24X National Exchange Adopts Retail Order Designation Framework
Commentary by Steven Lofchie
The SEC requested comment on 24X National Exchange LLC's ("24X") adoption of a rule establishing a mechanism for identifying "Retail Orders" and qualifying members as "Retail Member Organizations" ("RMOs") for the purpose of tracking retail order flow.
In its filing with the SEC, 24X explained that new Rule 11.24 defines a "Retail Order" as an order originating from a natural person—explicitly excluding trading algorithms—and establishes the requirements for members to achieve RMO status. To qualify, members must submit an application, supporting documentation, and an attestation confirming that substantially all orders designated as Retail Orders will meet the defined criteria. Additionally, RMOs must maintain written policies to ensure compliance, including exercising due diligence before order entry and, where applicable, obtaining annual written representations from broker-dealers for whom they route orders.
The Exchange stated that the rule establishes necessary governance and oversight infrastructure, including specific procedures for the disqualification of RMOs that fail to abide by the requirements. The framework creates an appeal process involving a Retail Member Organization Panel, permitting disapproved applicants or disqualified RMOs to appeal decisions within five business days or reapply for status 90 days after a notice is issued. 24X noted that identifying this flow is a prerequisite for potentially implementing "differentiated pricing for Retail Orders" in the future.
The rule change became effective upon filing on January 9, 2026, and will become operative 30 days from that date.
Commentary
Identifying orders as retail orders (sometimes referred to as "dumb orders") potentially allows counterparties to bid more aggressively to trade with these orders. That is, it gives retail investors a better price because it increases confidence that retail customers are neither (i) trading on superior information nor (ii) sending a flood of orders on the same side of the market that may move market price in a non-random manner.