating odd-lots into
round lots. Rather, it simply means that better-priced odd-lot
orders will be represented in core data in terms of the total number
of shares available at each price level at each exchange rather than
on an order-by-order basis. For example, if the NBB for XYZ, Inc. is
100 shares at $25.00, and there are three orders of five shares and
two orders of ten shares at $25.01 on Exchange A, a competing
consolidator's core data product would show 35 shares at $25.01 on
Exchange A.
    \200\ See infra Section II.D (stating that increasing the
minimum stock price for the first sub-100 share round lot tier from
$50 to $250 will not improve odd-lot transparency for stocks priced
between $50 and $250). See also supra Tables 1 and 2.
---------------------------------------------------------------------------

    The Commission believes that including only the best-priced odd-lot
quote from each exchange, as one commenter suggested,\201\ would not
include sufficient information about better-priced odd-lot liquidity in
core data. Because for many securities there are odd-lot quotes priced
better than the NBBO at multiple price levels,\202\ the Commission
believes that including only the best-priced odd-lot quote from each
exchange in core data would perpetuate some of the critical information
asymmetries between SIP data and proprietary data and could impair the
usability of core data for many market participants.
---------------------------------------------------------------------------

    \201\ See NYSE Letter II at 5.
    \202\ In response to the comment suggesting only including the
best-priced odd-lot quote from each exchange, staff supplemented the
analysis above (see, e.g., Tables 1 and 2) that evaluated the volume
of trades occurring in a quantity that would be defined as a round
lot under the adopted definition, by also considering the volume of
quotation data for the week of May 22-29, 2020, for stocks priced
from $250.01 to $1000.00, which will have a round lot size of 40
shares pursuant to the modified definition of round lot that the
Commission is adopting herein. Staff found that there is odd-lot
interest priced better than the new round lot NBBO 28.49% of the
time, and, in 48.49% of those cases, there are better priced odd-
lots at multiple price levels, confirming the view that only
including the best-priced odd-lot quote from each exchange would not
include sufficient information about better-priced odd-lot liquidity
in core data.
---------------------------------------------------------------------------

    Furthermore, the Commission does not share the view of some
commenters that its adoption of a modified definition of core data that
incorporates odd-lots priced at or better than the NBBO is an
alternative to redefining round lot sizes. Defining smaller-sized
orders in higher-priced stocks as round lots, in addition to providing
transparency into such quotations, ensures that these smaller-sized
orders can establish the NBBO, receive order protection, and invoke the
applicability of several other rules under Regulation NMS.
    The Commission does not agree that including quotation information
about odd-lot orders priced at or better than the NBBO in core data,
and enabling more investors to see and access this information, will
undermine investor confidence in the markets resulting from potential
confusion over protected versus unprotected quotes.\203\ As is the case
today, Rule 611 will not protect these odd-lot orders except to the
extent that they are aggregated into round lots. Investors and other
market participants who do not believe they need to consume information
on odd-lots priced at or better than the NBBO may choose not to do so,
and therefore the

Commission does not believe the inclusion of this information in core
data will confuse investors.\204\ Moreover, odd-lots are subject to
best execution requirements,\205\ so investors have the assurance that
their broker-dealers are required to seek the most favorable terms
reasonably available under the circumstances for such orders despite
the fact that the odd-lot quotes are not protected quotations pursuant
to Rule 611.\206\ Furthermore, the Commission does not believe adding
odd-lot quotations priced at or better than the NBBO to core data would
materially increase latency for core data. Market participants are not
required to consume and process this additional odd-lot data, and could
choose a consolidated market data product offered by a competing
consolidator that does not contain such information, reducing concerns
about the latency effects of additional odd-lot information on core
data more broadly. In addition, the Commission believes that the
decentralized consolidation model will result in lower latencies for
the delivery of all consolidated market data.\207\
---------------------------------------------------------------------------

    \203\ See TD Ameritrade Letter at 4-5.
    \204\ See infra Section III.B.
    \205\ See Order Execution Obligations, supra note 90, at 48305
(``The market maker still will have best execution obligations with
respect to the remaining odd-lot portion of the customer limit
order.'').
    \206\ See supra note 95 and accompanying text. See also supra
Section I.E.
    \207\ See supra note 199; infra Section III.B.5.
---------------------------------------------------------------------------

    The Commission does not believe that including a subset of odd-lot
quotes in core data is, as one commenter suggested, likely to ``drag
the processing time of SIP[s] and CC[s].'' \208\ The Commission
believes that the most sophisticated, latency-sensitive market
participants rely on proprietary market data feeds that include all
odd-lots simultaneously with all other market data, which suggests that
the inclusion of odd-lots, particularly the subset of odd-lots that
will be included as part of core data, will not materially slow data
dissemination. Therefore, the Commission does not believe it is
necessary to consider new rulemaking that would ``make odd-lots become
true `outliers' '' and/or require the publication of `` `delayed' odd-
lot trades and quotations statistics.'' \209\
---------------------------------------------------------------------------

    \208\ Data Boiler Letter I at 19.
    \209\ Id.
---------------------------------------------------------------------------

(c) OTC Equity, Corporate Bond, Index, and Other Information
    In the Proposing Release, the Commission solicited comment
regarding the exclusion of information related to OTC equities,\210\
certain corporate bonds, and indices from the definition of core
data.\211\ Commenters had mixed views about whether to include such
information in the definition. One commenter favored the exclusion of
this information on the grounds that core data should be kept
``light,'' \212\ while others agreed with the Commission that this
information does not relate to ``NMS securities'' and that it should
not be included on that basis.\213\ One of those commenters, however,
suggested the Commission ensure the information remain available to
retail investors.\214\
---------------------------------------------------------------------------

    \210\ ``OTC Equity Security'' is defined in FINRA Rule 6420(f)
to mean ``any equity security that is not an `NMS stock' as that
term is defined in Rule 600(b)(47) of SEC Regulation NMS; provided,
however, that the term `OTC Equity Security' shall not include any
Restricted Equity Security.'' In its comment letter, FINRA notes
that the Proposing Release refers to ``OTCBB'' data to describe the
quotation and transaction data for OTC equities, which includes both
transaction data from the FINRA OTC Reporting Facility (``ORF'') and
quotation data from the OTCBB. See FINRA Letter at 9.
    \211\ Currently, Nasdaq UTP Plan Level 1 subscribers can obtain
OTC equity quotation and transaction feeds for unlisted stocks.
Similarly, the CTA Plan permits the dissemination of ``concurrent
use'' data relating to NYSE-listed corporate bonds and indexes. See
Proposing Release, 85 FR at 16736.
    \212\ Data Boiler Letter I at 21.
    \213\ See TD Ameritrade Letter at 4; MEMX Letter at 6.
    \214\ See TD Ameritrade Letter at 4.
---------------------------------------------------------------------------

    On the other hand, FINRA highlighted that excluding such data
``would reduce investor access to [such data] and raise investor
costs.'' \215\ FINRA argued that because OTC equities may become listed
and become NMS stocks and vice versa, providing that information in the
same data feed ``facilitates more orderly markets and transparency
continuity in relation to transitioning issuers.'' \216\ Excluding such
data would also, FINRA argued, increase costs for both FINRA and market
participants.\217\
---------------------------------------------------------------------------

    \215\ FINRA Letter at 9.
    \216\ Id. at 11.
    \217\ Id.
---------------------------------------------------------------------------

    Given that OTC equities, corporate bonds, and indices are not NMS
stocks,\218\ the Commission is not revising the proposed definition of
core data to include this information, even though this information is
currently disseminated by the SIPs. Nothing in these amendments
prohibits SROs from independently providing this kind of market data.
As discussed below,\219\ under the decentralized consolidation model,
competing consolidators would be permitted to purchase data from the
SROs and offer data products to subscribers that go beyond core data or
consolidated market data.\220\ Therefore, the exclusion of these types
of data from the definitions of core data and consolidated market data
does not preclude the provision of this data to market participants who
wish to receive it.\221\
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    \218\ See Proposing Release, 85 FR at 16736-37.
    \219\ See infra Section III.B.
    \220\ As discussed below, the fees for such additional data
would be proposed and filed by an individual SRO pursuant to Section
19(b), 15 U.S.C. 78s(b), and Rule 19b-4, rather than by the
effective national market system plan(s). See infra Section III.B.
    \221\ In addition, one commenter suggested including exchange-
traded product (``ETP'') intraday indicative values (``IIVs'') in
core data and standardizing symbology across equity data feeds. See
Angel Letter at 1, 11. The Commission is not including IIVs in core
data because IIVs are not NMS stock quote or trade information and
are therefore outside the scope of this proposal. In addition, the
Commission did not require exchange-traded funds (``ETFs'') to
disseminate IIVs in adopting Investment Company Act Rule 6c-11. See
Securities Act Release Nos. 33-10695; IC-33646 (Sept. 25, 2019), 84
FR 57162, 57179-80 (Oct. 24, 2019) (describing various shortcomings
of IIV and stating that the Commission ``do[es] not believe that IIV
will provide a reliable metric for retail investors . . .''). The
commenter also argued that the different suffixes for various
securities--including preferred shares, rights, and warrants--cause
``confusion for investors and increases the risk of costly trading
mistakes.'' Id. at 11. This comment is unrelated to the
dissemination of NMS stock quote or trade information and is
therefore outside the scope of this proposal.
---------------------------------------------------------------------------

    Additionally, as trades in OTC equities are reported to only one
SRO (i.e., FINRA) while NMS stocks are traded on multiple SROs, there
is less need to consolidate OTC data pursuant to an effective national
market system plan, which functions primarily to consolidate data
across market centers. Furthermore, FINRA makes information on OTC
trades widely available to market participants through its ORF.\222\ In
addition, FINRA's rules related to the reporting of OTC equity
transaction data remain in effect, and any change to FINRA's rules
would require Commission review.\223\ Finally, pursuant to Exchange Act
Sections 15A(b)(5), (b)(6), and (b)(9), FINRA could recoup the costs of
providing OTC quotation and transaction data by

charging fees that are fair, equitable, and do not impose an
unnecessary burden on competition.\224\ The Commission will monitor,
during the transition period and thereafter,\225\ the impact of these
amendments on the provision of OTC quotation and transaction data,
including its cost and availability, and consider whether additional
steps are necessary or appropriate.
---------------------------------------------------------------------------

