65186 Federal Register / Vol. 83, No. 243 / Wednesday, December 19, 2018 / Notices 

6 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4 15 U.S.C. 78s(b)(1). 

5 17 CFR 240.19b–4. 

6See Rule 11.210. 

7See Rule 11.210. 

8See Rule 11.160(t). 

9See Rule 11.190(h)(3)(C)(ii) and (D)(ii). 

10Pursuant to Rule 11.190(g), the Protected 

Quotations of the New York Stock Exchange, 

Nasdaq Stock Market, NYSE Arca, Nasdaq BX, Cboe 

BZX Exchange, Cboe BYX Exchange, Cboe EDGX 

Exchange, and Cboe EDGA Exchange. 

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 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number NASDAQ–2018–079, and 

should be submitted on or before 

January 9, 2019. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.6

Eduardo A. Aleman, 

Deputy Secretary. 

[FR Doc. 2018–27409 Filed 12–18–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–84820; File No. SR–IEX– 

2018–23] 

Self-Regulatory Organizations; 

Investors Exchange LLC; Notice of 

Filing of Proposed Rule Change To 

Modify the Resting Price of 

Discretionary Peg Orders December 

13, 2018. 

Pursuant to Section 19(b)(1) 1 of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that, on 

November 30, 2018, the Investors 

Exchange LLC (‘‘IEX’’ or the 

‘‘Exchange’’) 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 self-regulatory organization. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

Pursuant to the provisions of Section 

19(b)(1) under the Securities Exchange 

Act of 1934 (‘‘Act’’),4 and Rule 19b–4 

thereunder,5 IEX is filing with the 

Commission a proposed rule change to 

modify the resting price of Discretionary 

Peg orders to be equal to the less 

aggressive of one (1) MPV 6 less 

aggressive than the primary quote (i.e., 

the NBB for buy orders and NBO for sell 

orders) or the order’s limit price, rather 

than the primary quote. 

The text of the proposed rule change 

is available at the Exchange’s website at 

www.iextrading.com, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization 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 self-regulatory organization 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 purpose of this proposed rule 

filing is to modify the resting price of 

Discretionary Peg orders to be equal to 

the less aggressive of one (1) MPV 7 less 

aggressive than the primary quote or the 

order’s limit price, rather than the 

primary quote. Currently, the Exchange 

offers three types of pegged orders— 

primary peg, midpoint peg, and 

Discretionary Peg—each of which are 

non-displayed orders that upon entry 

into the System and while resting on the 

Order Book, are automatically pegged to 

a reference price based on the national 

best bid and offer (‘‘NBBO’’). 

As set forth in Rule 11.190(b)(10), a 

Discretionary Peg order is a pegged 

order that upon entry into the System, 

the price of the order is automatically 

adjusted to be equal to the less 

aggressive of the Midpoint Price 8 or the 

order’s limit price, if any. Furthermore, 

when unexecuted shares of a 

Discretionary Peg order are posted to the 

Order Book, the price of the order is 

automatically adjusted by the System to 

be equal to and ranked at the primary 

quote or the order’s limit price, and is 

automatically adjusted by the System in 

response to changes in the NBB (NBO) 

for buy (sell) orders up (down) to the 

order’s limit price, if any. 

In order to meet the limit price of 

active orders on the Order Book, a 

Discretionary Peg order will exercise the 

least amount of price discretion 

necessary from the Discretionary Peg 

order’s resting price to its discretionary 

price (i.e., the less aggressive of the 

Midpoint Price or the Discretionary Peg 

order’s limit price, if any), except during 

periods of quote instability as defined in 

Rule 11.190(g), discussed further below. 

When exercising price discretion, a 

Discretionary Peg order maintains time 

priority at its resting price and is 

prioritized behind any non-displayed 

interest at the discretionary price for the 

duration of that book processing action. 

