Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 68709 

25See supra note 13. 

26See Securities Exchange Act Release No. 51808 

(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005). 

27See NetCoalition v. SEC, 615 F.3d 525, 539 

(D.C. Cir. 2010) (quoting Securities Exchange Act 

Release No. 59039 (December 2, 2008), 73 FR 

74770, 74782–83 (December 9, 2008) (SR–NYSE– 

2006–21)). 

28 15 U.S.C. 78s(b)(3)(A)(ii). 

29 17 CFR 240.19b–4(f)(2). 

30 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. 

can shift order flow in response to new 

or different pricing structures being 

introduced to the market. Accordingly, 

competitive forces constrain the 

Exchange’s transaction fees and rebates 

generally, including with respect to the 

criteria for Equity Members to achieve 

the Step-Up Added Liquidity Rebate, 

and market participants can readily 

choose to send their orders to other 

exchanges and off-exchange venues if 

they deem rebate criteria at those other 

venues to be more favorable. 

As described above, the proposed 

changes represent a competitive 

proposal through which the Exchange is 

seeking to continue to encourage 

additional order flow to the Exchange 

through a volume-based incentive that 

is comparable to the criteria for volumebased incentives adopted by at least one 

other competing exchange which also 

updated its baseline month to a more 

recent month for a specific enhanced 

rebate that adds liquidity to that 

market.25 Accordingly, the Exchange 

believes that its proposal would not 

burden, but rather promote, intermarket 

competition by enabling it to better 

compete with other exchanges that offer 

similar pricing incentives to market 

participants that achieve certain volume 

criteria and thresholds. 

Additionally, the Commission has 

repeatedly expressed its preference for 

competition over regulatory 

intervention in determining prices, 

products, and services in the securities 

markets. Specifically, in Regulation 

NMS, the Commission highlighted the 

importance of market forces in 

determining prices and SRO revenues 

and, also, recognized that current 

regulation of the market system ‘‘has 

been remarkably successful in 

promoting market competition in its 

broader forms that are most important to 

investors and listed companies.’’ 26 The 

fact that this market is competitive has 

also long been recognized by the courts. 

In NetCoalition v. Securities and 

Exchange Commission, the DC circuit 

stated: ‘‘[n]o one disputes that 

competition for order flow is ‘fierce.’ 

. . . As the SEC explained, ‘[i]n the U.S. 

national market system, buyers and 

sellers of securities, and the brokerdealers that act as their routing agents, 

have a wide range of choices of where 

to route orders for execution’; [and] ‘no 

exchange can afford to take its market 

share percentages for granted’ because 

‘no exchange possesses a monopoly, 

regulatory or otherwise, in the execution 

of order flow from broker 

dealers’. . .’’.27 Accordingly, the 

Exchange does not believe its proposed 

pricing changes impose any burden on 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

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 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act,28 and Rule 

19b–4(f)(2) 29 thereunder. At any time 

within 60 days of the filing of the 

proposed rule change, the Commission 

summarily may temporarily suspend 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. If the Commission 

takes such action, the Commission shall 

institute proceedings to determine 

whether the proposed rule should be 

approved or 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– 

PEARL–2023–50 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–PEARL–2023–50. 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–PEARL–2023–50 and should be 

submitted on or before October 25, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.30

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–21951 Filed 10–3–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98625; File No. SR–IEX– 

2023–10] 

Self-Regulatory Organizations; 

Investors Exchange LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Amend IEX 

Rules 11.190(b)(7) and 11.190(g) 

September 28, 2023. 

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 

September 27, 2023, the Investors 

Exchange LLC (‘‘IEX’’ or the 

‘‘Exchange’’) filed with the Securities 


lotter on DSK11XQN23PROD with NOTICES1
68710 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 

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

5 17 CFR 240.19b–4. 

6 17 CFR 240.19b–4(f)(6)(iii). 

7See IEX Rule 11.190(b)(7). 