    \222\ See supra note 210. On September 24, 2020, FINRA filed a
proposed rule change to eliminate its OTCBB. Historically, FINRA
operated the OTCBB to provide an electronic quotation medium for OTC
equity securities. However, FINRA represents that quoting on the
OTCBB has declined and that the OTCBB does not currently display or
widely disseminate quotation information on any OTC equity
securities. FINRA represents that all quotation activity in OTC
equity securities now occurs on member-operated interdealer
quotation systems. As a result, in place of the OTCBB, FINRA is
proposing to adopt enhanced requirements governing member
interdealer quotation systems that provide real-time quotations in
OTC equity securities. Among other things, the proposed rules would
require such systems to maintain and enforce written policies and
procedures relating to the collection and dissemination of quotation
information in OTC equity securities on or through their systems.
See Securities Exchange Act Release No. 99067 (Oct. 1, 2020), 85 FR
63314 (Oct. 7, 2020) (SR-FINRA-2020-031).
    \223\ See FINRA Rule 6600.
    \224\ 15 U.S.C. 78o-3(b)(5), (b)(6), and (b)(9).
    \225\ See infra Section III.H.
---------------------------------------------------------------------------

(d) Odd-Lot Aggregation
    The Commission proposed that the best bid and best offer, national
best bid and national best offer, and depth of book data shall include
odd-lots that when aggregated are equal to or greater than a round lot,
and that such aggregation shall occur across multiple prices and shall
be disseminated at the least aggressive price of all such aggregated
odd-lots.\226\ Several commenters supported odd-lot aggregation across
multiple price levels for purposes of determining these elements of
core data.\227\ One commenter argued that this method would ``provide
market participants with a reasonably complete view of the best bids
and offers for each security.'' \228\ Another commenter stated that ``a
common odd-lot aggregation logic should be employed by all exchanges
for the purpose of displaying meaningful size.'' \229\ However, a
different commenter recommended that odd-lot quotes not be aggregated
across multiple price levels because it ``would cause unnecessary
confusion.'' \230\
---------------------------------------------------------------------------

    \226\ For example, if Market A had 25 shares offered at $1.98,
25 shares offered at $1.99, and 50 shares offered at $2.00, the
round lot offer would be displayed as 100 shares offered at $2.00.
As discussed below, the Commission proposed a single-price odd-lot
aggregation methodology for purposes of protected quotations. See
infra Section II.E.1.
    \227\ See Fidelity Letter at 4; IEX Letter at 4.
    \228\ IEX Letter at 4-5.
    \229\ TD Ameritrade Letter at 2. See also IEX Letter at 5
(``[I]t is important that this method be specified in SEC rules so
as to ensure a common understanding of the NBBO by all market
participants.'').
    \230\ Data Boiler Letter I at 24.
---------------------------------------------------------------------------

    The Commission is adopting the definition of core data with odd-lot
aggregation across multiple price levels and specifying that such
aggregation is for each market.\231\ Specifically, the best bid and
best offer, national best bid and national best offer, and depth of
book data shall include odd-lots that when aggregated are equal to or
greater than a round lot, and such aggregation shall occur across
multiple prices and shall be disseminated at the least aggressive price
of all such aggregated odd-lots.\232\ The Commission does not believe
that this would cause unnecessary confusion \233\ because many
exchanges currently aggregate odd-lot prices in this manner. Setting
forth this cross-price aggregation methodology in Commission rules will
promote consistency in the calculation and display of core data.
Additionally, this method of odd-lot aggregation will enable market
participants to obtain a more reasonably complete view of the best bids
and best offers of each security than they would if odd-lots were not
aggregated or aggregated at only a single price level because the
aggregation methodology the Commission is adopting captures liquidity
dispersed across multiple prices. Furthermore, this odd-lot aggregation
methodology would benefit market participants by promoting tighter
spreads in all stocks, especially high priced ones.\234\
---------------------------------------------------------------------------

    \231\ The Commission is specifying that the definition of core
data does not require cross-market odd-lot aggregation.
    \232\ As explained below, the Commission is also extending the
multiple-price odd-lot aggregation methodology to protected
quotations. See infra Section II.E.
    \233\ See Data Boiler Letter I at 24.
    \234\ See infra Section II.E.2(b).
---------------------------------------------------------------------------

(e) Quotation Sizes and SRO Attribution in Core Data
    Currently, the size of the NBBO is represented in core data in
terms of the number of round lots. For example, if a 200 share bid at
$25.00 establishes the national best bid, the SIP feed shows ``2'' at
$25.00.
    One commenter, believing that this practice might be confusing
given the new round lot sizes, particularly to retail investors,
recommended requiring size to be represented in actual shares rather
than round lots.\235\
---------------------------------------------------------------------------

    \235\ See CBOE Letter at 13-14. For example, an investor would
have to know that, for a $300 stock, ``2'' means 80 shares pursuant
to the adopted round lot sizes.
---------------------------------------------------------------------------

    The Commission agrees that continuing the current size
representation convention--i.e., the number of round lots--could be
confusing. Accordingly, the Commission is modifying the proposed
definition of core data to require quotation sizes for core data
elements--including the NBBO, each SRO's best and protected quotes,
depth of book data, and auction information--to be disseminated in
share sizes, rounded down to the nearest round lot multiple. For
example, a 275 share buy order at $25.00 for a stock with a 100 share
round lot would be disseminated as ``200.'' \236\
---------------------------------------------------------------------------

    \236\ The Commission has considered whether the entire size
should be displayed including any odd-lot portion rather than
rounding down to the nearest round lot multiple. The purpose of
rounding down to the nearest round lot multiple is to ensure that
the enumerated elements of core data reflect orders of meaningful
size. Specifically with respect to the NBBO, rounding down also
helps to ensure that the protected portion of the order is clearly
represented, which addresses concerns about impacts on investor
confidence and confusion that could result from showing unprotected
size at the NBBO. In addition, as discussed above, odd-lots priced
at or better than the NBBO, including the odd-lot portion of a mixed
lot order at the NBBO, will be included in core data.
---------------------------------------------------------------------------

    The Commission is also modifying the proposed definition of core
data to specify that core data elements--specifically, the best bid and
best offer, NBBO, protected bid and protected offer, transaction
reports, last sale data, odd-lot information, depth of book data, and
auction information--to the extent that they are disseminated in a
consolidated market data product, must be attributed to the national
securities exchange or national securities association that is the
source of each such element.\237\ The Commission believes that SRO
attribution is critical to the utility of these core data elements so
that market participants know where to access a displayed
quotation.\238\ This requirement is consistent with the inclusion of
exchange information in current SIP data.\239\
---------------------------------------------------------------------------

    \237\ See infra Section VIII.
    \238\ See also Section II.F.2(b).
    \239\ See supra note 17 and accompanying text (stating that core
data currently includes the price, size, and exchange of the last
sale; each exchange's current highest bid and lowest offer, and the
shares available at those prices; and the NBBO).
---------------------------------------------------------------------------

D. Definition of ``Round Lot'' Under Rule 600(b)(82)

1. Proposal
    To better ensure the display and accessibility of significant
liquidity for higher-priced stocks, the Commission proposed a
definition of round lot that would assign different round lot sizes to
individual NMS stocks depending upon their stock price. Specifically,
the Commission proposed to define round lot as: (1) For any NMS stock
for which the prior calendar month's average closing price on the
primary listing exchange was $50.00 or less per share, an order for the
purchase or sale of an NMS stock of 100 shares; (2) for any NMS stock
for which the prior calendar month's average closing price on the
primary listing exchange was $50.01 to $100.00 per share, an order for
the purchase or sale of an NMS stock of 20 shares; (3) for any NMS
stock for which the prior calendar month's average closing price on the
primary listing exchange was $100.01 to $500.00 per share, an order for
the purchase or sale of an NMS stock of 10 shares; (4) for any NMS
stock for which the prior calendar

month's average closing price on the primary listing exchange was
$500.01 to $1,000.00 per share, an order for the purchase or sale of an
NMS stock of 2 shares; and (5) for any NMS stock for which the prior
calendar month's average closing price on the primary listing exchange
was $1,000.01 or more per share, an order for the purchase or sale of
an NMS stock of 1 share. The Commission proposed using the IPO price if
the prior month's average closing price is not available.
    As explained in the Proposing Release, a significant proportion of
quotation and trading activity occurs in odd-lots, particularly for
frequently traded, high-priced stocks.\240\ The proposed definition of
round lot would incorporate information about meaningfully sized
orders, including many odd-lot quotations in higher-priced stocks that
are priced more favorably than the current round lot NBBO, into core
data.\241\ This would improve the comprehensiveness and usability of
core data, facilitate the best execution of customer orders, and reduce
information asymmetries.
---------------------------------------------------------------------------