If multiple Discretionary Peg orders are 

exercising price discretion during the 

same book processing action, they 

maintain their relative time priority at 

the discretionary price. In the event the 

NBBO becomes locked or crossed, 

Discretionary Peg orders resting on or 

posting to the Order Book are priced one 

(1) MPV less aggressive than the locking 

or crossing price.9

Pursuant to Rule 11.190(g), the 

Exchange utilizes real time relative 

quoting activity of certain Protected 

Quotations 10 and a proprietary 

mathematical calculation (the ‘‘quote 

instability calculation’’) to assess the 

probability of an imminent change to 

the current Protected NBB to a lower 

price or Protected NBO to a higher price 

for a particular security (‘‘quote 

instability factor’’). When the quoting 

activity meets predefined criteria and 

the quote instability factor calculated is 

greater than the Exchange’s defined 

quote instability threshold, the System 

treats the quote as unstable and the 

crumbling quote indicator (‘‘CQI’’) is on 

at that price level for two milliseconds, 


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Federal Register / Vol. 83, No. 243 / Wednesday, December 19, 2018 / Notices 65187 

11The remaining 69% execute at the primary 

quote when the CQI is off because the limit price 

of the active orders removing the Discretionary Peg 

orders were priced at least as aggressive as the 

primary quote. 

12The Exchange notes that the proposed resting 

price for Discretionary Peg orders will be the same 

as the resting price of Primary Peg orders pursuant 

to Rule 11.190(b)(8). Thus, as proposed, both 

Discretionary Peg and Primary Peg orders will rest 

at the less aggressive of one (1) MPV less aggressive 

than the primary quote or the order’s limit price in 

relative time priority. Furthermore, when the CQI 

is off, Primary Peg orders are eligible to exercise 

discretion up (down) to the NBB (NBO) for buy 

(sell) orders up (down) to the order’s limit price. 

Thus, as proposed, when exercising discretion, 

Primary Peg and Discretionary Peg orders will 

compete for execution with orders removing 

liquidity at the primary quote based on relative time 

priority. 

13See supra note 9. 

14See proposed Rule 11.231(a)(1)(iii) and Rule 

11.350(b)(1)(A)(i)(c), respectively. 

15 15 U.S.C. 78f. 

16 15 U.S.C. 78f(b)(5). 

17As proposed, both Discretionary Peg and 

Primary Peg orders will rest at the less aggressive 

of one (1) MPV less aggressive than the primary 

quote or the orders limit price in relative time 

priority. 

18See Securities Exchange Act Release No. 80223 

(March 13, 2017), 82 FR 14240 (March 17, 2017) 

(SR–IEX–2016–18). 

or until the CQI triggers again. During 

all other times, the quote is considered 

stable, and the CQI is off. The System 

independently assesses the stability of 

the Protected NBB and Protected NBO 

for each security. 

When the CQI is on, Discretionary Peg 

orders do not exercise price discretion 

to meet the limit price of an active (i.e., 

taking) order. However, Discretionary 

Peg orders are eligible for execution at 

their resting price (i.e., at the NBB 

(NBO) for buy (sell) orders) when the 

CQI is on. Therefore, when IEX 

determines the quote to be unstable, 

Discretionary Peg orders are protected 

from trading more aggressively at a price 

that appears to be unstable, and thus 

imminently stale, between the primary 

quote and the Midpoint Price. However, 

Discretionary Peg orders remain 

susceptible to trading at the primary 

quote under such circumstances. For 

example, based on a recent analysis of 

data for May and June of 2018, the 

Exchange identified that 90% of 

Discretionary Peg order executions trade 

within the NBBO when the CQI is off, 

88% of which execute at the Midpoint 

Price. However, of the remaining 10% of 

Discretionary Peg order executions that 

occur at the primary quote, 31% occur 

when the CQI is on.11 Said differently, 

31% of Discretionary Peg executions at 

the primary quote occur when IEX has 

determined the primary quote to be in 

transition to a less aggressive (more 

advantageous) price. 

Therefore, in order to further protect 

resting Discretionary Peg orders from 

execution at a stale price, the Exchange 

proposes to modify the resting price of 

Discretionary Peg orders to be equal to 

the less aggressive of one (1) MPV less 

aggressive than the primary quote or the 

order’s limit price, rather than the 

primary quote. 