8A D-Limit order may be a displayed or nondisplayed limit order that upon entry and when 

posting to the Order Book is priced to be equal to 

and ranked at the order’s limit price, but will be 

adjusted to a less-aggressive price during periods of 

quote instability, as defined in IEX Rule 11.190(g). 

9See IEX Rule 11.190(g)(1). 

10See IEX Rule 11.190(g)(2). 

11See Securities Exchange Act Release No. 96014 

(October 11, 2022), 87 FR 62903 (October 17, 2022) 

(‘‘CQI 2 Proposal’’); Securities Exchange Act 

Release No. 96416 (December 1, 2022), 87 FR 75099 

(December 7, 2022) (‘‘CQI 2 Approval Order’’) (SR– 

IEX–2022–06). 

12See IEX Rule 1.160(qq). 

13See Rule 11.190(b)(10). 

14See Rule 11.190(b)(8). 

15See Rule 11.190(b)(16). Note that C-Peg orders 

can only be buy orders, so any discussion of D-Peg 

sell orders does not apply to C-Peg orders. 

16See Securities Exchange Act Release No. 87814 

(December 20, 2019), 84 FR 71997, 71998 

(December 30, 2019) (SR–IEX–2019–15) (‘‘D-Limit 

Proposal’’); see also Securities Exchange Act 

Release No. 89686 (August 26, 2020), 85 FR 54438 

(September 1, 2020) (SR–IEX–2019–15) (‘‘D-Limit 

Approval Order’’). 

17See IEX Rule 1.160(p). 

18See IEX Rules 11.190(b)(7)(A) and (B) and 

11.190(g)(1). 

19See Rule 1.160(nn). 

20See IEX Rule 11.210. 

21See IEX Rule 11.190(b)(7)(C) and (D). 

22See IEX Rule 11.190(b)(7). 

23Markouts measure the direction and degree to 

which the market moved after an execution, and are 

often measured as the difference between the 

execution price and the midpoint of the NBBO at 

various time intervals after a trade. Markouts are 

typically used as a way to measure the ‘‘quality’’ 

of a trade. In particular, short-term markouts of 

several milliseconds after the time of execution, are 

often used to assess whether an order was subject 

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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the 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 

amend IEX Rules 11.190(b)(7) and 

11.190(g) to modify the quote instability 

calculation used for Discretionary Limit 

orders. The Exchange has designated 

this proposal as non-controversial and 

provided the Commission with the 

notice required by Rule 19b–4(f)(6)(iii) 

under the Act.6

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 

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 the proposed rule 

change is to amend IEX Rules 

11.190(b)(7) and 11.190(g) to change 

which proprietary mathematical 

calculation is used to make quote 

instability determinations for 

Discretionary Limit (‘‘D-Limit’’) 7 orders 

(i.e., to assess the probability of an 

imminent change to the current 

Protected NBB to a lower price or a 

Protected NBO to a higher price for a 

particular security, also referred to as 

the ‘‘crumbling quote indicator’’ or 

‘‘CQI’’).8 Currently, IEX supports two 

versions of the CQI—Option 1 

Crumbling Quote 9 (which is based on 

the CQI in effect when IEX began 

operating as a national securities 

exchange in 2016) (‘‘CQI 1’’) and Option 

2 Crumbling Quote 10 (which was 

recently adopted 11) (‘‘CQI 2’’). Users 12

submitting the following types of 

pegged orders—Discretionary Peg (‘‘DPeg’’) 13 orders, primary peg (‘‘P-Peg’’) 14

orders, and Corporate Discretionary Peg 

(‘‘C-Peg’’) 15 orders (collectively ‘‘CQIenhanced pegged orders’’)—have the 

option of selecting either CQI 1 or CQI 

2 to make quote instability 

determinations. CQI 1 is used to make 

quote instability determinations for DLimit orders. 

IEX proposes to utilize CQI 2, instead 

of CQI 1, to make quote instability 

determinations for D-Limit orders, based 

on its superior performance as described 

herein. 