    \240\ Staff, using the week of June 8-12, 2020, instead of the
week of September 10-14, 2018, repeated the analysis from the
Proposing Release of odd-lot trade and message volume, duration on
the inside, order-book distribution, and quoted spreads for the top
500 securities by dollar volume included in the Proposing Release
(see Proposing Release, 85 FR at 16739-40). The results were very
similar and confirmed observations discussed in the Proposing
Release. Bid-ask spreads widened significantly when calculated using
only round lots relative to the odd-lot quotations displayed on
proprietary feeds, and as average stock share prices rose, bid-ask
spreads based only on round lots generally widened by a greater
amount than did spreads based on round lots and odd-lots.
Specifically, for the 500 most frequently traded securities by
dollar volume, the average bid-ask spread of the 50 securities with
the highest share prices decreased (improved or tightened) by
$0.19839 when calculated using the proprietary feeds relative to the
exclusive SIP feed. Bid-ask spreads for the 50 securities with the
lowest share prices showed less improvement when using the
proprietary feeds relative to the exclusive SIP feed, decreasing (or
tightening) on average by $0.00093. Moreover, frequently traded,
high priced securities were more likely to have executions occur in
odd-lot sizes (about 34% of the share volume of the 50 securities
with the highest share prices) than lower priced securities (about
3.4% of the share volume of the 50 securities with the lowest share
prices). Finally, around 91% of the trades that occurred in the two
largest securities by market capitalization that have share prices
greater than $1,000 occurred in odd-lot share amounts.
    \241\ Staff, using data from May 2020 instead of September 2019,
repeated the analysis from the Proposing Release of the proportion
of odd-lot trades that occurred at prices that are better than the
prevailing NBBO included in the Proposing Release (see Proposing
Release, 85 FR at 16740). The results were very similar and
confirmed observations discussed in the Proposing Release. During
May 2020, a substantial proportion of odd-lot trades occurred at
prices that were better than the prevailing NBBO. Specifically,
approximately 45% of all trades executed on exchange and
approximately 10% of all volume executed on exchange in corporate
stocks and ETFs (6,926 unique symbols) occurred in odd-lot sizes
(i.e., less than 100 shares), and 40% of those odd-lot transactions
(representing approximately 35% of all odd-lot volume) occurred at a
price better than the NBBO.
---------------------------------------------------------------------------

2. Final Rule and Response to Comments
    The Commission received multiple comments on the definition of
round lot. Commenters offered suggestions on various ways the proposed
round lot tiers should be adjusted and opined on the proposed
methodology for determining a stock's price for purposes of assigning a
round lot size to a stock.
(a) Round Lot Tiers
    Generally: Several commenters expressed general support for a
revised definition of round lot for higher-priced securities, but some
suggested certain modifications to the proposed definition or otherwise
qualified their support.\242\ Some commenters agreed with the
Commission's proposed tiers of round lot sizes,\243\ while others
agreed with the tier-based approach, but suggested fewer tiers.\244\
One commenter, stating that a one-share round lot for stocks over
$1,000 could have ``unintended negative impacts'' on price discovery
and routing complexity, suggested that the Commission ``defer action''
on defining round lots (and including them in core data) until the
Commission receives further public input.\245\
---------------------------------------------------------------------------

    \242\ See, e.g., BlackRock Letter at 3 (stating that the
proposed round lot definition is ``an elegant solution for
increasing odd-lot transparency which innately extends the inclusion
of odd-lots to complementary rules and mechanisms such as the
determination of the national best bid and offer (`NBBO'), the
behavior of order types, and the disclosure of execution
statistics'' and strikes an appropriate balance between including
every odd-lot order and enhancing the quality of market data by
establishing a threshold notional amount, but cautioning that round
lots should be judiciously calibrated into groups to minimize
complexity); Fidelity Letter at 6 (supporting a revised definition
of round lot for higher priced securities but urging the Commission
to undertake an investor education campaign and to provide
sufficient implementation time); Schwab Letter at 4; letter from
Joan C. Conley, Senior Vice President and Corporate Secretary,
Nasdaq, to Vanessa Countryman, Secretary, Commission, dated July 22,
2020, (``Nasdaq Letter V'') at 3 (``Of 31 total comments on the
proposed introduction of round lot tiers, fewer than half (14)
supported the actual proposal; 11 comments supported a definition
different from what the Commission proposed, and 6 opposed it.'');
letter from Luc Burgun, President and CEO, NovaSparks S.A., to
Vanessa Countryman, Secretary, Commission, dated Aug. 7, 2020,
(``NovaSparks Letter'') at 1; letter from Christopher Solgan, VP,
Senior Counsel, MIAX Exchange Group, to Vanessa Countryman,
Secretary, Commission, dated Aug. 18, 2020, (``MIAX Letter'') at 5-6
(recommending that the Commission periodically review the definition
of round lot).
    \243\ See, e.g., IEX Letter at 3-4 (stating that the proposed
round lot definition would make round lots ``less arbitrary and more
comparable across securities . . . [because] [e]ach round lot tier
above the $50 price level would represent a minimum notional value
of $1,000, resulting in relatively comparable treatment across
securities, regardless of per share price''); letter from Hitesh
Mittal, Founder and Chief Executive Officer, BestEx Research, to
Vanessa A. Countryman, Secretary, Commission, dated May 21, 2020,
(``BestEx Research Letter'') at 2; Data Boiler Letter I at 24.
    \244\ See, e.g., T. Rowe Price Letter at 4; Capital Group Letter
at 3.
    \245\ See State Street Letter at 3.
---------------------------------------------------------------------------

    Some commenters recommended the Commission eliminate the concepts
of round lots and odd-lots in favor of displaying the exact number of
shares of every order, arguing that the concepts are ``obsolete''
because ``[m]odern computer processing power is up to the task'' of
calculating ``in real time the cost to buy or sell a given number of
shares at the displayed prices.'' \246\
---------------------------------------------------------------------------

    \246\ Angel Letter at 15. See also Nasdaq Letter V at 17-19
(suggesting adding intelligent ticks, in which the standard one cent
tick that applies to all NMS stocks would be replaced with tick
sizes that vary depending upon the trading characteristics of each
such stock, while eliminating round lots).
---------------------------------------------------------------------------

    Several commenters suggested that the proposed five tiers would
increase complexity, add confusion, compound costs, create execution-
quality challenges, and undermine the usefulness of the proposal,
although these commenters offered different suggestions to improve the
proposal.\247\ One commenter, however, stated that

adding tiers would not significantly increase complexity.\248\
---------------------------------------------------------------------------

    \247\ See, e.g., Clearpool Letter at 11-12; STANY Letter II at 3
(``A more prudent and nonetheless effective approach to addressing
the increased trading in odd-lots, would be to include odd-lot
quotations in core data while leaving the definition of round-lot as
it currently stands.''); Capital Group Letter at 3; Letter from
Gerald D. O'Connell, SIG Compliance Coordinator, Susquehanna
International Group, to Vanessa Countryman, Secretary, Commission,
dated July 27, 2020, (``Susquehanna Letter'') at 2 (stating that any
benefits of the proposing release ``will be impacted by . . .
quoting congestion; . . . customer confusion; and . . . gaming
strategies.''); Nasdaq Letter IV at 10; STANY Letter II at 3-4
(recommending that the Commission conduct a derivative market impact
analysis because ``STANY is concerned the Commission has not
considered the impact and potential for investor confusion when
trading options on securities with round-lots quotes in sizes less
than the 100-share option contract convention''); TD Ameritrade
Letter at 10 (``In the current Proposal for round lot tiers at five
different increments, the Firm is also concerned for the potential
confusion that may also be posed to investors trading options when
contracts remain at 100 shares and the NBBO is quoted in lesser
sizes.''); letter from Robert W. Holthausen, Professor of Accounting
and Finance, and Robert Zarazowski, Managing Director, Wharton
Research Data Services, The Wharton School, University of
Pennsylvania, to Vanessa Countryman, Secretary, Commission, dated
May 26, 2020, (``Wharton Letter'') at 4 (``A top of book replacement
product for TAQ, despite possible cheaper costs from competing
consolidators, even if it did not consist of more consolidated
market data, would incur significantly greater storage costs than
TAQ due to changes in the definition of `round lot.' '') (footnotes
removed).
    \248\ See MEMX Letter at 4.
---------------------------------------------------------------------------

    Notional Value: Some commenters stated that the definition of core
data should include all quotes over a certain notional value.\249\
Another commenter recommended basing round lots on the notional value
of an order, rather than the number of shares, and suggested that the
Commission ensure that anything over a minimum threshold qualifies as a
round lot, eliminating mixed lots.\250\
---------------------------------------------------------------------------

    \249\ See Clearpool Letter at 11-12 (recommending, in the
alternative, reducing the number of tiers to three with round lot
sizes of 100, 50, and 20); letter from Roman Ginis, Founder,
Intelligent Cross, to Vanessa Countryman, Secretary, Commission,
dated June 1, 2020, (``IntelligentCross Letter'') at 3; ACS
Execution Services Letter at 3.
    \250\ See letter from Alec Hanson, Founder, AHSAT LLC, to
Vanessa Countryman, Secretary, Commission, dated May 26, 2020,
(``AHSAT Letter'') at 3-5. A mixed lot is an order for a number of
shares greater than a round lot that is not a multiple of a round
lot (for example, an order for 107 shares). See, e.g., Cboe BZX Rule
11.10.
---------------------------------------------------------------------------

    Different Threshold: Some commenters suggested increasing the
$1,000 price-based threshold but did not suggest a specific
number.\251\ One commenter suggested, as an alternative to including
all quotes above a notional level in core data (as noted above),
increasing the price-based threshold to $2,000, stating that ``the
notional value of the median trade today is about $2,000.'' \252\
---------------------------------------------------------------------------

    \251\ See ICI Letter at 7-8; letter from Stephen John Berger,
Managing Director, Global Head of Government and Regulatory Policy,
Citadel Securities, to Vanessa Countryman, Secretary, Commission,
dated May 26, 2020, (``Citadel Letter'') at 2; ACS Execution
Services Letter at 3; STANY Letter II at 3.
    \252\ See IntelligentCross Letter at 3.
---------------------------------------------------------------------------

    Different Tiers: Multiple commenters offered recommendations to
recalibrate the tiers in the proposed round lot definition, ranging
from two to four tiers.\253\ One commenter, who opposed changing the
definition of round lot,\254\ suggested that, if the Commission is
committed to changing the definition of round lot, it should use two
tiers: 100 shares for stocks priced under $500 and 50 shares for stocks
priced over $500.\255\ Another commenter suggested a different
definition using two tiers: 100 shares for stocks priced less than $250
and 10 shares for stocks at or greater than $250, where the 10 share
round lot would remain unprotected.\256\ Another commenter suggested
three tiers: 100 shares for stocks priced under $100, 10 shares for
stocks priced between $100.01 and $1,000, and 1 share for stocks priced
over $1,000.01.\257\ Some commenters suggested a different three-tiered
definition: 100 shares for stocks priced under $500, 10 shares for
stocks priced from $500.01 to $1,000, and 1 share for stocks priced
$1,000.01 or more.\258\ One of these commenters stated that their
``recommended round lot sizes of 1, 10 and 100 shares are ones that are
used today and that market participants are accustomed to seeing.''
\259\ Another commenter suggested another three-tiered definition: 100
shares for securities priced up to $50, 20 shares for securities priced
between $50.01 and $500, 2 shares for securities priced from $500.01
and higher.\260\ Another commenter suggested reducing the proposed five
tiers to four by collapsing the two-share and one-share highest-priced
tiers because there are so few stocks in each of those tiers.\261\
---------------------------------------------------------------------------

