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Federal Register / Vol. 86, No. 171 / Wednesday, September 8, 2021 / Notices mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. Specifically, the Exchange believes that the proposed rule change is consistent with these principles because it is designed to increase competition among execution venues and offer the potential for meaningful price improvement to orders of retail investors, including through encouraging market participants to provide additional liquidity to execute against the orders of retail investors at the Midpoint Price.
As discussed in the Purpose section, the Exchanges proposed RML Program is a simple, transparent approach designed to provide retail investors with meaningful price improvement opportunities by executing at the Midpoint Price through RMOs use of the proposed new Retail Midpoint Order by incentivizing Users who wish to interact with such retail liquidity to send additional non-displayed resting interest also designed to execute at the Midpoint Price through such Users use of the proposed new RML Order.
As described above, the proposed RML Program is comparable in purpose and effect to the IEX Retail Program, and the Commission recently approved several changes to the IEX Retail Program that make certain of its features substantially similar to proposed features of the RML Program.42
Accordingly, the Exchanges proposal generally encourages competition between exchange venues. In this connection, the Exchange believes that the proposed distinctions between the Exchanges proposal and the approved IEX Retail Program will both enhance competition amongst market participants and encourage competition amongst exchange venues.
Section 6b5 of the Act prohibits an exchange from establishing rules that treat market participants in an unfairly discriminatory manner. However, Section 6b5 of the Act does not prohibit exchange members or other broker-dealers from discriminating, so long as their activities are otherwise consistent with the federal securities laws. Nor does Section 6b5 of the Act require exchanges to preclude discrimination by broker-dealers, and the Exchange understands that brokerdealers commonly differentiate between customers based on the nature and profitability of their business.
While the RML Program would differentiate among its Users, in that Retail Midpoint Orders may only be submitted by an RMO, as is the case 42 See
IEX Retail Approval Order, supra note 9.

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with other Retail Orders on the Exchange today, the Exchange believes that such differentiation is not unfairly discriminatory but rather is designed to promote a competitive process for retail executions while providing retail investors with the potential to receive meaningful price improvement at the Midpoint Price. In addition to the Exchanges existing rules relating to Retail Orders,43 there is ample precedent for differentiation of retail order flow in the existing approved programs of other national securities exchanges,44 including the IEX Retail Program, as described in the Purpose section. As the Commission has recognized, retail order segmentation was designed to create additional competition for retail order flow, leading to additional retail order flow to the exchange environment and ensuring that retail investors benefit from the better price that liquidity providers are willing to give their orders.45
The Commission consistently highlights the need to ensure that the U.S. capital markets are structured with the interests of retail investors in mind, and highlighted its focus on the longterm interests of Main Street investors as its number one strategic goal for fiscal years 2018 to 2022 in the Commission Strategic Plan.46 The Exchange believes its proposed RML Program would serve the retail investing public by providing them with the opportunity for meaningful price improvement on eligible trades.
The Exchange notes that several other national securities exchanges, including IEX as described herein, have for several years operated retail liquidity programs that include market segmentation whereby retail orders are permitted to interact with specified price-improving liquidity or receive execution priority.47
The Exchange understands that these programs were designed to promote competition for retail order flow among execution venues, most of which continues to be executed in the OTC
markets rather than on exchanges.
Similarly, the Exchanges proposed RML Program is designed to provide an additional competitive alternative for retail orders to receive price improvement. The Exchange believes 43 See
Exchange Rule 11.21.
infra note 47.
45 See Securities Exchange Act Release No. 85160
February 15, 2019, 84 FR 5754 February 22, 2019
SRNYSE201828 order approving NYSEs Retail Liquidity Program on a permanent basis.
46 See Commission Strategic Plan, supra note 7.
47 See IEX Rule 11.232. See also NYSE Rule 107C, NYSE Arca Equities Rule 7.44, Cboe EDGX Rule 11.9a2A and B, Cboe BYX Rule 11.24, and Nasdaq BX Rule 4780.
44 See
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that it is appropriate to provide incentives to bring more retail order flow to a public exchange. As described in the Purpose section, these incentives include the opportunity for Retail Orders to receive meaningful price improvement at the Midpoint Price through RMOs use of the proposed Retail Midpoint Order by providing all Users with the opportunity to provide price-improving liquidity to such orders through Users use of the proposed RML Order.
Definitions The Exchange believes that it is consistent with the Act for a Retail Midpoint Order to be a Retail Order that is a Midpoint Peg Order with a TIF
instruction of IOC, as this is designed to ensure that such orders are entered on behalf of retail investors 48 and will receive price improvement at the Midpoint Price when executing against resting RML Orders. Similarly, the Exchange believes that it is consistent with the Act for an RML Order to be a Midpoint Peg Order with a TIF
instruction of Day, RHO, or GTT, as this is designed to ensure that such orders are able to post to the MEMX Book and will provide price improvement at the Midpoint Price to retail investors when executing against incoming Retail Midpoint Orders. The Exchange also believes that it is appropriate and consistent with the Act for Retail Midpoint Orders and RML Orders to not be eligible for routing because, as noted above, such orders are designed to execute on the Exchange against each other and, as Pegged Orders, are not eligible for routing under the Exchanges current rules relating to Pegged Orders.
The Exchange further believes that it is consistent with the Act to structure its RML Program such that Retail Midpoint Orders and RML Orders are only eligible to execute against each other subject to the exception of Retail Midpoint Orders being eligible to execute against other orders priced more aggressively than the Midpoint Price in order to maintain price priority on the Exchange, as described above to provide a mechanism whereby liquidity-providing Users can provide price-improving liquidity at the Midpoint Price specifically to retail investors, and liquidity-removing RMOs submitting orders on behalf of retail investors can interact with such price-improving liquidity at the Midpoint Price in a deterministic manner. This structure 48 An RMO must exercise due diligence and monitor orders that it enters as Retail Orders to ensure that such orders originate from natural persons i.e., retail investors. See Exchange Rule 11.21b6.

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