Background 

D-Limit orders are designed to protect 

liquidity providers from potential 

adverse selection by latency arbitrage 

trading strategies in a fair and 

nondiscriminatory manner.16 A D-Limit 

order may be a displayed or nondisplayed limit order that upon entry 

and when posting to the Order Book 17

is priced to be equal to and ranked at 

the order’s limit price, but will be 

adjusted to a less-aggressive price 

during periods of quote instability, as 

defined in IEX Rule 11.190(g).18

Specifically, if the System 19 receives 

a D-Limit buy (sell) order during a 

period of quote instability (i.e., when a 

quote instability determination is in 

effect and the CQI is ‘‘on’’), and the DLimit order has a limit price equal to or 

higher (lower) than the quote instability 

determination price level (‘‘CQI Price’’), 

the price of the order will be 

automatically adjusted by the System to 

one (1) MPV 20 lower (higher) than the 

CQI Price (the ‘‘effective limit price’’). 

Similarly, when unexecuted shares of a 

D-Limit buy (sell) order are posted to 

the Order Book, if a quote instability 

determination is made and such shares 

are ranked and displayed (in the case of 

a displayed order) by the System at a 

price equal to or higher (lower) than the 

CQI Price, the price of the order will be 

automatically adjusted by the System to 

a price one MPV lower (higher) than the 

quote instability price level.21

Once the price of a D-Limit order that 

has been posted to the Order Book is 

automatically adjusted by the System, 

the order will continue to be ranked and 

displayed (in the case of a displayed 

order) at the adjusted price, unless 

subject to another automatic adjustment, 

if the order is subject to the price sliding 

provisions of IEX Rule 11.190(h), or if 

the User elects that the order will be repriced if resting at a price that is less 

aggressive than the NBB (for a buy 

order) or NBO (for a sell order) ten (10) 

milliseconds after the most recent quote 

instability determination pursuant to 

IEX Rule 11.190(b)(7)(E)(i). Otherwise, a 

D-Limit order operates in the same 

manner as either a displayed or nondisplayed limit order, as applicable.22

Since the launch of the D-Limit order 

type in October 2020, IEX has regularly 

assessed its performance. This 

assessment substantiates that D-Limit 

orders experience enhanced protection 

(as compared to regular limit orders) 

from unfavorable executions at prices 

that the Exchange’s probabilistic CQI 

model predicts are about to become 

‘‘stale.’’ In the rule filing proposing to 

adopt the D-Limit order type, IEX noted 

that approximately 25% of displayed 

volume occurred when the CQI was on, 

in aggregate resulting in less favorable 

markouts 23 for such executions than 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 68711 

to ‘‘adverse selection’’ that can occur when a 

liquidity providing order is executed at a price that 

was about to become stale as a result of certain 

speed-based trading strategies. 

24These executions occur when D-Limit buy (sell) 

orders are adjusted 1 MPV lower (higher) than the 

CQI Price but are still executed against an 

Intermarket Sweep Order (ISO), which accesses 

multiple price levels at a time, therefore accessing 

the D-Limit order at its new, more passive, price. 

25Each exchange’s Protected Quotation is its best 

displayed bid or offer. See Rule 1.160(bb). Current 

Rule 11.190(g) uses the following eight exchanges’ 

Protected Quotations: New York Stock Exchange 

LLC (‘‘XNYS’’), the Nasdaq Stock Market LLC 

(‘‘XNGS’’), NYSE Arca, Inc. (‘‘ARCX’’), Nasdaq BX, 

Inc. (‘‘XBOS’’), Cboe BYX Exchange, Inc. (‘‘BATY’’), 

Cboe Bats BZX Exchange, Inc. (‘‘BATS’’), Cboe 

EDGA Exchange, Inc. (‘‘EDGA’’), and Cboe EDGX 

Exchange, Inc. (‘‘EDGX’’). 

26See Rule 1.160(cc). 

27See Rule 1.160(cc). 

28See IEX Rule 1.160(gg). Quote instability 

assessments are only made by the Exchange System 

during the Regular Market Session because the 

order types that utilize the assessment, such as DLimit, are only eligible to trade during the Regular 

Market Session. 