    \253\ See, e.g., TD Ameritrade Letter at 6-7; T. Rowe Price
Letter at 4; Capital Group Letter at 3.
    \254\ See TD Ameritrade Letter at 6-7 (``The Proposal for
changing the nearly universal 100 share round lot to a price-tiered
model appears to be based on some misconceptions. Odd lot trade
frequency, which is cited as the justification for the price-tiered
model, is not a valid proxy for passive order interest. In reality,
trade size is more often dictated by the liquidity-taker than the
liquidity-provider and is often a result of algorithmic `pinging'
behavior. TD Ameritrade performed a review in 2019 showing that the
increase in odd lot trades was largely due to small liquidity-taking
orders, not small passive orders.'') (footnotes removed).
    \255\ See id. at 10-11.
    \256\ See T. Rowe Price Letter at 4.
    \257\ See Capital Group Letter at 3.
    \258\ See Virtu Letter at 3; SIFMA Letter at 9; MFA Letter at
10; Susquehanna Letter at 2-4 (stating that the proposal would be
likely to increase significantly, for many high-priced securities,
``growth in quote changes, order routes, missed executions, and
reroutes from missed executions,'' but acknowledging that these
consequences would be reduced to the extent that fewer tiers are
adopted); STANY Letter II at 3 (stating that ``[a]mong those members
who support a change in the definition of round-lots, there is a
decided preference for'' this particular three-tiered definition).
    \259\ SIFMA Letter at 9.
    \260\ See Schwab Letter at 4. In a subsequent letter, this
commenter provided further support for its suggestion of these three
tiers. See letter from Jeffrey T. Brown, Senior Vice President,
Legislative and Regulatory Affairs, Charles Schwab & Co., Inc., to
Vanessa Countryman, Secretary, Commission, dated Oct. 13, 2020,
(``Schwab Letter II'') at 1 (``An analysis of orders filled for
Schwab clients in the first quarter of 2020 shows that just 5
percent of all odd lot orders are placed for stocks priced greater
than $500. Of these orders, roughly the same number of orders are
placed for stocks priced from $500 to $1000 and stocks priced
greater than $1000. With such a low proportion of orders at prices
greater than $500, Schwab believes the additional data provided by
the SEC's proposed highest tier would not justify the operational
complexity it would create or potential to confuse investors.'').
    \261\ See BlackRock Letter at 3.
---------------------------------------------------------------------------

    Inadequate Justification for the Proposed Tiers: One commenter
stated the Commission failed to explain adequately its rationale for
choosing the tiers it chose, suggesting the levels are arbitrary.\262\
That commenter also argued that the tiers are ``clunky'' and could
result in large shifts in a round lot size in response to a small
change in a stock's price.\263\ The commenter further stated that the
Commission failed to consider alternatives to the round lot definition,
including the commenter's ``intelligent tick'' proposal, which would
vary tick size based upon the trading characteristics of each NMS
stock.\264\ Additionally, that commenter argued that the tiers would
complicate the national market system and ``upend longstanding
conventions'' for market participants and their systems as to how they
view and process quotes, especially the convention that one order of a
security is generally thought of as 100 shares of that security.\265\
Similarly, in a subsequent letter, this commenter stated that the
Commission did not undertake ``data driven analysis'' of the proposed
round lot definition, that commenters raised concerns about the
complexity of the proposal, and that therefore the Commission cannot
determine whether the benefits of the proposal outweigh the costs.\266\
---------------------------------------------------------------------------

    \262\ See Nasdaq Letter IV at 14-15. See also Angel Letter at 14
(``The Commission appears to have done little in the way of
substantive economic analysis to determine the optimal round lot
size as a dollar value. If it had, the proposed dollar value would
not be oscillating between $100 and $5,000.'').
    \263\ See Nasdaq Letter IV at 14.
    \264\ See id. at 18.
    \265\ See id. at 17.
    \266\ See Nasdaq Letter V at 4-5.
---------------------------------------------------------------------------

    The Commission is adopting a modified definition of round lot (and,
as discussed above, is including odd-lots that are priced at or more
aggressively than the NBBO in core data).\267\ Specifically, the
Commission is adopting a four-tiered definition of round lot: 100
shares for stocks priced $250.00 or less per share, 40 shares for
stocks priced $250.01 to $1,000.00 per share, 10 shares for stocks
priced $1,000.01 to $10,000.00 per share, and 1 share for stocks priced
$10,000.01 or more per share. These adjustments are responsive to
comments that the proposed five-tiered approach is unnecessarily
complex and that the new tiers should be based on a higher

notional value threshold. The Commission agrees that the number of
round lot tiers should be decreased to reduce cost and complexity,
avoid potential confusion among market participants, and promote a
smoother transition to the new price-based round lot structure. In
addition, the Commission believes that the objective of including
additional information regarding orders currently defined as odd-lots
in core data to enhance the usefulness of this data to market
participants, reduce information asymmetries, and facilitate best
execution would still be achieved with the simplified definition that
the Commission is adopting.\268\
---------------------------------------------------------------------------

    \267\ See supra Section II.C.2(b). One commenter suggested an
``intelligent tick'' regime as an alternative to new round lots.
However, the commenter's intelligent tick proposal states that the
proposal ``attempts to address a discrete set of challenges in the
national market system'' and that policy makers also need to
consider ``other, related challenges,'' including round lots. See
Nasdaq, Intelligent Ticks: A Blueprint for a Better Tomorrow (Dec.
2019) at 8, available at https://www.nasdaq.com/docs/2019/12/16/Intelligent-Ticks.pdf. Therefore, the commenter's intelligent tick
proposal is not presented as an alternative to adopting new round
lot sizes. Changes to the tick size of stocks are outside the scope
of the rulemaking and the market data issues the Commission is
addressing herein.
    \268\ See supra Table 1 (showing that under the four-tiered
round lot approach that the Commission is adopting, 0%, 65.35%,
88.28%, and 100% of all corporate stock and ETF volume transacted in
a quantity less than 100 shares and at a price better than the
prevailing NBBO would be captured in the $0-$250.00, $250.01-
$1,000.00, $1,000.01-$10,000.00, and $10,000.01 or more tiers,
respectively).
---------------------------------------------------------------------------

    Moreover, under the modified approach, the new round lot tiers
would still be normalized at a particular notional value threshold,
albeit higher than the $1,000 notional value reflected in the proposed
definition, promoting more consistent treatment of securities of
varying prices than the 100-share definition that predominates today
irrespective of how much a stock is worth. Commenters submitted data
suggesting that average trade and order sizes are significantly higher
than $1,000.\269\ To confirm those comments, staff evaluated all trades
that occurred in 2019 and observed that the average number of shares
for all trades was about 193 shares, with an average trade size of
$8,842 (excluding auctions, the average number of shares per trade was
178 shares, with an average trade size of $8,068). As a round lot is a
trading unit that reflects an order of meaningful size to market
participants, and since average trade or order sizes are a reasonable
proxy for what market participants consider to be a meaningfully sized
order, the Commission believes it is appropriate to adjust the notional
value threshold of the new tiers upward to $10,000 in response to these
comments. The Commission believes that using a round figure that is in
line with data provided by commenters and internal staff analysis
(i.e., $10,000) will reduce potential investor confusion and
implementation cost and complexity.
---------------------------------------------------------------------------

    \269\ See IntelligentCross Letter at 3 (``[T]he notional value
of the median trade today is about $2,000''); Virtu Letter at 3-4
(estimating that ``average retail trade size between 2007 and the
present is around 436 shares or $14,581'' but also stating that data
from 2019 to present show that the vast majority (over 75%) of all
trades are still for less than $10,000); Angel Letter at 17 (``[T]he
median trade size is roughly $10,000.'').
---------------------------------------------------------------------------

    In addition, as discussed in more detail below, commenters
overwhelmingly favored protecting orders in the new, smaller round lot
sizes, and the Commission is not adopting its proposal to require
protected quotations to be of at least 100 shares.\270\ In a market
environment where the new round lots are protected, adjusting the
notional value threshold upward is appropriate so that order protection
under Rule 611, and the applicability of other rules under Regulation
NMS, are limited to meaningfully sized orders. Similarly, a higher
notional value threshold for the new round lot tiers will prevent
orders of a smaller notional value from establishing a new NBBO, which
could have added significant cost and complexity to the national market
system.
---------------------------------------------------------------------------

    \270\ See infra Section II.E.2(a).
---------------------------------------------------------------------------

    The Commission acknowledges that increasing the minimum stock price
for the first sub-100 share round lot tier from $50 to $250 will not
improve odd-lot transparency for stocks priced between $50 and
$250.\271\ However, as discussed above,\272\ the Commission is
including information about all odd-lots priced at or better than the
NBBO in core data, which will counterbalance this loss of odd-lot
transparency. In making these choices, the Commission has balanced the
competing objectives of: (a) Improving the display and accessibility of
orders that are of significant notional size; (b) reducing quoted
spreads; and (c) reducing an excessive amount of complexity that comes
with having too many tiers.
---------------------------------------------------------------------------

    \271\ See supra Tables 1 and 2.
    \272\ See supra Section II.C.2(b).
---------------------------------------------------------------------------

