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Federal Register / Vol. 86, No. 171 / Wednesday, September 8, 2021 / Notices
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attracting counterparty liquidity to the Exchange from Users and their clients seeking to interact with retail liquidity.
The Exchange understands that many professional market participants, such as market makers, view interacting with orders of retail investors as more desirable than interacting with orders of other professional market participants.
For example, as the Commission staff noted in a 2016 memorandum to the Equity Market Structure Advisory Committee EMSAC Memorandum, market makers are interested in retail customer order flow because retail investors are, on balance, less informed than other traders about short-term price movements . . . and trading against retail customer order flow enables market makers to avoid adverse selection by informed professional traders and to more reliably profit from market-making activity. 6 Consistent with the EMSAC Memorandums conclusions, and based on informal discussions with market participants and the knowledge and experience of its staff, the Exchange believes that market makers and other sophisticated market participants generally value interacting with retail orders because they are smaller and not likely to be part of a larger parent order that can move a stock price, causing a loss to the market maker. The proposed rule change thus seeks to provide enhanced price improvement opportunities for retail customers by incentivizing Users and their clients to provide price-improving liquidity to interact with the orders of retail investors. The RML Program would therefore be consistent with the goals of the Commission to encourage markets that are structured to benefit ordinary investors,7 while facilitating order interaction to the benefit of all market participants.
As proposed, through the RML
Program, the Exchange would enable Retail Member Organizations 8 to submit 6 See January 26, 2016 Memorandum entitled Certain Issues Affecting Customers in the Current Equity Market Structure from the staff of the Commissions Division of Trading and Markets, available at https www.sec.gov/spotlight/equitymarket-structure/issues-affecting-customers-emsac012616.pdf.
7 See, e.g., U.S. Securities and Exchange Commission, Strategic Plan, Fiscal Years 2018
2022, available at https www.sec.gov/files/SEC_
Strategic_Plan_FY18-FY22_FINAL_0.pdf Commission Strategic Plan.
8 A Retail Member Organization or RMO is a Member or a division thereof that has been approved by the Exchange under Exchange Rule 11.21 to submit Retail Orders. A Retail Order means an agency or riskless principal order that meets the criteria of FINRA Rule 5320.03 that originates from a natural person and is submitted to the Exchange by a Retail Member Organization, provided that no change is made to the terms of the order with respect to price or side of market and
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a new type of Retail Order designed to execute at the Midpoint Price i.e., a Retail Midpoint Order, described below to the Exchange, and any User would be permitted to provide price improvement to such order in the form of another new order type that is designed to execute at the Midpoint Price and that is only eligible to execute against a Retail Midpoint Order i.e., an RML Order, described below. The Exchange expects that the introduction of Retail Midpoint Orders and RML Orders, through the proposed RML Program, would result in a balanced mix of retail brokerage firms and their wholesaling partners submitting Retail Midpoint Orders to the Exchange to access the additional midpoint liquidity provided by RML
Orders that the Exchange anticipates resulting from the RML Program.
The Exchange notes that the proposed RML Program is comparable in purpose and effect to the Investors Exchange LLC
IEX Retail Price Improvement Program the IEX Retail Program, which is also designed to provide retail investors with meaningful price improvement opportunities.9 Further, the Commission recently approved several changes to the IEX Retail Program that make certain features of the IEX Retail Program substantially similar to proposed features of the RML
Program.10 The Exchange will describe certain differences between the proposed RML Program and the IEX
Retail Program under the appropriate headings below.
The Exchange will submit a separate proposal to amend its Fee Schedule in connection with the proposed RML
Program. Under that proposal, the Exchange expects to provide free executions or charge a fee to Users for executions of their RML Orders against Retail Midpoint Orders, and in turn would provide a rebate or free the order does not originate from a trading algorithm or any other computerized methodology.
See Exchange Rule 11.21a.
9 See IEX Rule 11.232; see also Securities Exchange Act Release No. 92398 July 13, 2021, 86
FR 38166 July 19, 2021 SRIEX202106 order approving changes to the IEX Retail Program including dissemination of a retail liquidity identifier and limiting IEX Retail Liquidity Provider orders to midpoint peg orders the IEX Retail Approval Order. The Exchange notes that the IEX
Retail Program, as amended, supports executions of retail orders described in IEX Rule 11.190b15
IEX Retail Orders at the Midpoint Price as well as prices that are different than the Midpoint Price in certain limited circumstances. While the Exchanges proposed new order types under the RML Program would only be eligible to execute at the Midpoint Price, as further described below, the Exchange notes that Retail Orders would still be eligible to execute at prices that are different than the Midpoint Price outside of the RML Program as they are today.
10 See IEX Retail Approval Order, supra note 9.

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executions to RMOs for executions of their Retail Midpoint Orders against RML Orders.
Definitions The Exchange proposes to adopt the following definitions under paragraph a of proposed Exchange Rule 11.22
Retail Midpoint Liquidity Program.
First, the term Retail Midpoint Order would be defined as a Retail Order submitted by an RMO that is a Pegged Order 11 with a Midpoint Peg 12
instruction Midpoint Peg Order and that is only eligible to execute against RML Orders a proposed new order type described below, and other orders priced more aggressively than the Midpoint Price, through the execution process described in proposed Exchange Rule 11.22c. As proposed, a Retail Midpoint Order must have a time-inforce TIF instruction of IOC.13
Second, the term Retail Midpoint Liquidity Order or RML Order would be defined as a Midpoint Peg Order that is only eligible to execute against Retail Midpoint Orders through the execution process described in proposed Exchange Rule 11.22c. As proposed, an RML Order must have a TIF instruction of Day,14 RHO,15 or GTT 16 and may not include a Minimum Execution Quantity 17 instruction. Any User would be permitted, but not required, to submit RML Orders.
Additionally, the Exchange proposes that a User may, but is not required to, designate an RML Order to be identified as RML Order interest RML Interest for purposes of the Retail Liquidity 11 Pegged Orders are described in Exchange Rules 11.6h and 11.8c and generally defined as an order that is pegged to a reference price and automatically re-prices in response to changes in the NBBO.
12 A Midpoint Peg instruction is an instruction that may be placed on a Pegged Order that instructs the Exchange to peg the order to the midpoint of the NBBO. See Exchange Rule 11.6h2.
13 IOC is an instruction the User may attach to an order stating the order is to be executed in whole or in part as soon as such order is received, and the portion not executed immediately on the Exchange or another trading center is treated as cancelled and is not posted to the MEMX Book. See Exchange Rule 11.6o1. The term MEMX Book refers to the Systems electronic file of orders. See Exchange Rule 1.5q.
14 See Exchange Rule 11.6o2.
15 See Exchange Rule 11.6o5.
16 See Exchange Rule 11.6o4.
17 The Minimum Execution Quantity instruction is described in Exchange Rule 11.6f and is generally defined as an instruction a User may attach to an order with a Non-Displayed instruction or a TIF of IOC instruction requiring the System to execute the order only to the extent that a minimum quantity can be satisfied. A Non-Displayed instruction is an instruction a User may attach to an order stating that the order is not to be displayed by the System on the MEMX Book. See Exchange Rule 11.6c2.

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