29The quote stability variables, fixed coefficients 

and formula were developed by the Exchange based 

on extensive research, analysis and validation to 

identify when there is a heightened probability of 

an imminent quote change to the NBB or NBO. 

30See IEX Rule 11.190(g)(1). 

31See supra note 11. The Commission received 

no comments on IEX’s proposed rule change to 

adopt CQI 2. 

32 ‘‘Coverage’’ means the percentage of all 

‘‘adverse’’ NBBO changes per symbol (lower for 

bids, higher for offers) that were predicted by the 

CQI (meaning the CQI was ‘‘on’’ at the time of the 

adverse NBBO change). 

33 ‘‘Accuracy rate’’ means the percentage of time 

that the CQI accurately predicted the direction of 

the next price change (even if it was more than two 

milliseconds after the quote instability 

determination). 

when CQI was off. This remains the case 

for displayed volume from regular limit 

orders that trade during periods of quote 

instability. The D-Limit order type was 

designed to solve for this issue and has 

been successful in this regard. Since its 

launch, less than 1% of displayed 

volume from D-Limit orders occurs 

when the CQI is on.24 As a result, users 

of displayed D-Limit orders experience 

substantially more favorable markouts 

than users of regular displayed limit 

orders, as shown in the chart below: 

Overview of CQI Models 

As noted above, IEX supports two 

versions of the CQI. Currently, D-Limit 

orders utilize the CQI 1 version of the 

CQI for making quote instability 

determinations. In determining whether 

a crumbling quote exists, CQI 1 utilizes 

real time relative quoting activity of 

eight exchanges’ Protected Quotations 25

and a proprietary mathematical 

calculation (the ‘‘quote instability 

calculation’’) to assess the probability of 

an imminent change to the current 

Protected NBB 26 to a lower price or 

Protected NBO 27 to a higher price for a 

particular security (‘‘quote instability 

factor’’) during the Regular Market 

Session.28 When the quoting activity 

meets the predefined objective 

conditions specified in IEX Rule 

11.190(g)(1) and the quote instability 

factor calculated is greater than the 

Exchange’s defined threshold (‘‘quote 

instability threshold’’), the System treats 

the NBB or NBO as not stable (‘‘quote 

instability’’ or a ‘‘crumbling quote’’), 

which turns the CQI on at that CQI 

Price. During all other times, the quote 

is considered stable (‘‘quote stability’’) 

and the CQI is off. The System 

independently assesses the stability of 

the Protected NBB and Protected NBO 

for each security.29

When CQI 1 is on, it remains in effect 

at the CQI Price for two milliseconds, 

unless a new determination is made 

before the CQI turns off. Only one 

determination may be in effect at any 

given time for a particular security (i.e., 

the System will only treat one side of 

the Protected NBBO as unstable in a 

particular security at any given time and 

the CQI can only be on at one price 

level).30 A new determination may be 

made after at least 200 microseconds 

have elapsed since the preceding 

determination, or a price change on 

either side of the best displayed bid or 

offer of the eight exchanges used for the 

current quote instability calculation 

occurs, whichever is first. If a new 

determination is made, the original 

determination is no longer in effect. A 

new determination can be on either side 

of the best displayed bid or offer of the 

eight exchanges used for the current 

quote instability calculation and at the 

same or different price level as the 

original determination. 

CQI 2 was adopted in 2022 31 as an 

alternative for CQI-enhanced pegged 

orders, and is designed to incrementally 

increase the coverage 32 of the quote 

instability calculation in predicting 

whether a particular quote is unstable 

by adjusting the logic underlying the 

quote instability calculation and 

introducing enhanced functionality 

designed to increase the number of 

crumbling quotes identified, while 

maintaining the quote instability 

calculation’s accuracy rate 33 in 


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68712 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 

34For CQI 2, the Signal Exchanges include the 

eight exchanges used in CQI 1, with the addition 

of MIAX PEARL, LLC (‘‘EPRL’’), MEMX LLC 

(‘‘MEMX’’), and Nasdaq PHLX LLC (‘‘XPHL’’). 

