90 FR 110 pgs. 24476-24481 - Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend Rule 11.21 To Allow an RMO To Enter a Retail Order Onto the Exchange in a Principal Capacity
Type: NOTICEVolume: 90Number: 110Pages: 24476 - 24481
Pages: 24476, 24477, 24478, 24479, 24480, 24481Docket number: [Release No. 34-103182; File No. SR-CboeEDGX-2025-035]
FR document: [FR Doc. 2025-10450 Filed 6-9-25; 8:45 am]
Agency: Securities and Exchange Commission
Official PDF Version: PDF Version
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103182; File No. SR-CboeEDGX-2025-035]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing of a Proposed Rule Change To Amend Rule 11.21 To Allow an RMO To Enter a Retail Order Onto the Exchange in a Principal Capacity
June 4, 2025.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the "Act"), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on May 21, 2025, Cboe EDGX Exchange, Inc. (the "Exchange" or "EDGX") filed with the Securities and Exchange Commission (the "Commission") the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
Footnotes:
1 ?15 U.S.C. 78s(b)(1).
2 ?17 CFR 240.19b-4.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
Cboe EDGX Exchange, Inc. (the "Exchange" or "EDGX") proposes to (i) amend Rule 11.21(a)(2), to allow a Retail Member Organization to enter a Retail Order onto the Exchange in a principal capacity, provided the requirements of proposed Rule 11.21(g) are satisfied; (ii) codify in proposed new Rule 11.21(g) additional requirements a Retail Member Organization must comply with in order to enter Retail Orders as principal; and (iii) amend Rule 11.21(b)(6) to require that Retail Member Organizations have in place policies and procedures reasonably designed to ensure compliance with proposed Rule 11.21(g)(1), as to ensure that the Retail Member Organization can, upon request by the Exchange, produce documentation evidencing compliance with the requirements of Rule 11.21(g). The text of the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the Exchange's website ( http://markets.cboe.com/us/options/regulation/rule_filings/edgx/ ), at the Exchange's Office of the Secretary, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to (i) amend Rule 11.21(a)(2) to allow a Retail Member Organization ("RMO")? 3 to enter a Retail Order? 4 onto the Exchange in a principal capacity, provided the requirements of Rule 11.21(g) are satisfied; (ii) codify in proposed new Rule 11.21(g) additional requirements a Retail Member Organization must comply with in order to enter Retail Orders as principal; and(iii) amend Rule 11.21(b)(6) requiring that Retail Member Organizations have in place policies and procedures reasonably designed to ensure compliance with proposed Rule 11.21(g)(1), as well to ensure that the Retail Member Organization can, upon request by the Exchange, produce documentation evidencing compliance with the requirements of Rule 11.21(g).
Footnotes:
3 ?Retail Member Organization. A "Retail Member Organization" or "RMO" is a Member (or a division thereof) that has been approved by the Exchange under Rule 11.21 to submit Retail Orders. See Rule 11.21(a)(1).
4 ?A Retail Order is currently defined as "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 the order does not originate from a trading algorithm or any other computerized methodology." See Rule 11.21(a)(2).
These proposed amendments are in response to feedback received by the Exchange from certain RMOs that have stated that the ability to enter orders in a principal capacity would better enable them to provide their retail customers with better priced executions. Currently, RMOs are only able to enter Retail Orders onto the Exchange in either an agency or riskless principal capacity. Specifically, these RMOs have explained that the ability to handle Retail Orders in a principal capacity will enable them to provide their retail customers with post-execution price improvement that is in addition to any price improvement received on the Exchange. Because the price ultimately allocated to the retail customer by the RMO would different (and notably, would always better priced) from the price the principal order received on the Exchange, such Retail Orders would not currently qualify as riskless principal transactions. 5 Accordingly, because Exchange rules currently only permit the entry of Retail Orders in a riskless principal or agency capacity, such post-execution price improvement is not currently permitted.
