[Federal Register Volume 85, Number 243 (Thursday, December 17, 2020)]
[Notices]
[Pages 81982-81987]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27726]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90645; File No. SR-IEX-2020-18]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing of Proposed Rule Change To Amend IEX Rule 11.510 To Reduce the 
Outbound Latency That Presently Applies to All Trading Messages Sent 
From IEX Back to Users of the Exchange

December 11, 2020.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on December 9, 2020, the Investors Exchange LLC (``IEX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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 Act,\4\ 
and Rule 19b-4 thereunder,\5\ IEX is filing with the Commission a 
proposed rule change to amend IEX Rule 11.510 to reduce the outbound 
latency that presently applies to all trading messages sent from IEX 
back to Users \6\ of the Exchange to include only the actual geographic 
distance and related network connectivity, as well as to make 
conforming changes to the outbound latency that applies to all trading 
messages sent from the IEX System \7\ to the System routing logic \8\ 
with respect to routable orders. 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.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
    \6\ See IEX Rule 1.160(qq).
    \7\ See IEX Rule 1.160(nn).
    \8\ See IEX Rule 2.220(a).
---------------------------------------------------------------------------

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 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 Exchange proposes to amend IEX Rule 11.510 to reduce the 
outbound latency that presently applies to all trading messages sent 
from the IEX System at its primary data center back to Users of the 
Exchange to include only the actual geographic distance and related 
network connectivity, as well as to make conforming changes to the 
outbound latency that applies to all trading messages sent from the IEX 
System to the System routing logic with respect to routable orders.
    The Exchange is not proposing to make any changes to the additional 
latency that applies in a symmetrical manner to all inbound order 
messages (i.e., orders, modifications or cancellations) regardless of 
whether such orders are to make or take liquidity. This additional 
latency on inbound order messages, commonly referred to as the ``IEX 
Speedbump,'' continues to be a critical part of the IEX system and is 
designed to protect the interests of investors, brokers, and market 
makers that rest orders on IEX.
    As described in more detail below, the additional latencies that 
are currently applied to both inbound and

[[Page 81983]]

outbound messages between IEX and Users were put in place for 
completely different purposes. In contrast to the resting order 
protective design of the additional inbound latency, the additional 
outbound latency was designed simply to avoid potential information 
leakage about an execution on IEX that could reduce a Member's \9\ 
ability to access liquidity on other markets after trading on IEX. As 
discussed more fully below, since the IEX exchange launch in 2016 there 
have been significant improvements in routing technology as well as 
reductions in Securities Information Processor (``SIP'') market data 
dissemination latencies, and as a result the Exchange believes that the 
additional outbound latency is no longer necessary.
---------------------------------------------------------------------------

    \9\ See IEX Rule 1.160(s).
---------------------------------------------------------------------------

    The Exchange also notes that no other national securities exchanges 
currently provide for additional latency to outbound communications. 
Thus, IEX does not believe that the proposed changes raise any new or 
novel material issues that have not already been considered by the 
Commission in connection with the operations of other national 
securities exchanges, or that Members could not readily incorporate 
into their trading systems.
Background
Connectivity Description
    Currently, all Users, which include Members and Sponsored 
Participants,\10\ access IEX through the Exchange-provided network 
interface at the IEX Point-of-Presence \11\ or ``POP,'' located in 
Secaucus, New Jersey.\12\ After entering through the POP, a User's 
electronic message sent to the System traverses the IEX ``coil'' which 
is a box containing approximately 38 miles of compactly coiled optical 
fiber cable. After exiting the coil, the User's message travels an 
additional geographic or physical distance to the System, located at 
the Exchange's primary data center in Weehawken, New Jersey. The time 
required for a message to traverse the coil combined with the physical 
distance (and related networking) to the System equates to an 
equivalent 350 microseconds of latency, referred to herein as the 
``inbound latency.'' \13\ All inbound messages (e.g., orders to buy or 
sell and any modification to a previously sent open order) from any 
User traverse this connectivity infrastructure, including the coil, in 
a symmetrical manner regardless of the type of message or whether the 
User is seeking to buy, sell, make or take liquidity.
---------------------------------------------------------------------------