35See supra note 11. 

36See supra note 11. 

37 ‘‘Signal Best Bid’’ means the highest Protected 

Bid of the Signal Exchanges. See proposed IEX Rule 

11.190(g)(2)(B)(i). 38 ‘‘Signal Best Offer’’ means the lowest Protected 

Offer of the Signal Exchanges. See proposed IEX 

Rule 11.190(g)(2)(B)(v). 39The disappearing bid/offers rules are closely 

related to the Option 1 Crumbling Quote approach 

to the quote instability calculation, in that both 

approaches share the Delta quote instability 

variable, which is heavily weighted in the current 

quote instability calculation. See the Option 2 

Crumbling Quote Proposal, supra note 11. 

40See IEX Rules 11.190(b)(8)(K)(i) and (ii), 

(b)(10)(K)(i) and (ii), (b)(16)(K). 

41See IEX Trading Alert # 2023–008, available at 

https://iextrading.com/alerts/#/215. 

predicting the direction and timing of 

the next price change in the NBB or 

NBO, as applicable. 

As described above, CQI 1 utilizes a 

logistic regression model with multiple 

coefficients and variables that must 

exceed a pre-defined threshold in order 

for the System to treat the quote as 

unstable. CQI 2, by contrast, utilizes a 

quote instability calculation in which 

nine separate rules—each with specific 

conditions based on either the price, 

size, or price and size of the Signal 

Exchanges’34 Protected Quotations—can 

trigger a quote instability determination 

for either the NBB or the NBO of a 

particular security.35 Specifically, CQI 2 

expands the sources and types of market 

data used, utilizes a more plain English 

rules-based approach, modifies the 

minimum time period between quote 

instability determinations, and includes 

activation thresholds to enable real-time 

accuracy assessment of each rule with 

the effect of deactivating a rule that is 

not meeting specified metrics.36 In 

addition, CQI-enhanced pegged orders 

are restricted from exercising price 

discretion when the CQI is on, 

regardless of whether the current NBB 

or NBO (as applicable) is the same as 

the CQI Price. 

The CQI 2 quote instability rules 

include four categories of Protected 

Quotation changes (each comprised of 

one or more rules) as follows: 

• Disappearing bids (or offers)—This 

category includes four rules that focus 

on whether one or more of the Signal 

Exchanges is no longer disseminating a 

bid or offer at the Signal Best Bid 37 or 

Signal Best Offer 38 as applicable; 39

• Recent changes in quote size—This 

category includes two rules that focus 

on whether there is an imbalance in the 

size of bids and offers at the Signal Best 

Bid or Signal Best Offer; 

• Locked or crossed market—This 

category includes one rule that focuses 

on situations where the Signal Best Bid 

and Signal Best Offer are locked or 

crossed; and 

• Quotation Changes—This category 

includes two rules that focus on changes 

to the Signal Best Bid or Signal Best 

Offer. 

On a security-by-security basis, if the 

specified conditions of any of the quote 

instability rules are met, then the rule is 

deemed to be True for that security. A 

rule must also be active (in addition to 

True) before it can trigger a quote 

instability determination. When one or 

more quote instability rules is deemed 

to be True and any of such rules are 

active, the System will trigger a quote 

instability determination and treat the 

quote as unstable. This approach is 

designed to enable broader coverage 

while controlling for overall accuracy of 

the quote instability determinations by 

providing a mechanism to turn off a 

particular rule when market conditions 

are such that it is relatively less accurate 

in predicting a crumbling quote. Based 

upon market data analysis, IEX believes 

that utilizing activation thresholds is a 

useful innovation because it enables the 

use of rules that can be highly 

predictive in certain market conditions 

but not in others. 

CQI 2 also differs from CQI 1 with 

respect to three different time and 

direction constraints, which are 

designed to provide a more dynamic 

methodology for quote instability 

determinations, thereby incrementally 

increasing the coverage of the formula 

in predicting a crumbling quote by 

expanding the scope of the model to 

additional situations where the 

Exchange’s probabilistic model predicts 

that the NBB or NBO is in the process 

of moving to a less aggressive price and 

is about to become stale. 