Footnotes:
5 ?A "riskless principal" transaction is a transaction in which a member, after having received an order to buy (sell) a security, purchases (sells) the security as principal and satisfies the original order by selling (buying) as principal at the same (emphasis added) price (the offsetting "riskless" leg). See FINRA Rule 5320.03-"Riskless Principal Exception", available at: https://www.finra.org/rules-guidance/rulebooks/finra-rules/5320.
The Exchange notes that the ultimate determination as to whether an RMO may choose to execute in this manner is not something to which the Exchange has visibility. Indeed, such a decision will vary from RMO to RMO. Generally speaking, RMOs may choose to execute in this manner to satisfy certain execution quality and price improvement benchmarks RMOs have applied to their underlying retail order(s), as well as to simply provide additional price improvement as a service to their retail customer(s) or retail broker customers. Because principal orders entered in this manner are for the benefit of the underlying retail customer(s)- i.e., to provide retail orders with better priced executions-the Exchange believes that such transactions are consistent with the definition of Retail Order, and the purposes of EDGX's Retail Priority Program (discussed infra ).
Current Definition of "Retail Order"
[top] Currently, Rule 11.21(a)(2) provides that a Retail Order is an agency order, or a riskless principal order that meets the criteria of FINRA Rule 5320.03. 6 A Retail Order must originate from a natural person and must be entered onto the Exchange by an RMO. The RMO is
Footnotes:
6 ? See FINRA Rule 5320.3, Riskless Principal Exception, available at: https://www.finra.org/rules-guidance/rulebooks/finra-rules/5320.
Proposed Definition of Retail Order
The Exchange believes that retail customers are a key part of the trading ecosystem, and as such, has designed products and programs to execute Retail Orders quickly, with high execution quality and at a low-cost, with added pricing incentives. For instance, EDGX's Retail Priority Program seeks to enhance execution quality for individual customers who trade U.S. equities on EDGX. Retail Priority offers a distinct allocation model, which differs from the traditional time-based allocation model used by most U.S. equities market centers that allocate trades to orders that arrive first in time at each price point. Retail Priority focuses on improving execution quality and trading outcomes for individual customers, and the firms facilitating their orders, by reducing their time to execution. Under Retail Priority, individual customers' displayed limit orders will post at the front of the order queue for same-priced orders submitted on EDGX. Additionally, EDGX offers retail-only pricing incentives for low cost remove and premium rebates. EDGX also offers RMOs discounts on port fees and market data, and retail tiers give growing retail firms additional rebates.
EDGX offers RMOs the ability to participate in the Exchange's Retail Priority program, which seeks to enhance execution quality for individual customers who trade U.S. equities on EDGX. Specifically, Retail Priority offers a distinct patent-pending allocation model, which differs from the traditional time-based allocation model used by most U.S. equities market centers that allocate trades to orders that arrive first in time at each price point. The Retail Priority model focuses on improving execution quality and trading outcomes for individual customers, and the firms facilitating their orders, by reducing their time to execution. Under the mechanism, the displayed portion of an individual customers' Retail Priority Order? 7 will post at the front of the order queue for same-priced orders submitted on EDGX.
Footnotes:
7 ?A Retail Priority Order is a Retail Order, as defined in Rule 11.21(a)(2), that is entered on behalf of a person that does not place more than 390 equity orders per day on average during a calendar month for its own beneficial account(s). See Exchange Rule 11.9, Interpretations and Policies .01.
The Exchange now seeks to amend Rule 11.21(a)(2) to provide that an RMO may also enter a Retail Order in a principal capacity, provided the RMO satisfies the conditions codified in proposed Rule 11.21(g). As noted above, some RMOs have expressed a desire to enter Retail Orders onto the Exchange on behalf of their retail customers in a principal capacity and subsequently provide such orders with post-execution price improvement in addition to any price improvement received on the Exchange. Because the RMO will allocate its Exchange execution to its retail customer at a different (and better) price than it received on the Exchange, such transaction can only be done in a principal capacity.