    \10\ See IEX Rule 1.160(ll).
    \11\ A Point-of-Presence is the location at which customers of 
an exchange (or other technological system) can connect to the 
exchange.
    \12\ Please see discussion infra with respect to the 
connectivity infrastructure applicable to routable orders.
    \13\ See IEX Rule 11.510(b)(1).
---------------------------------------------------------------------------

    Separately, all outbound messages from IEX back to a User (e.g., 
confirmations of an execution that occurred on IEX), as well as 
messages from IEX's TOPS, DEEP and DROP data products \14\ 
(collectively ``Data Products''), pass through the communication 
infrastructure in reverse, referred to herein as the ``outbound 
latency.'' \15\
---------------------------------------------------------------------------

    \14\ See IEX Rule 11.330(a).
    \15\ See IEX Rule 11.510(b)(2). IEX's backup data center, in 
Chicago, Illinois, which only consumes market data from the SIPs, 
does not have any inbound or outbound POP/coil latency, see IEX Rule 
11.510 Supplementary Material .01, and is therefore unaffected by 
this proposed rule change.
---------------------------------------------------------------------------

    Other incoming and outgoing messages to and from IEX are not 
subject to either the inbound or outbound latency. Instead, they are 
sent and received directly to and from the System, subject only to the 
latencies inherent in the geographic distances that the messages 
travel. These other messages include (i) incoming proprietary market 
data from other national securities exchanges and market data from the 
SIPs and (ii) outgoing messages to the SIPs (to disseminate IEX's 
quotation and last sale/execution information), the National Securities 
Clearing Corporation (to transmit executed transactions) and other 
national securities exchanges (to route orders for potential execution 
on such exchanges). In addition, all IEX Order Book \16\ processing and 
order executions on the IEX Order Book occur within the System and are 
not subject to the inbound or outbound connectivity infrastructure.
---------------------------------------------------------------------------

    \16\ See IEX Rule 1.160(p).
---------------------------------------------------------------------------

    IEX's affiliated broker-dealer, IEX Services LLC (``IEXS''), is a 
Member of the Exchange and is subject to the same inbound and outbound 
latency as other Members, as described in IEX Rules 2.220 and 11.510. 
If a User sends a routable order to the Exchange for potential 
execution on IEX, after traversing the inbound latency (including the 
coil) to reach the System, it is directed to the System routing logic 
rather than the IEX matching engine.\17\ Upon receipt of a routable 
order, the System routing logic may route all or a portion of the order 
to the IEX Order Book or to another national securities exchange. Any 
such orders routed to the IEX Order Book by the System routing logic 
are subject to an additional 350 microsecond inbound latency between 
the IEX routing logic and the IEX Order Book. Similarly, the IEX 
routing logic may only receive IEX Data Products subject to the same 
350 microsecond outbound latency as other data recipients. These 
additional inbound and outbound latency delays place IEXS in the same 
position as any Member that is a third-party routing broker in reaching 
the IEX Order Book, receiving outbound order messages, and receiving 
IEX Data Products, i.e., IEXS has no speed or informational advantage 
compared to other Members and data recipients.
---------------------------------------------------------------------------

    \17\ See IEX Rule 11.230(b).
---------------------------------------------------------------------------

    See IEX Rule 11.510 for a complete description of the manner in 
which Participants \18\ and Extranet Providers \19\ may connect to, 
access, and interact with the System including the applicable 
latencies.
---------------------------------------------------------------------------

    \18\ See IEX Rule 11.130(a).
    \19\ See IEX Rule 11.130(a).
---------------------------------------------------------------------------