First, for CQI 2, the quote instability 

calculation can turn on concurrently on 

both sides of the market (i.e., the NBB 

and NBO) and always remains on for the 

full two millisecond period each time it 

turns on. In CQI 1, the quote instability 

calculation independently assesses the 

stability of the Protected NBB and 

Protected NBO for each security, but it 

can only turn on for one side of the 

market for each security at a time. 

Second, when CQI 2 turns on, it is not 

constrained to a specific price level, as 

compared to CQI 1 which turns on at a 

specific CQI Price. Thus, if the NBB or 

NBO (as applicable) changes during the 

time CQI 1 is on, CQI-enhanced pegged 

orders (that have elected CQI 1) are not 

constrained from exercising discretion 

since the CQI Price is no longer equal 

to the current NBB or NBO (as 

applicable).40 In contrast, for CQIenhanced pegged orders (that have 

elected CQI 2), the CQI continues to 

turn on at a specific price (the quote 

instability determination price level), 

but CQI-enhanced pegged orders are 

constrained from exercising discretion 

past their resting price when the CQI is 

on for the same side of the market as 

such orders regardless of whether the 

price at which it turned on is currently 

equal to the NBB or NBO (as 

applicable). Third, for CQI 2, the System 

can make a new quote instability 

determination 250 microseconds after a 

prior determination, rather than 200 

microseconds for CQI 1. 

IEX introduced CQI 2 into its System 

on March 31, 2023 (i.e., it began 

generating quote instability 

determinations for informational and 

planning purposes) and it became 

available for CQI-enhanced pegged 

orders on May 16, 2023.41 Consistent 

with the Exchange’s market data 

analysis prior to proposing CQI 2, data 

analysis for April through July of 2023 

substantiates that CQI 2 provides 

incrementally more protection (i.e., 

increased coverage and accuracy) than 

CQI 1 while still being ‘‘on’’ for only 

several seconds a day per symbol, as set 

forth in the chart below: 

Metric CQI 1 CQI 2 

Average time on a (average of all symbols) ............................................ 1.9 seconds ................................... 3.1 seconds. 

Average time on (volume weighted) ....................................................... 18.0 seconds ................................. 32.1 seconds. 

Coverage (volume weighted) b ................................................................ 46.9% ............................................. 63.2%. 

Accuracy Rate (volume weighted) c ........................................................ 78% ................................................ 80%. 

% of the Day CQI is ‘‘On’’ (volume-weighted) ........................................ 0.077% ........................................... 0.137%. 

% of the day D-Limit is available at specified limit price ........................ 99.923% ......................................... 99.863%. 

a ‘‘Time on’’ means the average time the CQI is on during a day per symbol. 


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bSee supra note 29. c ‘‘Accuracy’’ means the percent of time that following the CQI being ‘‘on’’ the NBB or NBO (as applicable) moves in the predicted direction on 

the next price change. 

Proposal 

Based on its assessment (as described 

above) that CQI 2 provides 

incrementally greater coverage and 

accuracy in predicting a crumbling 

quote than CQI 1, IEX proposes to 

amend IEX Rules 11.190(b)(7) and 

11.190(g)(2) to provide that quote 

instability determinations for D-Limit 

orders will utilize CQI 2. Thus, as 

proposed, if a D-Limit order is resting at 

a price at or more aggressive than the 

price of a crumbling quote 

determination price level in effect, it 

will be adjusted to a price one MPV less 

aggressive than such crumbling quote 

determination price level. Similarly, an 

incoming D-Limit order priced at or 

more aggressive than the price of a 

crumbling quote determination price 

level in effect will be adjusted to a price 

one MPV less aggressive than the 

crumbling quote determination price 

level. Note that, as distinct from CQIenhanced pegged orders, a D-Limit 

order would only be subject to a price 

adjustment if it is priced at or more 

aggressive than the crumbling quote 

determination price level in effect, 

while CQI-enhanced pegged orders 

subject to CQI 2 are restricted from 

exercising price discretion past their 

resting price when the CQI is on for the 

same side of the market as such orders 

regardless of whether the price at which 

it turned on is currently equal to the 

NBB or NBO (as applicable). IEX 

believes that the difference in approach 

is appropriate because once the price of 

a D-Limit order is adjusted it remains at 

that price indefinitely, unless the 

Member entering the order elected to 

have the order re-priced after ten (10) 