As proposed, upon entry into the 

System, Discretionary Peg orders will 

continue to be priced to the less 

aggressive of the Midpoint Price or the 

orders limit price (i.e., Discretionary Peg 

orders will continue to remove liquidity 

up to the Midpoint Price, subject to the 

order’s limit price). Similarly, after 

posting to the Order Book, Discretionary 

Peg orders will continue to exercise the 

least amount of price discretion up 

(down) to the less aggressive of the 

Midpoint Price or the orders limit price, 

if any, to meet the limit price of active 

orders on the Order Book when the CQI 

is off.12 Moreover, Discretionary Peg 

orders will continue to be available for 

execution at their resting price (i.e., the 

less aggressive of one (1) MPV less 

aggressive than the primary quote or the 

orders limit price) when the CQI is on. 

Furthermore, if the System determines 

the NBB (NBO) for a particular security 

to be an unstable quote, it will restrict 

buy (sell) Discretionary Peg orders in 

that security from exercising price 

discretion to trade against interest at or 

above (below) the NBB (NBO). The 

Exchange is not proposing to modify the 

handling of Discretionary Peg orders 

resting on or posting to the Order Book 

in locked and crossed markets. Thus, in 

the event the NBBO becomes locked or 

crossed, Discretionary Peg orders resting 

on or posting to the Order Book will 

continue to be priced one (1) MPV less 

aggressive than the locking or crossing 

price.13

Lastly, the Exchange is also proposing 

to make conforming changes to the 

description of the resting price of 

Discretionary Peg orders for purposes of 

ranking and priority in the Regular 

Market Session Opening Process for 

Non-IEX-Listed Securities, and IEX 

Auctions.14

2. Statutory Basis 

IEX believes that the proposed rule 

change is consistent with the provisions 

of Section 6(b) 15 of the Act in general, 

and furthers the objectives of Section 

6(b)(5) of the Act 16 in particular, in that 

it is designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the 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 the 

proposed rule change is consistent with 

the protection of investors and the 

public interest because it is designed to 

protect resting Discretionary Peg orders 

from adverse selection by limiting 

execution at the primary quote when the 

Exchange’s probabilistic model 

identifies that the primary quote 

appears to be moving adversely to them, 

thereby reducing the potential to 

execute at an imminently stale price and 

enhancing the overall execution 

experience of Discretionary Peg orders. 

In addition, the Exchange believes 

that such protection is consistent with 

the protection of investors and the 

public interest because it may 

incentivize the entry of additional 

resting Discretionary Peg orders on the 

Exchange, thereby increasing the overall 

liquidity profile on the Exchange to the 

benefit of all market participants. 

Moreover, as noted in the Purpose 

section, resting Discretionary Peg orders 

generally provide liquidity and 

opportunities for price improvement to 

market participants removing liquidity 

on the Exchange during periods of quote 

stability. By incentivizing the entry of 

additional Discretionary Peg orders, the 

Exchange believes that the proposed 

changes may enhance the overall 

execution experience for other market 

participants removing liquidity on the 

Exchange during periods of quote 

stability. 

Further, IEX believes that the 

proposal is consistent with protection of 

investors and the public interest in that 

the Discretionary Peg order type is 

designed to assist Members in obtaining 

best execution for their customers (and 

proprietary orders) by providing an 

opportunity to execute at the NBBO, but 

limiting executions at the NBBO when 

the NBBO appears to be unstable, 

thereby reducing the potential to 

execute at an imminently stale price. 

In addition, as noted in the Purpose 

section, the proposed resting price for 

Discretionary Peg orders will be the 

same as the resting price of Primary Peg 

orders pursuant to Rule 11.190(b)(8).17

Thus, IEX does not believe that the 

proposed changes raise any new or 

novel issues that have not already been 

considered by the Commission in 

connection with existing order types 

offered by the Exchange.18

Finally, the Exchange believes that 

the conforming change to the 

description of the resting price of 

Discretionary Peg orders for purposes of 

ranking and priority in the Regular 


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65188 Federal Register / Vol. 83, No. 243 / Wednesday, December 19, 2018 / Notices 

19 Id. 

20See NYSE American Rule 7.31E(h)(3)(D). 21 17 CFR 200.30–3(a)(12). 