    The Commission is also not revising the proposed definition of
round lot to reflect a ``pure'' notional value approach--whereby all
quotes over a certain notional amount, regardless of the number of
shares, would constitute a round lot--as some commenters
suggested.\273\ The new 40-, 10-, and 1-share tiers effectively require
orders to be over a certain notional value to be assigned to those
round lot sizes, but the Commission is reluctant to disrupt the
longstanding practice of defining a round lot in terms of a number of
shares. Doing so could substantially increase complexity and require
significant additional systems reprogramming costs.\274\
---------------------------------------------------------------------------

    \273\ See supra notes 249-250 and accompanying text.
    \274\ Similarly, the Commission does not believe that the
concept of a round lot should be eliminated as ``obsolete'' because
round lot orders continue to play an important role in the national
market system by delineating orders of meaningful size and focusing
regulatory requirements and protections--such as those set forth in
Rules 602 and 603, 17 CFR 242.604, 242.605, 242.606, and 242.610
(Rules 604, 605, 606, and 610), and Rule 611 of Regulation NMS--on
such orders as opposed to less significant orders. See Proposing
Release, 85 FR at 16743-46. Rather, the Commission believes that
eliminating the concept of a round lot could cause investor
confusion and other unintended consequences.
---------------------------------------------------------------------------

    While 100, 10, and 1 are the round lot sizes in use today, the
Commission does not believe that the round lot sizes of 100, 40, 10,
and 1 that the Commission is adopting will materially increase the
difficulty of transitioning to the new round lot sizes. Only a few,
infrequently traded stocks have round lot sizes other than 100 today,
so market participants are not accustomed to 10 or 1 share round lot
sizes on a significant scale. Additionally, the thresholds of the new
round lot tiers that the Commission is adopting are set at a consistent
notional value of $10,000, which, as one commenter observed, results in
a more consistent treatment of securities regardless of per-share price
\275\ and helps to ensure that orders of meaningful size across
securities of various prices are defined as round lots. The Commission
believes that this structure will facilitate the transition to the new
round lot sizes. Moreover, regulatory data includes an indicator of the
applicable round lot size,\276\ and the Commission is requiring the
representation of quotation sizes in terms of the number of shares
rather than the number of round lots. These requirements should
alleviate concerns regarding potential confusion caused by the switch
to different round lot sizes because the size of each quotation and the
round lot of each stock will be included in consolidated market data.
Finally, only 134 stocks currently have share prices above $250.00,
further limiting the cost and complexity of the introduction of the new
round lot sizes.\277\ For these reasons, the Commission does not
believe that the price-based definition of round lot will be confusing
to investors.
---------------------------------------------------------------------------

    \275\ IEX Letter at 4.
    \276\ See infra Section II.H.
    \277\ According to data analyzed by staff for September 2020,
9,023 stocks would be included in the 100-share tier, while only 117
stocks would be included in the 40-share tier, 16 stocks would be
included in the 10-share tier, and 1 stock would be included in the
one-share tier.
---------------------------------------------------------------------------

    Additionally, the Commission does not believe that a one-share
round lot for stocks priced at or above $10,000.01 would have
``unintended negative impacts'' on price discovery and routing

complexity \278\ because, based on current pricing, only one stock
would be included in the one-share tier, and that stock already has a
round lot size of one.
---------------------------------------------------------------------------

    \278\ See State Street Letter at 3 (suggesting there could be
such impacts for a one-share round lot for stocks over $1,000).
---------------------------------------------------------------------------

    Furthermore, the Commission does not believe it should defer action
on defining round lot until it receives further public input, as one
commenter recommended,\279\ because the Commission received substantial
comment on this issue from a wide range of market participants during
this rulemaking process and in connection with the Market Data
Roundtable.\280\ Moreover, the definition of round lot is based on
data-driven analysis. The Proposing Release included, among other
things, data on the increasing prevalence of odd-lot trades,
particularly among higher-priced stocks, the proportion of odd-lot
trades occurring at prices better than the NBBO, and the proportion of
these better-priced odd-lots that would be captured by the proposed
definition of round lot.\281\ As discussed above, staff has updated
these data analyses and has performed similar data analyses.\282\ The
adopted definition is consistent with and supported by these analyses.
---------------------------------------------------------------------------

    \279\ See State Street Letter at 3.
    \280\ See Market Data Roundtable, supra note 33.
    \281\ See Proposing Release, 85 FR at 16739-43.
    \282\ See supra Table 1 and Table 2; notes 240 and 241.
---------------------------------------------------------------------------

    Finally, in response to the comment on the impact of the definition
of round lot on options markets and on the standard convention that an
options contract represents 100 shares of the underlying equity, the
Commission does not believe that any such impact will be substantial or
disruptive. As stated above, only a limited number of stocks will
experience a change in their round lot sizes as a result of the amended
definition of round lot.\283\ Moreover, options on at least one stock
that currently has a sub-100 round lot size are traded in standard
units of 100 shares, so there is some precedent for deviation between
the standard number of shares for an options contract and the standard
unit of trading for the underlying stock. Similarly, corporate actions,
such as rights offerings, stock dividends, and mergers can result in
adjusted contracts representing something other than 100 shares of
stock.\284\ For these reasons, the Commission believes that options
markets will be able to adjust without undue cost to the new round lot
sizes that will apply to some NMS stocks. The Commission will monitor
the impact of these amendments on options markets going forward,
including during the transition period.\285\
---------------------------------------------------------------------------

    \283\ See supra note 277 and accompanying text.
    \284\ See Options Clearing Corporation, Equity Options,
available at https://www.theocc.com/Clearance-and-Settlement/Clearing/Equity-Options-Product-Specifications (last accessed Sept.
17, 2020).
    \285\ See infra Section III.H.
---------------------------------------------------------------------------

    Monthly Round Lot Calculation: Some commenters disagreed with using
the prior calendar month's average closing price on the primary listing
exchange to determine a stock's price for purposes of assigning a round
lot size to a stock, as proposed.\286\ One commenter stated that the
proposed monthly calculation for determining round lot size would be
operationally risky and prone to errors and confusion.\287\ That
commenter suggested a monthly calculation might ``cause a stock's round
lot size to become significantly out of step with what it should be,
particularly during periods of significant market volatility or when
stock splits occur.'' \288\ Another commenter suggested that monthly
updates would be ``messier'' than updating continuously.\289\ A
different commenter suggested ``mak[ing] the referenced price that of
the order itself (so each price level has a corresponding round lot
size, and a given stock may have multiple round lot sizes at once).''
\290\ Another commenter recommended quarterly recalculations because
the proposed monthly process ``will add an administrative burden.''
\291\ On the other hand, some commenters agreed with the proposal,
stating that a monthly calculation time period strikes an appropriate
balance.\292\ One commenter noted that the monthly calculation ``should
not be too much hassle as long as the requirements are . . . clear.''
\293\
---------------------------------------------------------------------------

    \286\ See Nasdaq Letter IV at 17; Angel Letter at 17; AHSAT
Letter at 4; NovaSparks Letter at 1.
    \287\ See Nasdaq Letter IV at 17.
    \288\ Id.
    \289\ Angel Letter at 17.
    \290\ AHSAT Letter at 4.
    \291\ NovaSparks Letter at 1.
    \292\ See MFA Letter at 10; Data Boiler I at 25.
    \293\ Data Boiler I at 25.
---------------------------------------------------------------------------

    Selecting an appropriate stock price metric for the round lot size
determination involves striking an appropriate balance between using
accurate, up-to-date pricing information and avoiding the cost and
complexity of over-frequent computation and potential round lot
reassignment. The Commission continues to believe the proposed monthly
approach strikes an appropriate balance.\294\ The Commission believes
continuous updating of round lot size or an order-based calculation
would be too complex and would be subject to short-term price
fluctuations, while quarterly updating could result in severely out-of-
date tier assignments. Additionally, market participants are accustomed
to other kinds of monthly updates, including for SRO fees, so
monitoring for round lot size changes resulting from price moves and
making corresponding systems adjustments would not be overly burdensome
or costly.\295\ Therefore, the Commission is adopting a stock price
calculation methodology based on the prior calendar month's average
closing price on the primary listing exchange, as proposed.
Additionally, to alleviate concerns that a stock's round lot size
changing as its stock price changes could be confusing to market
participants, the new definition of regulatory data, as discussed
below, includes an indicator of the applicable round lot. The
Commission believes that including this information about the
applicable round lot size in consolidated market data will reduce
confusion as market participants adjust to the new round lot
sizes.\296\
---------------------------------------------------------------------------

    \294\ See Proposing Release, 85 FR at 16743. One commenter
``suspect[ed]'' that calculating round lot sizes automatically in
real time might be operationally simpler and urged the Commission to
``listen carefully to the brokerage ops people'' with respect to
this issue. See Angel Letter at 17. However, the Commission did not
receive any comments from brokerage operations professionals or
other commenters that provided a reasoned explanation for a
different approach.
    \295\ See infra Section V.C.1(b)(v).
    \296\ Moreover, the Commission does not believe the round lot
tiers will be ``clunky,'' as one commenter suggested. Nasdaq Letter
IV at 14. The Commission appreciates the commenter's concern that a
small price shift around certain thresholds could cause large
changes in round lot size, but the monthly methodology would address
this concern by requiring a more sustained or extensive price shift
to cause a stock to switch tiers.
---------------------------------------------------------------------------

    As stated above,\297\ the proposed definition of round lot provided
that the IPO price would be used to determine an NMS stock's round lot
size if the prior calendar month's average closing price is not
available, and the Commission solicited comment regarding the stock
price calculation methodology that should be utilized in this
situation.\298\ The Commission received one comment in response.\299\
The Commission recognizes that there are other scenarios aside from
IPOs--such as listings of securities traded in the OTC market or direct
listings--where there may not be a full prior

month of closing prices on the primary listing exchange that can be
averaged to ascertain the stock's price. Therefore, the Commission is
modifying the proposed definition of round lot to delete references to
the IPO price and to add a new provision that for any NMS stock for
which the prior calendar month's average closing price is not
available, that stock's round lot shall be 100 shares.\300\ This more
general formulation will capture IPOs as well as other types of initial
stock listings. In addition, assigning an initial, default round lot
size of 100 shares to newly listed stocks will provide certainty and
consistency and avoid the need to make last minute computations.
Finally, the default assignment of a 100-share round lot size should be
accurate for almost all new listings, since their prices tend to be
well below $250 per share.\301\
---------------------------------------------------------------------------