milliseconds if the order is resting at a 

price less aggressive than the NBB or 

NBO (as applicable) pursuant to IEX 

Rule 11.190(b)(7)(E)(i) or if subject to 

another automatic price adjustment. In 

contrast, CQI-enhanced pegged orders 

are only restricted from exercising price 

discretion for up to two (2) 

milliseconds. Thus, IEX believes that DLimit orders should only be price 

adjusted relative to the price that was 

actually the subject of a crumbling quote 

determination. 

IEX believes that using CQI 2 will 

incrementally enhance the existing 

protection provided by D-Limit orders 

by providing greater coverage (i.e., 

identifying more potentially crumbling 

quotes) with comparable accuracy. IEX 

estimated the impact of CQI 1 and CQI 

2 on standard limit order executions by 

simulating the markouts had the orders 

been subject to the protection of CQI 1 

or CQI 2. Assessment of these 

executions is designed to simulate 

differences in adverse selection 

protection from CQI 1 and CQI 2. As 

shown in the chart below, both CQI 1 

and CQI 2 result in improved markouts 

over executions without CQI protection, 

but CQI 2 would have provided 

incrementally enhanced protection 

compared to CQI 1 (as measured by 

markouts) because it is better at 

identifying situations when adverse 

selection is most likely: 

Specific Rule Changes 

Accordingly, IEX proposes to amend 

IEX Rules 11.190(b)(7)(A) and (B) to 

reference to IEX Rule 11.190(g)(2) 

(which describes CQI 2) rather than 

Rule 11.190(g)(1) (which describes CQI 

1) to thereby specify and describe that 

quote instability determinations for DLimit orders will be made by CQI 2. 

Additionally, IEX proposes to amend 

the first sentence of Rule l1.190(g)(2) to 

add the words ‘‘at that price level’’ after 

the word ‘‘effect’’ and before the word 

‘‘for’’ to specify that a CQI 2 

determination is at a particular price 

level. This change is necessary so that 

the price of a D-Limit will only be 

adjusted if at or more aggressive than 

the CQI 2 quote instability 

determination price level, as is currently 

the case with CQI 1 and as discussed 

above. 


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20.0% 

15.0% 

10.0% 

0.0% 

-5.0% 

-10.0% 

! 

CQI l vs CQI 2 Markout Comparison., Standard Limit Orders 

(Apr-Aug 2023, Trade-to-Mid,% of spread) 

1ms 10ms 100ms ls 
68714 Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 

42 15 U.S.C. 78f. 

43 15 U.S.C. 78f(b)(5). 44See supra note 11. 

45See supra notes 11 and 16. 

46See NYSE American LLC Rule 7.31E(h)(3)(D). 

47 15 U.S.C. 78s(b)(3)(A). 

48 17 CFR 240.19b–4(f)(6). 

Finally, IEX proposes to make a 

clarifying amendment to the last 

sentence of the second paragraph of IEX 

Rule 11.190(g) to add the words 

‘‘paragraph (g)(1) of’’ after the second 

word of the sentence to better clarify 

that the limitations on the referenced 

terms specified therein are applicable 

only to paragraph (g)(1) of IEX Rule 

11.190 rather than to the entire rule 

wherein such references are as defined 

in IEX Rule 1.160; and 

Implementation 

The Exchange will announce the 

implementation date of the proposed 

rule change by Trading Alert at least ten 

business days in advance of such 

implementation date and within ninety 

(90) days of effectiveness of this rule 

filing. 