The Critical Function of the ``Speedbump''
    The IEX Speedbump, which applies additional latency to inbound 
order messages (including modifications and cancellations), is designed 
to enable IEX to more effectively manage and price orders resting on 
its book when the market moves. This is because (as described above) 
orders sent to IEX are delayed by 350 microseconds in reaching IEX's 
matching engine but IEX does not delay its own receipt of market data 
from other national securities exchanges and the SIPs. This approach is 
designed to enable IEX's matching engine to timely process price 
changes and to price or execute orders on the IEX Order Book at the 
most accurate prices possible. As the Commission noted in approval of 
IEX's application to operate as a national securities exchange in 2016:

    [T]he purpose of IEX's coil is to provide an intentional buffer 
that slows down incoming orders to allow IEX's matching engine to 
update the prices of resting ``pegged'' orders when away prices 
change to protect resting pegged orders from the possibility of 
adverse selection when the market moves to a new midpoint price. The 
allowable price of a ``pegged'' order will change whenever the best 
displayed price across all exchanges changes, but it takes time for 
IEX's system to receive other exchange data feeds and recalculate 
the price of each pegged order resting on its book. For various 
reasons, IEX's systems may not recalculate prices as fast as some of 
the fastest low-latency traders in the market are able to send 
orders accessing pegged orders resting on IEX at potentially 
``stale'' prices. The Commission believes that the application of 
the POP/coil delay delays the ability of low-latency market 
participants to take a ``stale''-priced resting pegged order

[[Page 81984]]

on IEX (i.e., before IEX finishes its process of re-pricing the 
pegged order in response to changes in the NBBO) based on those 
market participants' ability to more effectively digest direct 
market data feeds and swiftly submit an order before IEX finishes 
its process of updating the prices of pegged orders resting on its 
book. (internal citations omitted) \20\
---------------------------------------------------------------------------

    \20\ See Securities Exchange Act Release No. 34-78101 (June 17, 
2016), 81 FR 41141, 41155 (June 23, 2016) (``Exchange Approval 
Order'').

    In addition, with IEX's recent addition of its D-Limit order type, 
the IEX speed bump helps IEX re-price D-Limit orders in the few seconds 
of the day when IEX's Crumbling Quote Indicator \21\ detects that the 
national best bid or offer is likely to move in a direction adverse to 
the User of the order within two milliseconds.\22\
---------------------------------------------------------------------------

    \21\ See IEX Rule 11.190(g).
    \22\ See Securities Exchange Act Release No. 89686 (August 26, 
2020), 85 FR 54438 (September 1, 2020) (approving SR-IEX-2019-15) 
(``D-Limit Approval Order'').
---------------------------------------------------------------------------

    This application of the IEX Speedbump, and the benefits therein, 
are distinct and different from the additional (and symmetrical) 
latency imposed on outbound trading messages which was designed to 
slightly delay news of an execution to the participants to the 
execution and to IEX's Data Products. The outbound latency thus enables 
a market participant using a serial routing technique \23\ that 
executes a trade on IEX to avoid potential information leakage when 
subsequently seeking to access liquidity on other markets before news 
of the IEX execution could affect resting liquidity on those markets 
\24\ (e.g., potentially resulting in cancellations or re-pricing of 
such liquidity). Since the time of IEX's exchange approval in 2016 
there have been a myriad of technology advances, including improvements 
in smart-order routing techniques and a reduction in SIP latencies.\25\ 
Consequently, and as discussed more fully below and in the Statutory 
Basis section, IEX does not believe that the considerations that 
existed in 2016 necessitate continuing to impose additional latency on 
outbound order messages or IEX Data Products.
---------------------------------------------------------------------------