    \297\ See supra Section II.D.1.
    \298\ See Proposing Release, 85 FR at 16743, 47.
    \299\ Data Boiler Letter I at 25 (``We tend to think: no round
lot size information until there is a prior full calendar month's
average closing price on the primary listing exchange was [sic]
$500.01 or greater. Yet, we remain flexible to accommodate whatever
minimum number of trading days as [sic] required by the industry and
the SEC.'').
    \300\ See infra Section VIII.
    \301\ Staff analysis found that for U.S. equity IPOs traded on
U.S. exchanges and issued over the last year (as of November 12,
2020), the average share price was $13.75 and the highest share
price was $120.
---------------------------------------------------------------------------

(b) Impact on Other Rules in Regulation NMS
    The Commission received multiple comments regarding how the
proposed definition of round lot would impact Rules 602, 603, 604, 605,
and 610.\302\
---------------------------------------------------------------------------

    \302\ See Proposing Release, 85 FR at 16743-45 (explaining the
requirements of Rules 602, 603, 604, 605, and 610 of Regulation NMS
and the impact of the proposed round lot definition upon these
rules). Rule 602 governs the dissemination of quotations in NMS
securities. Rule 603 governs the distribution, consolidation, and
display of information with respect to quotations for and
transactions in NMS stocks. Rule 604 governs the display of customer
limit orders for NMS stocks. Rule 605 governs the disclosure of
order execution quality information. Rule 610(d), 17 CFR 242.610(d),
requires each national securities exchange and national securities
association to establish, maintain, and enforce rules that, among
other things, require its members to reasonably avoid displaying
quotations that lock or cross any protected quotation in an NMS
stock and that prohibit its members from engaging in a pattern or
practice of displaying quotations that lock or cross any protected
quotation in an NMS stock, absent an applicable exception.
---------------------------------------------------------------------------

    Rule 602 Comments: One commenter suggested that having multiple
NBBOs would make the concept of locked and crossed markets and
execution quality ``depend on your data provider and location. That in
turn makes `fair access' of exchange data (Rule 602) a little
redundant. The SEC hopes there are around a dozen consolidators, so
it's likely some will be faster than others.'' \303\ On the other hand,
another commenter agreed with the Commission ``that the bids and offers
collected and made available under Rule 602(a) should be in the
proposed round lot sizes, and the proposed round lot definition should
apply to the obligations of responsible brokers or dealers under Rule
602(b).'' \304\
---------------------------------------------------------------------------

    \303\ Letter from Phil Mackintosh, Chief Economist, Nasdaq, to
Vanessa Countryman, Secretary, Commission, dated May 26, 2020,
(``Nasdaq Letter III'') at 24-25.
    \304\ Data Boiler Letter I at 26.
---------------------------------------------------------------------------

    The amendments to the definition of NBBO to accommodate the
decentralized consolidation model and the notion of ``multiple NBBOs,''
which already exist today,\305\ do not have any direct bearing on the
requirements of Rule 602, which relate to the collection and provision
of certain quotation data to vendors.
---------------------------------------------------------------------------

    \305\ See infra Section III.B.10.
---------------------------------------------------------------------------

    Rule 603 Comments: A number of commenters addressed the impact of
the definition of round lot on Rule 603(c), the Vendor Display Rule.
One commenter argued that the Commission did not consider the
``indirect impact'' of ``the NBBO reflecting smaller-sized orders'' on
the Vendor Display Rule.\306\ That same commenter stated, ``[t]he
Commission also fails to consider whether the costs associated with
retaining the Vendor Display Rule outweigh its benefits if the
Commission adopts its proposed changes to the definition of `round
lot.' '' \307\ Another commenter argued that the round lot change would
mean a ``SIP, broker, or dealer would be required to provide a
consolidated display reflecting smaller-sized orders in higher-priced
stocks.'' \308\
---------------------------------------------------------------------------

    \306\ NYSE Letter II at 6-7.
    \307\ Id.
    \308\ Fidelity Letter at 6.
---------------------------------------------------------------------------

    A different commenter suggested that the protected quotation
definition would increase complexity because the Vendor Display Rule
``generally requires a `consolidated display,' which would include an
NBBO based on the revised round-lot sizes, in a context in which a
trading or order routing decision can be implemented but would not
require the display of valuable information about the protected
quotation.'' \309\
---------------------------------------------------------------------------

    \309\ Cboe Letter at 8.
---------------------------------------------------------------------------

    The Commission continues to believe that providing a consolidated
display that includes the new round lot NBBO is appropriate to help
ensure that market participants receive basic quotation information, in
a context in which a trading or order routing decision can be
implemented. This information should reflect orders of meaningful size,
including smaller-sized orders in higher-priced stocks.\310\ Moreover,
the commenter did not describe any specific costs, including any
indirect costs, that it believed the Commission had not
considered.\311\
---------------------------------------------------------------------------

    \310\ Proposing Release, 85 FR at 16744.
    \311\ See NYSE Letter II at 6-7. In addition, the comment
related to additional complexity in the Vendor Display Rule as a
result of the proposed amendment to the definition of protected
quotation is no longer applicable, as the Commission is not adopting
the proposed amendment to that definition. See infra Section II.E.2.
---------------------------------------------------------------------------

    Rule 604 Comments: One commenter suggested the round lot definition
would create a burden on market participants to engage in ``careful
monitoring and changes to the programming of market makers['] systems .
. . each month'' in order to remain compliant with Rule 604, given the
potential for month-to-month changes in round lot sizes for individual
securities.\312\ That commenter recommended a three-tiered structure to
reduce such a burden.\313\
---------------------------------------------------------------------------

    \312\ MFA Letter at 12-13.
    \313\ Id.
---------------------------------------------------------------------------

    Another commenter suggested that the round lot definition's
narrowing of the Rule 604 odd-lot exception, resulting in the display
of customer limit orders at the NBBO but less than 100 shares, in
combination with the proposed amendment to the definition of protected
quotation, would ``separate[ ] brokers' Rule 604 requirements from
their best execution obligations . . . [and] create[ ] challenges for a
broker-dealer to meet its best execution obligations because under the
proposed amendments, a customer limit order that is less than 100
shares would not be protected under Rule 611.'' \314\
---------------------------------------------------------------------------

    \314\ Nasdaq Letter IV at 20-21 (footnotes removed).
---------------------------------------------------------------------------

    The Commission continues to believe that Rule 604 should use round
lots, as defined and adopted herein, as the measure for customer limit
orders that must be reflected in a specialist or OTC market maker's
published bid or offer because customer limit orders of meaningful size
should be displayed. The Commission believes this will further the
objective of Rule 604: ensuring that customers have the ability to
effectively seek price improvement through the dissemination of their
limit orders by specialists or OTC market makers.\315\ Moreover, the
concerns raised regarding Rule 604 complexities that would arise as a
result of the proposed five-tier round lot definition and the proposed
amendments to the definition of protected quotation are diminished
significantly since the Commission is adopting a four-tiered definition
of round lot with a higher notional value size and is not adopting the
proposed amendments to the definition of protected quotation.\316\
---------------------------------------------------------------------------

    \315\ See Proposing Release, 85 FR at 16744.
    \316\ See supra Section II.D; infra Section II.E.
---------------------------------------------------------------------------

    Rule 605 Comments: Many commenters discussed the effects of the
definition of round lot on the execution

quality statistics under Rule 605. One commenter argued that ``Rule 605
reports would no longer . . . provid[e] uniform comparisons because the
NBBO that each market center will use will be different,'' and some
suggested changes to Rule 605 in response.\317\ Another commenter
argued that the monthly round lot calculation could create investor
confusion if a stock is near a different tier threshold regarding
whether ``the execution information about such stocks needs to be added
to Rule 605 reports,'' leading ``investors to be misled by execution
quality statistics.'' \318\ However, other commenters suggested the
proposal would improve the accuracy of Rule 605 reports.\319\
---------------------------------------------------------------------------

    \317\ STANY Letter II at 4, 6. See also Nasdaq Letter IV at 19-
20 (stating that the proposed definition of round lot will render
Rule 605 execution quality statistics less accurate, that statistics
on price improvement for higher-priced stocks may show a reduction
in the number of shares of marketable orders that received price
improvement because price improvement would be measured against a
narrower NBBO, that an increase in the frequency or length of
crossed markets resulting from the proposed definitions of round lot
and protected quote could cause more orders to be excluded from Rule
605 execution quality statistics, rendering those statistics less
accurate, and that the creation of multiple NBBOs would undermine
the comparability of Rule 605 statistics across different market
centers).
    \318\ Nasdaq Letter IV at 17.
    \319\ ICI Letter at 6-7. See also T. Rowe Price Letter at 2
(stating that one objective of the Commission's rulemaking was to
improve the accuracy of Rule 605 reports).
---------------------------------------------------------------------------

    Some commenters argued for ``moderniz[ing]'' Rule 605.\320\ One
suggested ``(a) creating a `marketable benchmark' statistic that
reflects the size of the quote at the NBBO, (b) adding notional buckets
as an additional method of categorization, and (c) incorporating all
customer orders regardless of size.'' \321\ Another commenter provided
an example of how the exclusion of odd-lot quotes from the SIP feeds
can skew Rule 605 price improvement statistics.\322\ Additionally, a
different commenter suggested measuring Rule 605 price improvement
statistics using an ``Effective Best Bid or Offer'' calculated using
the average fill price of an order at a given time.\323\
---------------------------------------------------------------------------

    \320\ See, e.g., Virtu Letter at 4 (``many of the Rule 605
execution quality share buckets now bear little relation to the
average trade sizes sent by the majority of investors. . . . [F]or
stocks with prices over $50, about 70% of trades are odd-lot orders
which would not be captured by the current Rule 605. . . . [A]
significant overhaul of Rule 605 would be necessary, including
possibly expanding measurement of execution quality to include depth
of book'').
    \321\ Citadel Letter at 4.
    \322\ Healthy Markets Letter I at 1.
    \323\ See Angel Letter at 16.
---------------------------------------------------------------------------