Importantly, the Exchange intends for Retail Orders to be entered on behalf of only bona fide retail customers. As such, the Exchange proposes to introduce new Rule 11.21(g), Retail Orders Entered as Principal, to codify requirements designed to ensure that Retail Orders by RMOs in a principal capacity are in fact on behalf of retail customers. Specifically, the Exchange seeks to codify that any Retail Orders entered onto the Exchange in a principal capacity by an RMO on behalf of its retail customer(s) must meet the following criteria: (i) the RMO must currently have in hand, at the time of order entry onto the Exchange, a Retail Order it seeks to execute on behalf of a retail customer (ii) the Retail Order entered by an RMO as principal must solely be for the purpose of providing post-execution price improvement to the retail customer(s) in addition to any price improvement received on the Exchange; (iii) the size of the principal order shall not be greater than that of the underlying order(s) entered on behalf of the retail customer(s); and (iv) the total number of shares executed in a principal capacity must be fully allocated to the underlying retail customer(s).
[top] The Exchange also notes that its existing Regulatory and Surveillance departments already possess the capability to review Retail Orders to ensure that those entered in either a principal or riskless principal transaction were indeed entered and executed by the RMO on behalf of a retail customer. 8 For instance, the Exchange's Regulatory and Surveillance teams currently review Retail Orders entered as principal to determine whether such orders were in fact ultimately executed as riskless principal? 9 and fully allocated to the RMO's end retail customer, at the same price, in accordance with FINRA Rule 5320.03. While the proposed amendment would enable RMOs to allocate a trade to their end retail customer at a different price, this would not diminish the Exchange's Regulatory and Surveillance teams from ability to effectively regulate RMOs' compliance with the Exchange's Retail Order rules. Rather, the Regulatory and Surveillance functions would instead need only monitor for Retail Orders that were entered principally, but not ultimately executed as riskless principal, and further inquire with the RMO that (i) the RMO had in hand, at the time of order entry onto the Exchange, a Retail Order it sought to execute on behalf of a retail customer (ii) the Retail Order entered by an RMO as principal was solely be for the purpose of providing post-execution price improvement to the retail customer(s) in addition to any price improvement received on the Exchange; (iii) the size of the principal order was not greater than that of the underlying order(s) entered on behalf of the retail customer(s); and (iv) the total number of shares executed in a principal capacity was fully allocated to the underlying retail customer(s). In this regard, whether the order is executed principally or as riskless principal, the Exchange will still have the ability to effectively enforce its rules. Indeed, the Exchange's Regulatory and Surveillance functions already monitor for Retail Orders that are entered as riskless principal as well as principal. Notably,
Footnotes:
8 ?The Exchange permits RMOs to enter Retail Orders onto the Exchange in an agency, principal, or riskless principal capacity. See "Capacity" in "Cboe US Equities BOE Specification", pg. 62, available at: https://cdn.cboe.com/resources/membership/Cboe_US_Equities_BOE_Specification.pdf; see also "Order Capacity" in "Cboe US Equities FIX Specification," p. 21, available at: https://cdn.cboe.com/resources/membership/Cboe_US_Equities_FIX_Specification.pdf.
9 ?As a general matter the exchange notes that riskless principal transactions are typically entered into the marketplace as principal orders, buying the security for itself and then, post-execution, selling the security to its end-customer. If the broker-dealer sells its customer the security at the same price for which it purchased the security, this is typically called a riskless principal transaction. This transaction is known as "riskless" because the broker-dealer purchases the security, knowing that it will sell the security to its customer at the same price. See generally SEC Office of Education and Advocacy, "Investor Bulletin: How to Read Confirmation Statements," available at: https://www.sec.gov/investor/alerts/ib_confirmations.pdf.
