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Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices of the Exchange, and at the Commissions Public Reference Room.
II. Self-Regulatory Organizations Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organizations Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
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1. Purpose The Exchange operates on the takermaker model, whereby it generally pays credits to members that take liquidity and charges fees to members that provide liquidity. Currently, the Exchange has a schedule, at Equity 7, Section 118e, which consists of several different credits and fees for Retail Orders 3 and Retail Price Improvement Orders 4 under Rule 4780 Retail Price Improvement Program.
Currently, the Exchange charges a fee of $0.0025 per share executed for RPI
Orders that provide liquidity. The Exchange proposes to adopt a new fee of $0.0018 per share executed for RPI
Orders entered by a member that i quotes Retail Price Improvement Orders in at least 2,500 symbols on average per day and ii provides liquidity through Retail Price Improvement Orders equal to or exceeding an average daily volume of 2,500,000 shares. The Exchange will continue to charge a fee of $0.0025 per 3 Retail Orders shall mean an order type with a Non-Display Order Attribute submitted to the Exchange by a Retail Member Organization as defined in Rule 4780. A Retail Order must be an agency Order, or riskless principal Order that satisfies the criteria of FINRA Rule 5320.03. The Retail Order must reflect trading interest of a natural person with no change made to the terms of the underlying order of the natural person with respect to price except in the case of a market order that is changed to a marketable limit order or side of market and that does not originate from a trading algorithm or any other computerized methodology.
See Rule 4702b6.
4 Retail Price Improving RPI Orders shall mean an Order Type with a Non-Display Order Attribute that is held on the Exchange Book in order to provide liquidity at a price at least $0.001 better than the NBBO through a special execution process described in Rule 4780. A Retail Price Improving Order may be entered in price increments of $0.001.
RPI Orders collectively may be referred to as RPI
Interest. See Rule 4702b5.

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share executed for all other RPI Orders that provide liquidity. The Exchange hopes that the proposed lower fee will encourage member organizations to increase liquidity providing activity on RPI Orders on the Exchange. If the proposal is effective in achieving this purpose, then the quality of the Exchanges market will improve, particularly with respect to RPI and retail orders to the benefit of all participants, especially those who submit RPI and Retail Orders.
2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6b of the Act,5 in general, and furthers the objectives of Sections 6b4 and 6b5
of the Act,6 in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The proposal is also consistent with Section 11A of the Act relating to the establishment of the national market system for securities.
The Proposal Is Reasonable and Is an Equitable Allocation of Charges The Exchanges proposed change to its schedule of credits and charges is reasonable in several respects. As a threshold matter, the Exchange is subject to significant competitive forces in the market for equity securities transaction services that constrain its pricing determinations in that market.
The fact that this market is competitive has long been recognized by the courts.
In NetCoalition v. Securities and Exchange Commission, the D.C. Circuit stated as follows: no one disputes that competition for order flow is fierce. . . . As the SEC explained, in the U.S. national market system, buyers and sellers of securities, and the brokerdealers that act as their order-routing agents, have a wide range of choices of where to route orders for execution;
and no exchange can afford to take its market share percentages for granted because no exchange possesses a monopoly, regulatory or otherwise, in the execution of order flow from broker dealers . . . . 7
The Commission and the courts have repeatedly expressed their preference for competition over regulatory 5 15

U.S.C. 78fb.
U.S.C. 78fb4 and 5.
7 NetCoalition v. SEC, 615 F.3d 525, 539 D.C. Cir.
2010 quoting Securities Exchange Act Release No.
59039 December 2, 2008, 73 FR 74770, 7478283
December 9, 2008 SRNYSEArca200621.
6 15

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intervention in determining prices, products, and services in the securities markets. In Regulation NMS, while adopting a series of steps to improve the current market model, the Commission highlighted the importance of market forces in determining prices and SRO
revenues and, also, recognized that current regulation of the market system has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies. 8
Numerous indicia demonstrate the competitive nature of this market. For example, clear substitutes to the Exchange exist in the market for equity security transaction services. The Exchange is only one of several equity venues to which market participants may direct their order flow, and it represents a small percentage of the overall market. It is also only one of several taker-maker exchanges.
Competing equity exchanges offer similar tiered pricing structures to that of the Exchange, including schedules of rebates and fees that apply based upon members achieving certain volume thresholds.9
Within this environment, market participants can freely and often do shift their order flow among the Exchange and competing venues in response to changes in their respective pricing schedules.10 Within the foregoing context, the proposal represents a reasonable attempt by the Exchange to increase its market share relative to its competitors.
The Exchange believes it is reasonable and equitable to adopt a new $0.0018
per share executed fee for RPI Orders entered by a member that i quotes Retail Price Improvement Orders in at least 2,500 symbols on average per day and ii provides liquidity through Retail Price Improvement Orders equal to or exceeding an average daily volume of 2,500,000 shares. As discussed above, the Exchanges goal is to increase liquidity adding activity in RPI Orders on its platform. It is reasonable and equitable to address this need by 8 Securities Exchange Act Release No. 51808
June 9, 2005, 70 FR 37496, 37499 June 29, 2005
Regulation NMS Adopting Release.
9 See CBOE BYX Fee Schedule, at http
markets.cboe.com/us/equities/membership/fee_
schedule/byx/; NYSE National Fee Schedule, at https www.nyse.com/publicdocs/nyse/regulation/
nyse/NYSE_National_Schedule_of_Fees.pdf.
10 The Exchange perceives no regulatory, structural, or cost impediments to market participants shifting order flow away from it. In particular, the Exchange notes that these examples of shifts in liquidity and market share, along with many others, have occurred within the context of market participants existing duties of Best Execution and obligations under the Order Protection Rule under Regulation NMS.

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