    The Commission continues to believe that the order execution
disclosures required under Rule 605 should be based on an NBBO that
reflects orders in the new round lot sizes.\324\ The definition of
round lot will allow additional orders of meaningful size to determine
the NBBO, and, therefore, the execution quality and price improvement
statistics required under Rule 605 would be based upon an NBBO that the
Commission believes is a more meaningful benchmark for these
statistics.\325\ As explained below, the Commission does not believe
that the amendments to the definition of NBBO to accommodate the
decentralized consolidation model or the notion of ``multiple NBBOs,''
which already exist today, will confuse market participants.\326\
Similarly, the Commission does not believe the accuracy or
comparability of Rule 605 statistics will be impaired. On the contrary,
the Commission believes that an NBBO that incorporates orders that
often reflect superior pricing by comparison to today's round lot
orders \327\ will provide market participants with more accurate
information about the true quality of the executions they are
receiving, even if this information may show a reduction in the number
of shares that received price improvement.\328\ Finally, while the
Commission has reviewed the comments about the need to modernize and
update Rule 605, any changes to Rule 605--as opposed to the more
limited impact on Rule 605 as a result of the Commission's adoption of
the definition of round lot--are beyond the scope of the present
rulemaking.
---------------------------------------------------------------------------

    \324\ See Proposing Release, 85 FR at 16745.
    \325\ See id.
    \326\ See infra Section III.B.10(b).
    \327\ See supra note 241 and accompanying text.
    \328\ Additionally, because the Commission is adopting modified
definitions of round lot and protected quotation, one commenter's
concern is no longer applicable--specifically, that an increase in
the frequency or length of crossed markets as a result of the
proposed definitions of round lot and protected quotation could
cause more orders to be excluded from Rule 605 execution quality
statistics. See Nasdaq Letter IV at 19-20.
---------------------------------------------------------------------------

    Rule 610 Comments: Commenters discussed the effects of the
definition of round lot on 17 CFR 242.610(c) and (d) (Rule 610(c) and
(d)). One commenter stated that, with the definition of round lot
affecting Rule 610(c), the Commission did ``not consider the harm that
an expanded fee limitation would have on competition, or the burdens it
would place on market participants, including trading centers that
display quotes.'' \329\ The commenter stated that in not expanding
order protection to orders in the new round lots, the Commission is
eliminating one of the bases it used when it first created the fee
limitation in Regulation NMS.\330\ On the other hand, another commenter
agreed the Commission should change Rule 610(c) to apply to quotations
in the proposed round lot sizes because doing so ``would further that
rule's objectives of ensuring the accuracy of displayed quotations by
establishing an outer limit on the cost of accessing them.'' \331\
---------------------------------------------------------------------------

    \329\ NYSE Letter II at 7-8.
    \330\ Id.
    \331\ Data Boiler Letter I at 26.
---------------------------------------------------------------------------

    Multiple commenters raised concerns that the proposed amendment to
the definition of protected quotation would limit the restrictions in
Rule 610(d) on locked and crossed markets, allowing round lots smaller
than 100 shares to be locked and crossed.\332\ Some commenters
recommended ``the locking and crossing requirements . . . be extended
to orders reflected in the NBBO.'' \333\ Another commenter stated that
the Commission did not ``justify why it is proposing to expand the fee
limitation applicable to SROs' best bids and offers under Rule 610(c),
but not proposing to expand the limits in Rule 610(d) on SRO members
locking and crossing protected quotations.'' \334\ Furthermore, one
commenter argued that the Rule 610(d) effects ``could add significant
complexity to broker-dealers'

best execution analyses and could create confusion and uncertainty
regarding the quotations that a broker-dealer should rely upon to
provide best execution for its customers.'' \335\
---------------------------------------------------------------------------

    \332\ See Clearpool Letter at 13-14; TD Ameritrade Letter at 9
(``Because the proposed round lot sizes would allow stepping ahead
by economically insignificant amounts, locked and crossed markets
may not simply be arbitraged away. At times liquidity-takers may
perceive a sophisticated trader has locked or crossed the market for
an economically insignificant amount and be reluctant to interact
with them. This may lead to occasions of sustained locked and
crossed markets, similar to what was observed prior to Reg. NMS Rule
610's prohibition on locked and crossed markets.''); ICI Letter at
7, n. 24 (expressing ``concern'' about this approach); BlackRock
Letter at 4 (``This would directly contravene the intent of
employing the round lot definition as a mechanism for expanding odd-
lot coverage, as the application of other provisions, such as order
protection, to round lot orders was a key consideration of this
approach. Further, this policy perpetuates an archaic double
standard for odd-lot quotations which seem incongruous to the
acknowledged economic significance and prevalence of odd-lot
activity in the market.'') (footnotes removed); SIFMA Letter at 1-2
(arguing the Commission should make any changes to Rule 610(d) of
Regulation NMS in a separate proposal after ``further industry
dialogue and consideration''); Nasdaq Letter IV at 18 (``Many of the
same concerns that Nasdaq has with respect to the Commission's round
lot and trade-through protection proposals also apply to the
Commission's proposal to allow orders to lock or cross unprotected
round lot displayed quotes of less than 100 shares.'').
    \333\ Clearpool Letter at 13-14; BlackRock Letter at 5.
    \334\ NYSE Letter II at 8. See also Nasdaq Letter IV at 19
(``[E]ven if the Commission is correct that protection against
locked and crossed markets is no longer warranted, the Commission
fails to explain why it is reasonable, and not arbitrary, for it to
roll back Rule 610(d) only for quotes of under 100 shares, rather
than for all quotes in NMS stocks.'').
    \335\ FINRA Letter at 7.
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    The Commission continues to believe that applying the fee
limitations of Rule 610(c) to orders of meaningful size, as reflected
in the proposed definition of round lot, would further the rule's
objectives of ensuring the accuracy of displayed quotations by
establishing an outer limit on the cost of accessing them and would
help ensure that the rule applies consistently to orders of meaningful
size.\336\ Further, the Commission does not believe that an expanded
fee limitation would harm competition or unduly burden market
participants, as one commenter stated.\337\ The national securities
exchanges do not distinguish between protected or best quotations and
other quotations for purposes of their transaction fees,\338\ so the
extension of the requirements of Rule 610(c) to orders in the new round
lot sizes will not affect an area of exchange pricing that has been
subject to competition or differentiation among exchanges. In addition,
as a result of the amended definition of round lot, a relatively small
number of NMS stocks will have their round lot size change,\339\ so the
impact on exchanges and other trading centers and market participants
should be small.\340\
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    \336\ The concern expressed by one commenter suggesting that the
Commission is eliminating one of the bases for the fee limitation in
Rule 610(c) of Regulation NMS is no longer applicable in light of
the Commission's decision not to adopt the proposed amendments to
the definition of protected bid or protected offer. See infra
Section II.E. Similarly, the concerns relating to Rule 610(d) of
Regulation NMS expressed by several commenters that the proposed
amendments to the definition of protected bid or protected offer
would allow quotations in the new round lot sizes to be locked or
crossed are no longer applicable. Id.
    \337\ See NYSE Letter II at 7-8.
    \338\ See, e.g., Cboe U.S. Equities Fee Schedules, BZX Equities,
Transaction Fees; NYSE Price List 2020 (last updated Nov. 2, 2020),
available at https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf; Nasdaq, Price List--Trading Connectivity,
available at http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2 (last accessed Nov. 25, 2020).
    \339\ See infra notes 364 and 365 and accompanying text.
    \340\ See infra Section V.C.1(b)(vii) (stating that the impact
of these amendments on 610(c) of Regulation NMS might not result in
economic effects).
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E. Definition of ``Protected Bid or Protected Offer'' Under Rule
600(b)(70)