Market Session Opening Process for 

Non-IEX-Listed Securities is consistent 

with the protection of investors and the 

public interest because it will make the 

Exchange’s rules more accurate and 

complete, and descriptive of the 

System’s functionality. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

IEX does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. With regards 

to inter-market competition, the 

proposed resting price for Discretionary 

Peg orders will be the same as the 

resting price of Primary Peg orders 

pursuant to Rule 11.190(b)(8), and thus 

the Exchange believes that no new intermarket burdens are being imposed.19

Furthermore, the Exchange notes that 

other markets are free to adopt similar 

rules for comparable order types to the 

extent that the proposed changes pose a 

competitive threat to their business. In 

this regard, the Exchange notes that 

NYSE American LLC has adopted a rule 

copying an earlier iteration of the 

Exchange’s Discretionary Peg order type 

and quote stability calculation.20

Accordingly, the Exchange also believes 

that the proposed rule change will not 

result in any burden on inter-market 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

With regards to intra-market 

competition, the proposed change will 

modify the resting price of all 

Discretionary Peg orders and will 

therefore be applied equally to all 

Members using the Discretionary Peg 

order type. Moreover, the Exchange 

does not believe that the proposed 

change to the resting price of 

Discretionary Peg orders will result in 

any burden on Members seeking to cross 

the spread and execute at the far side 

quote (the NBO (NBB) for buy (sell) 

orders). To the contrary, the proposed 

change would provide potential benefits 

to such Members. As discussed above, 

the enhanced benefits and protections 

offered by the Discretionary Peg order, 

as proposed, is intended in part to 

incentivize additional resting 

Discretionary Peg orders to be entered 

on the Exchange. Thus, Members 

seeking to cross the spread may be more 

likely to obtain price improvement for 

their liquidity removing orders to the 

extent such orders execute against a 

Discretionary Peg order during times 

when the CQI is off. 

Moreover, as discussed in the Purpose 

and Statutory Basis sections, resting 

Discretionary Peg orders generally 

provide liquidity and opportunities for 

price improvement to market 

participants removing liquidity on the 

Exchange during periods of quote 

stability. Thus, the Exchange further 

believes that by enhancing the 

performance of Discretionary Peg 

orders, and thereby incentivizing 

additional order flow, the proposed 

changes may enhance the overall 

execution experience for other market 

participants seeking to cross the spread 

and execute at the far side quote during 

periods of quote stability, which is 

consistent with the protection of 

investors and the public interest. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the Exchange consents, 

the Commission shall: (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 (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

IEX–2018–23 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE, Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–IEX–2018–23. This file 

number should be included in 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 (http://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 Section, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing will also be available for 

inspection and copying at the IEX’s 

principal office and on its internet 

website at www.iextrading.com. All 

comments received will be posted 

without change. Persons submitting 

comments are cautioned that we do not 

redact or edit personal identifying 

information from comment submissions. 

You should submit only information 

that you wish to make available 

publicly. All submissions should refer 

to File Number SR–IEX–2018–23 and 

should be submitted on or before 

January 9, 2019. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.21

Eduardo A. Aleman, 

Deputy Secretary. 

[FR Doc. 2018–27403 Filed 12–18–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–84817; File No. SR– 

CboeEDGX–2018–037] 

Self-Regulatory Organizations; Cboe 

EDGX Exchange, Inc.; Notice of 

Designation of a Longer Period for 

Commission Action on Proposed Rule 

Change To Permit the Listing and 

Trading of P.M.-Settled Series on 

Certain Broad-Based Index Options on 

a Pilot Basis 

December 13, 2018. 

On October 11, 2018, Cboe EDGX 

Exchange, Inc. filed with the Securities 

and Exchange Commission 


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