Importantly, for the purpose of determining whether an order should qualify as a Retail Order, the Exchange believes that principal orders and riskless principal orders are essentially the same order type. In addition to how it monitors and surveils Retails Orders (discussed directly above), EDGX notes that there is no difference between a Retail Order entered as a riskless principal order that meets the requirements of FINRA Rule 5320.03, and a principal order. As noted above, a riskless principal order is a transaction in which a Member, after having received an order to buy (sell) a security, purchases (sells) the security as principal and, contemporaneously, satisfies the original order by selling (buying) as principal at the same price. A riskless principal order involves two orders, the execution of one being dependent upon the receipt of the execution of the other. As such, there is no "risk" in the interdependent transactions when completed. Notably, riskless principal orders are typically entered onto exchanges in a principal capacity, and the riskless principal leg of the transaction is reflected only via a corresponding non-media trade report to a FINRA Facility. 10 In this regard, the Exchange believes that the results of a riskless principal transaction and a principal transaction are the same: the customer will receive an execution while the involved Member acts as an intermediary to effect the transaction. However, instead of receiving the same Exchange execution price, the retail customer will now receive better priced execution because the RMO is now able to commit capital to that order, as principal.
Footnotes:
10 ?FINRA Members can report riskless principal transactions by submitting a single tape report to a FINRA Facility in the same manner as an agency transaction, marked with a "riskless principal" capacity indicator, excluding the mark-up or mark-down, commission-equivalent or other fee. Alternatively, members can report an OTC riskless principal transaction by submitting two (or more, as necessary) reports: (1) a tape report to reflect the initial leg of the transaction with a capacity of principal; and (2) a non-tape (regulatory or clearing-only) report to reflect the offsetting "riskless" leg of the transaction with a capacity of riskless principal.
A principal transaction on the Exchange that meets the requirements of the proposed rule would occur as follows. Assume an RMO receives a market order to sell 100 shares at $10.01 of security, ABC, from its retail customer. The RMO then enters a Retail Order onto the Exchange in a principal capacity, to sell at $10.01. As a Retail Order, the order receives a price improved execution at $10.012. When that execution occurs, rather than contemporaneously execute the order with its retail customer at the same price ($10.012) exclusive of any markup or markdown, commission equivalent, or other fee ( i.e., consistent with FINRA Rule 5320.03), the RMO may instead choose to provide that retail customer's order with additional price improvement ( i.e., a price greater than $10.012). Here, the RMO is not permitted to execute this transaction in a riskless principal capacity, because the RMO is not providing its retail customer with the same execution price it received on the Exchange. By permitting the RMO to use a principal order, though, the RMO was able to provide its retail customer with price improvement in addition to that already received on the Exchange.
Existing RMO Application Process/Requirements & Proposed Policies and Procedures
The Exchange also notes that the proposed amendment does not present any new or material risks that the Exchange has not already mitigated through its RMO application process for orders entered onto the Exchange as Retail Orders on behalf of retail customers. Currently, Rule 11.21(b)(1)-(6) sets forth an objective process by which a Member organization applies to become an RMO. First, to qualify as a Retail Member Organization, a Member must conduct a retail routing business or route retail orders on behalf of another broker-dealer. 11 To become an RMO, a Member is required to submit an application form, 12 supporting documentation ( e.g., marketing literature, website screenshots, and other publicly disclosed materials) confirming that the applicant's order flow would meet the requirements of the Retail Order definition, 13 and an attestation? 14 in a form prescribed by the Exchange, that substantially all orders submitted as Retail Orders will qualify as such under the Rule. 15 After submission of these materials, various Exchange functions, including legal and operations, review the application to assess whether the applicant's order flow complies with Exchange rules. 16 Applicants are then notified, in writing, of the Exchange's decision. 17
Footnotes:
11 ? See Rule 11.21(b)(1).
12 ? See Rule 11.21(b)(2)(A).
13 ? See Rule 11.21(b)(2)(B).
14 ? See, "Retail Member Organization-Broker-Dealer Customer Agreement", and "Broker-Dealer Customer Annual Attestation" of "Cboe BYX Exchange, Inc., Retail Member Organization Application", available at: https://cdn.cboe.com/resources/membership/EDGX_Retail_Member_Organization_Application.pdf. Following approval of this proposal, the Exchange will make conforming edits to the attestation reflecting the changes to the definition of "Retail Order", as well as the amendments made to the Interpretations and Policies to Rule 11.21.
15 ? See Rule 11.21(b)(2)(C).
16 ? See Rule 11.21(b)(3).
17 ? Id.