    \23\ Serial routing entails routing an order first to one 
exchange, and then routing whatever shares remain in the order to 
other exchanges.
    \24\ See Exchange Approval Order, supra note 20.
    \25\ The SIPs are comprised of three plans: The CTA Plan (trade 
data on Tapes A&B), the CQ Plan (quote data on Tapes A&B), and the 
UTP Plan (trade and quote data on Tape C). Since IEX's exchange 
launch in September 2016, the average latencies for quote messages 
on the SIPs has dropped from 470 [micro]s to 19.5 [micro]s (CQ Plan) 
and from 762 [micro]s to 13.2 [micro]s (UTP Plan); and the average 
latencies for trade messages on the SIPs has dropped from 320 
[micro]s to 20 [micro]s (CTA Plan) and from 619.7 [micro]s to 15.7 
[micro]s (UTP Plan). See ``Key Operating Metrics of Tape A&B U.S. 
Equities Securities Information Processor (CTA SIP),'' available at 
https://www.ctaplan.com/publicdocs/ctaplan/CTAPLAN_Processor_Metrics_3Q2020.pdf and ``UTP Q3 2020--September 
Tape C Quote Metrics'' and ``September Tape C Trade Metrics,'' 
available at https://www.utpplan.com/DOC/UTP_website_Statistics_Q3-2020-September.pdf.
---------------------------------------------------------------------------

Proposal
    The Exchange proposes to amend IEX Rule 11.510 to reduce the 
outbound latency that presently applies to all trading messages sent 
from IEX back to Users to the actual geographic distance and related 
network connectivity \26\ between the Exchange System and the IEX POP. 
As proposed, all outbound communications (including execution and other 
order report messages, as well as TOPS, DEEP and DROP messages) would 
be treated in the same manner. The Exchange estimates that removal of 
the coiled optical fiber would reduce the outbound latency to 37 
microseconds.
---------------------------------------------------------------------------

    \26\ Ordinary course network connectivity includes switches and 
cabling to connect the network access point at the POP to the 
System.
---------------------------------------------------------------------------

    IEX is not proposing any changes to the additional latency applied 
to inbound orders, cancellations or modifications from any User, 
regardless of making or taking liquidity or any other factors, which 
will maintain the symmetry of IEX's Speedbump design for all Users. 
Users would still be required to connect to IEX at the POP. IEXS would 
continue to be subject to the existing additional inbound latency when 
the IEX routing logic sends an order to the IEX Order Book (a total 
delay of 700 microseconds for inbound routable orders) but would be 
subject to the reduced outbound latency in receiving execution and 
order messages as well as IEX Data Products in the same manner as those 
of other Members and data recipients. Therefore, reducing the outbound 
latency will have no impact on IEX's ability to provide the benefits of 
protection from certain trading strategies when using pegged or D-Limit 
orders.
    In addition, based on informal feedback from Members, IEX 
understands that a reduction in the outbound latency would enhance 
Members' execution and risk management processes, including with 
respect to hedging and re-routing, by enabling them to receive reports 
of IEX executions sooner than is currently the case. Moreover, IEX 
believes that these benefits would apply to all Members, regardless of 
business model, by supporting overall execution and risk management. 
IEX further understands that receiving execution reports closer in time 
to when an execution occurred would enable Members and their clearing 
firms to incorporate the financial and other exposure of an execution 
into their risk management systems and thereby enable enhanced 
monitoring and control of applicable risks. IEX believes that these 
execution and risk management benefits outweigh the concerns that 
previously existed regarding the risk to serial routing techniques. As 
the Commission has noted, current and commonplace routing techniques 
seek to have orders arrive and execute simultaneously across multiple 
venues and are able to capture liquidity across multiple venues 
simultaneously without signaling those executions to the market in a 
way that would impact prices or available liquidity.\27\ As a result, 
IEX believes that Members and other market participants can use such 
routing techniques instead of serial routing techniques to avoid 
potential information leakage when subsequently seeking to access 
liquidity on other markets after an IEX execution.
---------------------------------------------------------------------------

    \27\ See D-Limit Approval Order supra note 22 at 54441-42.
---------------------------------------------------------------------------