1. Proposal
    In connection with the proposed round lot definition, the
Commission proposed to amend the definition of protected bid or
protected offer in 17 CFR 242.700(b)(70) (Rule 600(b)(70)) by requiring
automated quotations that are the best bid or offer of a national
securities exchange or national securities association to be ``of at
least 100 shares'' in order to qualify as a protected bid or protected
offer. The Commission proposed this change to maintain the status quo
with regard to protected quotes, which are currently required to be
round lots, and to avoid expanding to the proposed smaller round lots
the order protection requirements of Rule 611 and the requirements of
Rule 610(d) to prevent locked/crossed markets.\341\
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    \341\ See Proposing Release, 85 FR at 16747-50. Rule 611 of
Regulation NMS requires trading centers to have policies and
procedures that are reasonably designed to prevent ``trade-
throughs'' on that trading center of protected bids or protected
offers in NMS stocks, subject to specified exceptions. Rule
600(b)(94) of Regulation NMS defines ``trade-through'' as ``the
purchase or sale of an NMS stock during regular trading hours,
either as principal or agent, at a price that is lower than a
protected bid or higher than a protected offer.'' Rule 600(b)(94) of
Regulation NMS, 17 CFR 242.600(b)(94).
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    Additionally, the Commission proposed that protected quotations
would only include odd-lots at a single price (rather than multiple
price levels) that, when aggregated, are equal to or greater than 100
shares.\342\
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    \342\ See Proposing Release, 85 FR at 16737.
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2. Final Rule and Response to Comments
    The Commission received multiple comments on the definition of
protected bid or protected offer. Many commenters opposed the proposal
to amend the definition and argued that round lots, which determine the
NBBO, should be protected quotations. These commenters stated that not
protecting the round lot NBBO would result in unnecessary complexity,
investor confusion, more trade-throughs, additional locked and crossed
markets, and harm to retail investors. Other commenters also discussed
odd-lot aggregation for the purposes of the definition of protected bid
or protected offer. Commenters also addressed the effects of
withdrawing the protected status of the 12 stocks that currently have
round lots smaller than 100 shares. Additional commenters discussed the
effects of a different PBBO and NBBO on best execution.
(a) Expanding Protection to New Round Lots
    Most commenters that mentioned order protection suggested that the
definition of protected quotation should reflect the new round lot NBBO
and not be limited to those quotations that are of at least 100
shares.\343\ One commenter supported the proposal not to protect the
new round lots of less than 100 shares,\344\ and two were neutral.\345\
In support, one commenter stated that the order protection rule would
continue to function similarly to the way it does today and that
extending order protection to the new round lots would have significant
negative trading implications, such as encouraging the posting of
quotes in insignificant sizes, which would cause asset managers to
break down large orders to avoid signaling their full trading
intent.\346\
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    \343\ See Submitted Comments, Comments on Proposed Rule: Market
Data Infrastructure, Commission, available at https://www.sec.gov/comments/s7-03-20/s70320.htm; Nasdaq Letter V at 3 (``Just five
commenters supported the Commission's proposed treatment of the
Order Protection Rule; 24 others opposed it outright.''). See, e.g.,
Cboe Letter at 8; MIAX Letter at 6; Fidelity Letter at 7; Citadel
Letter at 2; BestEx Research Letter at 6-9.
    \344\ See T. Rowe Price Letter at 2.
    \345\ See IEX Letter at 7; Data Boiler Letter I at 21.
    \346\ See T. Rowe Price Letter at 3. In addition, one commenter
highlighted that extending order protection to the new round lots
would create complexity and confusion: ``Protecting the new round
lots could also significantly alter the behavior of market makers
like Virtu, impacting their approach to internalization and
affecting their capacity to provide price improvement to retail
investors. It could also dramatically alter the flow of orders to
the exchanges and other trading venues. And, of course, it would
impose unknown, but surely significant, implementation costs on
market participants.'' Virtu Letter at 5.
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    Complexity and Confusion: Multiple commenters suggested that the
amendment to the definition of protected quote would add complexity,
including by requiring market participants to monitor an NBBO and a
PBBO throughout the trading day.\347\ One commenter noted that the
``confusion and complexity of a NBBO that deviates from the PBBO
outweighs concerns about protecting quotes that otherwise may not be
`meaningful.' '' \348\ Similarly, another commenter argued that the
round lot definition, in combination with the definition of protected
bid or protected offer, would create a bifurcated system of displayed
orders where better priced displayed orders are not protected against
trade-throughs.\349\
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    \347\ See, e.g., Cboe Letter at 8; MEMX Letter at 4; NYSE Letter
II at 6; Nasdaq Letter IV at 13-17; Fidelity Letter at 7; Citadel
Letter at 2; FINRA Letter at 6-7; Healthy Markets Letter I at 5.
    \348\ STANY Letter II at 4. See also Schwab Letter II at 2
(stating that protecting only transactions of 100 shares or more
``would create [an NBBO] that is distinct from the [PBBO] and would
leave broker-dealers with uncertainty over order routing and data
display decisions. Schwab believes this would confuse investors.'').
    \349\ See Fidelity Letter at 7.

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    Additionally, one commenter suggested that amending the definition
of protected quote would de-couple the order protection rule and the
duty of best execution, creating confusion where brokers have access to
a wide swath of required core data but may, or may not, be obligated to
use that data to benefit customers.\350\
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    \350\ See Nasdaq Letter IV at 21.
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    Locked and Crossed Markets: Some commenters argued that the
proposal to limit the definition of protected quotation to orders of
100 shares or more partially rescinds the rule against locked or
crossed markets, allowing some orders to lock or cross the market
depending on the price of the stock, the size of the order, and the
state of the NBBO.\351\
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    \351\ See id. at 16.
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    Best Execution: \352\ Some commenters argued that a bifurcated
approach to protected and unprotected round lots would add complexity
regarding best execution obligations, including routing and execution
decisions.\353\ Others suggested that if the Commission were to adopt
the proposed bifurcated approach, the Commission should ``promulgate
clear guidance'' surrounding market participants' best execution
obligations.\354\ However, one commenter stated that it was ``not
convinced by criticisms that the Proposal would alter asset managers'
best execution obligations as a result of potentially different
reference prices (i.e., NBBO vs. PBBO).'' \355\
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    \352\ See supra Section I.E.
    \353\ See, e.g., Fidelity Letter at 7; BlackRock Letter at 4;
MFA Letter at 10-12.
    \354\ Nasdaq Letter IV at 21. See also SIFMA Letter at 10, 13;
FINRA Letter at 7.
    \355\ T. Rowe Price Letter at 2.
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    Effects on Retail Investors: Some commenters suggested that
limiting protected quotations to those of 100 shares would harm retail
orders/investors because displayed retail orders in the new round lot
sizes would be traded-through.\356\ Furthermore, a commenter argued
that the Commission provided no reasonable basis for the proposal to
treat round lots differently and that the proposal would unfairly
discriminate against retail investors.\357\ One commenter suggested
that the order protection rule fosters retail investor confidence and
that not protecting the new round lots could erode trust in the
markets.\358\ Another commenter suggested that market makers may not
protect round lot orders that are not within the scope of the order
protection rule and stated that limiting order protection to
transactions of 100 shares or more would ``discourage limit orders--a
valuable driver of price discovery--as investors would be less likely
to receive execution without price protection.'' \359\
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    \356\ See Cboe Letter at 6-7; Nasdaq Letter IV at 13-17. See
also BlackRock Letter at 4 (``[A] recent academic study has
identified that `trade-throughs of non-protected odd-lot orders are
frequent' such that this `limitation in the National Market System .
. . results in a hidden cost to equity traders.' '').
    \357\ See Nasdaq Letter IV at 16.
    \358\ See TD Ameritrade Letter at 10.
    \359\ Schwab Letter II at 2.
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    Separate Rulemaking: Some commenters stated that they disagreed
with the proposal to separate order protection from the NBBO, and if
the Commission were to make such a change, it should do so in a
separate rulemaking.\360\
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    \360\ See SIFMA Letter at 14; Nasdaq Letter IV at 14-15.
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    The Commission is not adopting the proposed amendment to the
definition of protected bid or protected offer.\361\ A wide range of
commenters expressed significant concerns regarding this aspect of the
proposal, including concerns about complexity and ambiguity that could
stem from the best execution, routing, and order handling ramifications
of introducing round lot quotes that are unprotected, a potential
increase in trade-throughs and locked and crossed markets, and possible
erosion of confidence among retail investors that their orders are
being treated fairly. The Commission recognizes these concerns and does
not believe that adopting the proposed amendments to the definition, at
this time, would appropriately advance the broader objectives of the
proposal, particularly enhancing the utility and availability of
consolidated market data.
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    \361\ However, the Commission is still making the technical
change to delete the references to ``The Nasdaq Stock Market, Inc.''
in the definition. The Commission did not receive comments on this
piece of the proposal and continues to believe the language is
redundant because the Nasdaq Stock Market is now a national
securities exchange. See Proposing Release, 85 FR at 16749.
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    In support of its preliminary belief that Rules 611 and 610(d)
should not be extended to the smaller-sized quotations reflected in the
proposed definition of round lot, the Commission cited concerns
expressed by various market participants about the existing scope of
these rules.\362\ However, given the concerns expressed in comments on
the proposal, the Commission believes that not extending Rules 611 and
610(d) to the new round lot sizes could create unnecessary complexity
and confusion. For example, the Commission continues to believe that
improvements in trading and order routing technology since 2005 and the
applicability of best execution requirements to orders of all sizes
would incentivize market participants to engage with orders in the new
round lot sizes even if they were not protected, and that these
technological improvements and market forces would also help mitigate
excessive locking or crossing of quotations in the new round lot sizes.
However, the Commission also agrees with commenters that consistently
applying Rules 611 and 610(d) to all round lot sizes would promote
confidence among investors and other market participants that market
participants will engage with orders in the new round lot sizes and
that orders in the new round lot sizes will not be excessively locked
or crossed.
---------------------------------------------------------------------------

    \362\ See Proposing Release, 85 FR at 16747-49.
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    Furthermore, other modifications to the proposal that the
Commission is adopting herein mitigate the Commission's concerns, as
expressed in the Proposing Release, about the expansion of the order
protection requirements in Rule 611 and the prohibitions on locked and
crossed markets in Rule 610(d). Specifically, as discussed above, the
Commission is: (a) Modifying the proposed definition of round lot so
that only stocks priced over $250.00 will be assigned to a round lot
size less than 100; and (b) increasing the notional size thresholds of
the new round lot sizes so that protected order interest at the new
round lot sizes is more meaningful.\363\ Further, since currently only
134 stocks are priced over $250.00,\364\ the scope of the extension of
Rules 611 and 610(d) would be fairly limited, extending to a much
smaller number of stocks than under the proposed amendments.\365\
Furthermore, of this number, six NMS stocks already have a round lot
size of less than 100 today.\366\ Therefore, only 128 NMS stocks would
receive trade-through protection for smaller-sized orders.
Additionally, with the larger notional size of $10,000 adopted for the
definition of round lot,\367\ the extension of order protection to
round lots would apply only to orders of a more substantial size.
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    \363\ See supra Section II.D.
    \364\ This information is based on data analyzed by staff for
September 2020.
    \365\ By comparison, under the proposed definition of round lot,
Rules 611 and 610(d) of Regulation NMS would have extended to over
1,600 stocks in the absence of the proposed amendment to the
definition of protected bid or offer.
    \366\ See infra Section II.E.2(c).
    \367\ See supra Section II.D.
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(b) Odd-Lot Aggregation for Protected Quotations
    A number of commenters discussed odd-lot aggregation with respect
to protected quotes, and most stated that

the Commission should allow aggregation across multiple price levels,
instead of at just one level.\368\ Some commenters stated that
preventing odd-lot orders from being aggregated across different price
levels to create protected quotes, as proposed, would cause spreads to
widen, with one commenter providing empirical data, based on quoting
activity during the month of April 2020, showing that average spreads
would widen by over $0.50 for shares with prices of $500.01 to
$1,000.00 and nearly $1.50 for shares with prices of $1,000.01 or
more.\369\ One commenter suggested this restriction would hurt retail
investors because it would result in their orders being executed at
inferior prices.\370\