Furthermore, all RMOs must have in place policies and procedures reasonably designed to ensure that it will only designate orders as Retail Orders if all requirements of a Retail Order are met. 18 These policies and procedures must require the Member to (i) exercise due diligence before entering a Retail Order to assure that entry as a Retail Order is in compliance with the requirements of the Rule, and (ii) monitor whether orders entered as Retail Orders meet the applicable requirements. 19 If an RMO does not itself conduct a retail business but routes Retail Orders on behalf of another broker-dealer, the RMO's supervisory procedures must be reasonably designed to assure that the orders it receives from the other broker-dealer that are designated as Retail Orders meets the definition of a Retail Order. 20 In these cases, the RMO must (i) obtain an annual written representation, in a form acceptable to the Exchange, from each other broker-dealer that sends the RMO orders to be designated as Retail Orders that the entry of such orders as Retail Orders will be in compliance with the requirements of Rule 11.21; and (ii) monitor whether Retail Order flow routed on behalf of other such broker-dealers meets the applicable requirements. 21 Importantly, the Exchange's regulatory and surveillance functions provide appropriate oversight by the Exchange by monitoring for continued compliance with the terms of these provisions. If an RMO fails to abide by the Retail Order requirements, the Exchange in its sole discretion may disqualify a Member from its status as an RMO. 22 The proposed amendment will not eliminate or diminish the strength of the existing protections currently codified in Rule 11.21.
Footnotes:
18 ? See Rule 11.21(b)(6).
19 ? Id.
20 ? Id.
21 ? Id.
22 ? See Rule 11.21(b)(d)(1).
[top] In addition, as noted further above, the Exchange has proposed
Finally, the Exchange believes it important to note that as Members of the Exchange, RMOs must be registered brokers or dealers. As registered brokers or dealers, RMOs are subject to a panoply of rules, such as FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade), EDGX Rule 2.2 (Obligation of Members and the Exchange), and EDGX Rule 3.1 (Business Conduct of Members). These rules require, amongst other things, that as brokers or dealers, Members are required to conduct business with the highest standards of commercial honor, and obligate Members to comply with all Exchange rules, by-laws, and regulations. 23 While the Exchange has an obligation to maintain fair and orderly markets and carry out it its duties as a self-regulatory organization, RMOs are also obligated to ensure that only orders that comply with Exchange rules are routed to the Exchange and designated as Retail Orders.
Footnotes:
23 ?While the RMO application process discussed above does rely on information provided by the applicant, the Exchange believes that ultimately it must be allowed to rely on representations made by registered brokers or dealers that are obligated to conduct their securities business consistent with the highest standards of commercial honor, and in submitting their application, have attested to the accuracy of the information provided to the Exchange.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the "Act") and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act. 24 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5)? 25 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect customers and the public interest. Additionally, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5)? 26 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers.
Footnotes:
24 ?15 U.S.C. 78f(b).
25 ?15 U.S.C. 78f(b)(5).
26 ? Id.
In particular, the Exchange believes that the proposed rule change is consistent with these principles because it would increase competition among execution venues, encourage additional on-exchange retail liquidity, and in turn, increase the opportunities for retail customers to receive even greater levels of price improvement from RMOs that trade principally and choose to commit additional capital to their Retail Orders. The Exchange notes that a significant percentage of the orders of individual customers are executed over the counter. 27 By providing RMOs with an additional order capacity in which they may submit their retail orders to the Exchange, EDGX believes that more retail flow may be directed to the Exchange and have the opportunity to execute on a regulated, transparent market. Indeed, even the Commission has noted that "a very large percentage of marketable (immediately executable) order flow of individual customers is `executed' or `internalized' by broker-dealers in the [over-the-counter-markets]."? 28 The Commission has also noted that a review of the order flow of eight retail brokers revealed that nearly 100% of their customer market orders were routed to over-the-counter market makers, often pursuant to payment for order flow arrangements. 29 By making clear to retail broker-dealers that, subject to the conditions discussed herein, they can enter and execute Retail Orders on the Exchange in a principal capacity, such market participants may be encouraged to seek on-Exchange price improvement opportunities. In turn, an increase in the number of Retail Orders submitted onto the Exchange will encourage more retail liquidity provision, thereby deepening EDGX's retail liquidity pool, fostering enhanced price discovery, and offering Retail Orders more price improvement opportunities as the number of liquidity providers competing to trade with Retail Orders increases.