    IEX also believes that its Data Products would be more useful if 
they were not subject to the additional outbound latency so that 
Members can more effectively use IEX market data in their execution and 
risk management decisions. Additionally, IEX notes that since its 
exchange launch in 2016 the SIPs have materially reduced their average 
latencies for dissemination of quote and trade messages, as discussed 
above.\28\ Thus, IEX believes that these reduced latencies enable some 
market participants to receive IEX market data messages from the SIPs 
before they can receive such messages on TOPS and DEEP. In these 
circumstances delaying IEX's Data Products effectively renders them of 
limited utility. Consequently, as proposed, IEX Data Products will also 
be subject to the reduced outbound latency.
---------------------------------------------------------------------------

    \28\ See supra note 25.
---------------------------------------------------------------------------

    Accordingly, IEX proposes to amend IEX Rule 11.510 to reflect the 
changes described above as well as to streamline descriptions of the 
communications infrastructure for inbound and outbound latency. As 
proposed the changes are as follows:

    <bullet> Add new language to paragraph (a) to add specificity to 
the reference to the POP, including that it is an abbreviation for 
the IEX point-of-presence and that its network address is specified 
in the Exchange's Connectivity Manual. In addition, clarifying 
language is added to specify and describe the latency for inbound 
and outbound communications between the System and the POP, 
including that outbound communications from the System to the POP do 
not traverse the distance provided by

[[Page 81985]]

coiled optical fiber and are subject to an equivalent 37 
microseconds of latency due to traversing the geographic 
distribution and network connectivity between the System at the 
primary data center and the network access point of the POP. 
Conforming changes would be made to existing rule text to refer to 
inbound communications separately from outbound communications and 
replace the word ``with'' with ``to'' to be descriptive of the one-
way communications referenced. Conforming changes to subparagraph 
(a)(1) would reflect that the Connectivity Manual was referenced and 
abbreviated previously. Subparagraph (a)(2) would be revised to 
replace the phrase ``traverse the POP'' with more descriptive 
language ``traverse the connectivity infrastructure between the 
System and the POP.''
    <bullet> Paragraph (b) would be amended to replace the current 
heading, ``IEX POP Connectivity'' with ``IEX Connectivity 
Infrastructure'' which is more descriptive of the content of the 
paragraph. In addition, references to ``inbound POP latency'' and 
``outbound POP latency'' would each delete the word ``POP'' to align 
with the clarifying changes to paragraph (a). Further, new language 
would be added to reference that connectivity between the System 
routing logic and the Order Book and the manner in which the System 
routing logic may receive IEX's Data Products are described in 
paragraph (c).
    <bullet> Subparagraphs (b)(1) and (b)(2) would each also be 
amended to refer to the Exchange's connectivity infrastructure 
rather than the POP in describing the design goals of the inbound 
and outbound latency. Subparagraph (b)(2) would also be amended to 
specify the outbound latency and to update references to the types 
of messages included in the parenthetical examples.
    <bullet> Paragraph (c)(1) would be amended to make conforming 
terminology changes to those proposed for paragraph (b). In 
addition, new language would be added to clarify and describe how 
the changes to the outbound latency apply to the System routing 
logic.
    <bullet> Paragraph (c)(2) would be amended to make conforming 
terminology changes to those proposed for paragraph (b). In 
addition, new language would be added to specify that the System 
routing logic may only receive IEX Data Products subject to 37 
microseconds of outbound latency, equivalent to the outbound latency 
applicable to all other data recipients.
    <bullet> Paragraph (c)(3) would be amended to make conforming 
terminology changes to those proposed for paragraph (b) and to 
delete an extra space in a cross-reference to IEX Rule 11.240(d).
    <bullet> Supplementary Material .02 would be amended to make 
conforming terminology changes (including deleting the term ``POP'' 
from the heading) to those proposed for paragraph (b), to reference 
the latency for the outbound latency, and to include the inbound and 
outbound latencies for routable orders in the description of which 
latencies are impacted by force majeure events.
    <bullet> Supplementary Material .03 would be amended to clarify 
when the outbound versus inbound latency applies to routable orders.
Implementation
    The Exchange plans to implement the proposed rule change in two 
steps. In the first step, the Exchange would reduce the outbound 
latency between the System and the POP from 350 to 37 microseconds, but 
would retain the existing outbound latency between the System and the 
System routing logic. In the second step, the Exchange would reduce the 
outbound latency between the System and the System routing logic from 
350 to 37 microseconds. The purpose of the two-step implementation is 
to enable the IEX technology team to focus on each part separately, 
thereby mitigating potential risks, in a manner consistent with 
standard technology best practices. IEX is choosing to reduce the 
outbound latency to the System routing logic in the second step to 
avoid giving the System routing logic any preference over other Users. 
The Exchange expects that there will be several days between the two 
steps of the implementation and will provide at least ten (10) days' 
notice to Members and market participants of the implementation 
timeline.\29\
---------------------------------------------------------------------------

