SEC Probes Cboe Rule Letting Retail Traders Go Principal on Orders
Published Date: 9/10/2025
Notice
Summary
The Cboe EDGX Exchange wants to change its rules so that Retail Member Organizations (RMOs) can enter retail orders as principals, meaning they can trade for themselves under new conditions. The SEC is reviewing this change and deciding whether to approve it by September 8, 2025. This could affect how retail trades are handled and might impact trading practices and compliance costs for RMOs.
Analyzed Economic Effects
4 provisions identified: 2 benefits, 2 costs, 0 mixed.
Retail orders may be entered as principal
The Exchange proposes to allow Retail Member Organizations (RMOs) to enter Retail Orders onto EDGX in a principal capacity if they meet the conditions of proposed Rule 11.21(g). The SEC is reviewing the proposal and has set September 8, 2025 as the date to approve or disapprove it. The change is intended to let RMOs provide post-execution price improvement to retail customers (for example, an on-exchange fill at $10.005 that an RMO can allocate to its customer at $10.01).
Conditions for principal retail executions
If an RMO enters a Retail Order as principal, proposed Rule 11.21(g) requires that (1) the RMO be in receipt of and actively managing the retail order at the time of entry, (2) the principal order be used only to provide post-execution price improvement in addition to any on-exchange improvement, and (3) the principal order size not be greater than the underlying retail order(s).
Policies, monitoring, and documentation required
The Exchange proposes to amend Rule 11.21(b)(6) to require RMOs that enter Retail Orders as principal to have policies and procedures reasonably designed to ensure compliance with Rule 11.21(g) and to produce documentation evidencing compliance upon request by the Exchange. RMOs that route retail orders for other broker-dealers must obtain an annual written representation from those broker-dealers and monitor routed retail order flow.
Off-exchange reporting to the TRF required
The Exchange states that a Retail Order executed principally (with post-execution price improvement) will be reported to the FINRA Transaction Reporting Facility (TRF) consistent with FINRA off-exchange reporting rules and guidance. This ensures the final execution price (including off-exchange allocation) is submitted to trade reporting facilities.
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