Footnotes:
27 ?Ninety-plus percent (90%) of retail marketable orders are routed to wholesalers and executed off-exchange. See Chair Gensler's remarks, "Market Structure and the Retail Investors: Remarks Before the Piper Sandler Global Exchange Conference", (June 2, 2022), available at: https://www.sec.gov/news/speech/gensler-remarks-piper-sandler-global-exchange-conference-060822 ).
28 ?See Securities Exchange Act Release No. 61358 (January 14, 2010), 75 FR 3594, 3600 (January 21, 2010) ("Concept Release on Equity Market Structure").
29 ? Id.
The Exchange also believes that the proposed amendment to add principal orders to the definition of Retail Order, promotes just and equitable principles of trade and is not unfairly discriminatory. All RMOs are permitted to utilize the proposed principal order capacity and doing so is not mandatory. While some RMOs may choose not to provide additional price improvement to executions they receive on the Exchange, such possibility does not make the proposed amendment discriminatory. Indeed, to prevent all RMOs from trading in a principal capacity to provide their retail customers with additional price improvement, simply because some RMOs may choose not to do so, only disadvantages the retail customer. Moreover, each RMO has its own rationale and strategies in how to provide their retail orders with best execution, and the proposed amendment to merely permit trading in a principal capacity should not be germane to a consideration of whether certain RMOs are better positioned to trade in this manner, than others.
Moreover, proposed Rule 11.21(g) and the proposed amendment to Rule 11.21(b)(6) are designed to prevent fraudulent and manipulative acts and practices, and to promote just and equitable principles of trade. Specifically, the proposed requirements under Rule 11.21(g) are designed to ensure that RMOs trade principally only on behalf of bona fide retail customers, and not the RMOs own trading account. Furthermore, the requirement that RMOs have in place policies and procedures reasonably designed to ensure compliance with Rule 11.21(g)(1) will also help to ensure that RMOs are cognizant of their regulatory obligations, thereby better ensuring their compliance with Rule 11.21(g). Additionally, Rule 11.21(b)(6)'s requirement that RMOs also have policies and procedures in place reasonably designed to ensure that RMOs can, upon request, provide the Exchange with documentation of their compliance with Rule 11.21(g) will help to ensure the Exchange can properly surveil and regulate its RMOs.
[top] Finally, the Exchange also believes that this proposal is not designed to permit unfair discrimination between
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes the proposed amendment will help to enhance the submission of Retail Orders to the Exchange by providing RMOs with additional flexibility in how they choose to execute their retail customers' orders on the Exchange. In turn, greater overall order flow and trading opportunities benefits all market participants on the Exchange. An increase in RMO activity and liquidity providing orders will serve to enhance the Exchange's available liquidity. Deeper liquidity pools will, in turn, enhance price discovery, as well as price improvement opportunities for retail customers as liquidity providers compete for retail executions. Liquidity providers also benefit by being able to interact with retail order flow that is often executed off-exchange, and therefore generally inaccessible to those trading in the lit markets.
While the proposed definition will help to ensure that only bona fide retail customers receive the benefits afforded to Retail Orders, the segmentation afforded Retail Orders is not a novel concept in the securities market. The Commission has long recognized that U.S. capital markets should be structured with the interests of retail customers in mind? 30 and has recently proposed a series of rules designed, in part, to attempt to bring order flow back to the exchanges from off-exchange trading venues. 31 In this regard, the proposed amendments should not result in any new or novel issues to be considered by the Commission or that have not already been contemplated by today's market participants. For example, many exchanges, including the Exchange's affiliate, Cboe BYX Exchange, Inc., offer retail price improvement programs designed to attract retail order flow to regulated markets and provide retail order flow with price improvement opportunities. 32 Additionally, as noted in Amendment 1 of EDGX's Retail Priority filing, 33 customer priority has a long tradition in the options market where orders entered on behalf of non-broker dealer public customers have historically been afforded priority over orders submitted by registered broker dealers. The aforementioned retail price improvement programs and Retail Priority program each provide benefits to Retail Orders not afforded to other customers by segmenting retail order flow from traditional order flow. The Exchange's proposal does not encourage additional segmentation, but rather seeks to enhance existing benefits to retail customers by codifying that RMOs may utilize a principal order type in order to provide additional post-execution price improvement to Retail Orders.