    \29\ After step one and before step two, all outbound 
communications between the System and the System routing logic will 
continue to be subject to an equivalent 350 microseconds of latency. 
Outgoing messages (i.e., responses) from the System routing logic to 
Users (with respect to routable orders sent to IEX) would be subject 
to the proposed reduced outbound latency of 37 microseconds. 
Further, IEXS would be able to receive IEX Data Products subject to 
the same 37 microseconds of latency as other Members and data 
recipients.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\30\ in general, and furthers the 
objectives of Section 6(b)(5),\31\ in particular, in that it is 
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 facilitating transactions in 
securities, and 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 that the proposed rule change is consistent with the 
protection of investors and the public interest because it is designed 
to enhance IEX Members' execution and risk management efforts. As 
described in the Purpose section, IEX believes that a reduction in the 
outbound latency would enhance Members' execution and risk management 
processes, including with respect to hedging and re-routing, by 
enabling them to receive reports of IEX executions sooner than is 
currently the case. IEX further believes that this reduction in 
outbound latency will enable Members and their clearing firms to 
incorporate the financial and other exposure related to IEX executions 
into their risk management systems and thereby enable enhanced 
monitoring and control of applicable risks. Moreover, IEX believes that 
these benefits would apply to all Members, regardless of the details or 
nature of a Member's business, by supporting overall execution and risk 
management. Further, IEX believes that these execution and risk 
management benefits outweigh the concerns that previously existed 
regarding the risk to serial routing techniques. As discussed in the 
Purpose section, and as the Commission has noted, current and 
commonplace routing techniques seek to have orders arrive and execute 
simultaneously across multiple venues and are able to capture liquidity 
across multiple venues simultaneously without signaling those 
executions to the market in a way that would impact prices or available 
liquidity.\32\ As a result, IEX believes that Members and other market 
participants can use such routing techniques instead of serial routing 
techniques to avoid potential information leakage when subsequently 
seeking to access liquidity on other markets after an IEX execution.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78f(b).
    \31\ 15 U.S.C. 78f(b)(5).
    \32\ See supra note 27.
---------------------------------------------------------------------------

    Similarly, and as discussed in the Purpose section, IEX believes 
that its Data Products will be more useful for execution and risk 
management purposes if they are disseminated closer in time to the 
applicable execution or quote change. IEX believes that this is 
particularly true with the recent material reduction in SIP latencies, 
as detailed in the Purpose section.
    Further, the Exchange believes that the proposed rule change is 
consistent with the protection of investors and the public interest 
because it will apply to all Members in the same manner. All outbound 
communications will be subject to the same reduction in latency on a 
fair and nondiscriminatory basis. Significantly, and as discussed in 
the Purpose section, execution and other order messages from the System 
to Users will be subject to the same latency as IEX's Data Products so 
that the parties to an execution do not receive information regarding 
the execution prior to other market participants. Although the existing 
delay in dissemination of its Data Products was designed to enable an 
order sender to avoid the potential for information