Footnotes:
30 ? See 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 .
31 ?See Securities Exchange Act Release No. 96495 (December 14, 2022), 88 FR 128 (January 3, 2023) ("Order Competition Rule"); Securities Exchange Act Release No. 96494 (December 14, 2022), 87 FR 80266 (December 29, 2022) ("Tick Size Proposal"); Securities Exchange Act Release No. 96496 (December 14, 2022), 88 FR 5440 (January 27, 2023) ("Regulation Best Execution"); Securities Exchange Act Release No. 96493 (December 14, 2022), 88 FR 3786 (January 20, 2023) ("Disclosure of Order Execution Information").
32 ? See, e.g., Cboe BYX Exchange Rule 11.24 (Retail Price Improvement Program); NYSE National, Inc. Rule 7.44 (Retail Liquidity Program); Investors Exchange Inc. Rule 11.232 (Retail Price Improvement Program).
33 ? See Securities Exchange Act Release No. 86280 (July 2, 2019), 84 FR 32808 (July 9, 2019) ("Notice of Amendment No. 1").
Additionally, the Exchange does not believe its proposal unfairly discriminates between Retail Orders- i.e., between Retail Orders that are executed principally, and Retail Orders executed in an agency or riskless principal capacity. While Retail Orders entered in a principal capacity must satisfy additional requirements compared to Retail Orders entered as agent or riskless principal, these requirements are designed to ensure that the benefits of the Exchange's Retail Order program accrue only to bona retail brokers and their retail customers. Moreover, treating Retail Orders entered principally in the same manner as Retail Orders entered as agent or riskless principal equally does not unfairly discriminate between Retail Orders. The choice to enter a Retail Order principally or as agent or riskless principal, does not provide a Retail Order with any additional on-Exchange benefits- i.e., whether entered as principal, riskless principal, or agent, the Retail Order will be handled in the same manner. The additional price improvement received by principal Retail Orders is fully accrued off-Exchange, when the RMO chooses to provide additional price improvement to their retail customers post-execution on the Exchange .
The Exchange further believes that the proposed rule change will increase intermarket competition by enabling the Exchange to better compete with other exchanges and off-exchange trading venues for retail order flow. The Commission has spoken about "increasing competition and enhancing the direct exposure of individual customer orders to a broader spectrum of market participants"? 34 and the Exchange believes its proposed amendment to the definition of Retail Order will help to encourage RMOs to submit additional retail order flow to the Exchange. In turn, retail customers will have additional opportunities to receive executions on a transparent, regulated, national securities exchange in addition to the currently available off-exchange trading venues, and could also create additional incentives for regulated exchanges to develop additional liquidity programs designed at providing additional benefits to retail customers, thus promoting additional intermarket competition.
Footnotes:
34 ? See Order Competition Rule at 178.
C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
[top] Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its
A. by order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
Electronic Comments
• Use the Commission's internet comment form ( https://www.sec.gov/rules/sro.shtml ); or
• Send an email to rule-comments@sec.gov . Please include file number SR-CboeEDGX-2025-035 on the subject line.
Paper Comments
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-CboeEDGX-2025-035. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website ( https://www.sec.gov/rules/sro.shtml ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR-CboeEDGX-2025-035 and should be submitted on or before July 1, 2025.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 35
Footnotes:
35 ?17 CFR 200.30-3(a)(12).
Stephanie Fouse,
Assistant Secretary.
[FR Doc. 2025-10450 Filed 6-9-25; 8:45 am]
BILLING CODE 8011-01-P