[[Page 81986]]

leakage when accessing liquidity on other markets (as discussed in the 
Purpose section), the Exchange believes this purpose is clearly 
outweighed by the potential execution and risk management benefits to 
market participants in receiving market data and execution reports more 
quickly, and the concomitant benefit to efficient markets. Moreover, as 
discussed in the Purpose section, the Exchange believes that market 
participants routinely utilize routing strategies and techniques to 
avoid potential information leakage, by routing in a manner so that 
child orders arrive at multiple markets near-simultaneously and that 
the technology to do so is well established and has evolved since IEX 
was approved as an exchange in 2016.\33\
---------------------------------------------------------------------------

    \33\ See supra note 22 at 54441.
---------------------------------------------------------------------------

    Additionally, the Exchange notes that IEXS, its routing broker, 
will continue to be on a level playing field compared to all other 
Members, as it will be subject to the same outbound latency reduction, 
except for the few days between stages one and two of the proposed 
implementation. With respect to these few days, the Exchange notes that 
the Act generally does not prohibit an exchange from treating its 
affiliated routing broker in a manner that is less preferential than 
other Members. Moreover, use of IEXS by other Members is optional and 
any Member that does not want to use IEXS may use other routers to 
route orders to away trading centers.\34\
---------------------------------------------------------------------------

    \34\ See IEX Rule 2.220(a)(3).
---------------------------------------------------------------------------

    The Exchange also notes that no other national securities exchanges 
currently provide for additional latency to outbound communications. 
Thus, IEX does not believe that the proposed changes raise any new or 
novel material issues that have not already been considered by the 
Commission in connection with the operations of other national 
securities exchanges. Moreover, because the Exchange does not believe 
that the proposed rule change is novel, it believes that IEX Members 
will be readily able to accommodate the reduced outbound latency into 
their trading systems.
    Finally, and for clarification purposes, IEX is not proposing any 
changes to the additional latency applied to inbound orders, 
cancelations, and modifications or to those communications and 
processes that are not subject to the inbound or outbound latency, 
which continue to be critical to the protection of pegged and D-Limit 
orders, as described above.

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 competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. To the contrary, the 
proposal is designed to enable enhancement of Members' execution and 
risk management processes, as described in the Purpose and Statutory 
Basis sections.
    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 because other 
exchanges offer similar functionality. Moreover, the proposed rule 
change would benefit other exchanges because it would enable them to 
receive IEX's Data Products sooner than is currently the case which 
could correspondingly enable them to update pegged orders more quickly. 
Similarly, as with other Exchange Members, their outbound routing 
brokers would receive order messages from IEX sooner than is currently 
the case and could more quickly incorporate such information into any 
further routing decisions.
    The Exchange also does not believe that the proposed rule change 
will impose any burden on intramarket competition because it will apply 
to all Members in the same manner, except for the few days between 
stages one and two of the proposed implementation. With respect to 
these few days, as noted in the Statutory Basis section, the Exchange 
notes that the Act generally does not prohibit an exchange from 
treating its affiliated routing broker in a manner that is less 
preferential than other Members. Moreover, use of IEXS by other Members 
is optional and any Member that does not want to use IEXS may use other 
routers to route orders to away trading centers.

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 up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the 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

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#146661787139777b7979717a6067546771773a737b62"><span class="__cf_email__" data-cfemail="6715120b024a04080a0a020913142714020449000811">[email protected]</span></a>. Please include 
File Number SR-IEX-2020-18 on the subject line.

Paper Comments

    <bullet> 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-IEX-2020-18. 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 (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 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 SR-IEX-2020-18 and should

[[Page 81987]]

be submitted on or before January 7, 2021.
---------------------------------------------------------------------------

    \35\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27726 Filed 12-16-20; 8:45 am]
BILLING CODE 8011-01-P


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>