2. Statutory Basis 

IEX believes that the proposed rule 

change is consistent with Section 6(b) 42

of the Act in general, and furthers the 

objectives of Section 6(b)(5) of the Act,43

in particular, in that it is designed 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, and as discussed in the 

Purpose section, the proposal is 

designed to enhance the existing 

protections provided by D-Limit orders 

by using the SEC approved CQI 2 to 

make quote instability determinations, 

which is designed to incrementally 

increase the coverage of the quote 

instability calculation in predicting 

whether a particular quote is unstable 

while maintaining the quote instability 

calculation’s accuracy rate in predicting 

the direction and timing of the next 

price change in the NBB or NBO, as 

applicable. Because D-Limit orders are 

subject to a price adjustment to one 

MPV less aggressive than the CQI Price 

if priced at or more aggressive than the 

CQI Price when the Exchange’s 

probabilistic model identifies that such 

price appears to be stale, increasing the 

coverage of the quote instability 

calculation is designed to provide 

additional protection to D-Limit orders 

from adverse selection associated with 

latency arbitrage during those times. 

Moreover, IEX’s market data analysis, as 

described in the Purpose section 

evidences that, as with CQI 1, CQI 2 is 

‘‘on’’ for only a small portion of the 

trading day while providing robust 

protection. 

The Exchange believes that the 

proposed rule change may result in 

more and larger sized displayed and 

non-displayed D-Limit orders being 

entered on IEX as a result of the 

improved coverage and continued 

accuracy of CQI 2. To the extent more 

orders are entered, the increased 

liquidity would benefit all IEX members 

and their customers. 

Furthermore, the Exchange notes that 

all Members are eligible to use D-Limit 

orders, and therefore all Members are 

eligible to benefit from the proposed 

enhanced D-Limit’s protections against 

adverse selection. Thus, the Exchange 

believes that application of the rule 

change is equitable and not unfairly 

discriminatory. 

Additionally, the Exchange notes that 

CQI 2 is a fixed formula specified 

transparently in IEX’s rules, that was 

previously approved by the SEC.44 The 

Exchange is not proposing to add any 

new functionality, but merely to utilize 

an SEC approved quote instability 

calculation for D-Limit orders that is 

designed to increase its coverage in 

predicting a crumbling quote. Thus, IEX 

does not believe that the proposal raises 

any new or novel issues that have not 

already been considered by the 

Commission, in that IEX’s rule filings to 

adopt both the D-Limit order type and 

CQI 2 were previously approved by the 

Commission. 

The Exchange believes it is consistent 

with the Act to add the words 

‘‘paragraph (g)(1) of’’ after the second 

word of the sentence to better clarify 

that the limitations on the referenced 

terms specified therein are applicable 

only to paragraph (g)(1) of IEX Rule 

11.190 rather than to the entire rule 

wherein such references are as defined 

in IEX Rule 1.160. This proposed 

change is designed to avoid any 

potential confusion as to the 

applicability of the referenced terms. 

Finally, the Exchange believes it is 

consistent with the Act to amend the 

first sentence of Rule l11.190(g)(2) to 

add the words ‘‘at that price level’’ after 

the word ‘‘effect’’ and before the word 

‘‘for’’ to specify that an CQI 2 

determination is at a particular price 

level. As discussed in the Purpose 

section, with the proposed use of CQI 2 

to make quote instability determinations 

for D-Limit orders, it is necessary to 

specify that each such determination 

will be at a particular price. 

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. To the 

contrary, as discussed in the Statutory 

Basis section, the proposal is designed 

to enhance IEX’s competitiveness by 

incentivizing the entry of increased 

liquidity. 

With regard to intra-market 

competition, the proposed changes to 

the quote instability calculation will 

apply equally to all Members on a fair, 

impartial and nondiscriminatory basis 

without imposing any new burdens on 

the Members. The Commission has 

already approved the Exchange’s DLimit order type and CQI 2.45 As 

discussed in the Purpose and Statutory 

Basis sections, the proposed rule change 

is designed to merely utilize an SEC 

approved enhanced quote instability 

calculation; therefore, no new burdens 

are being proposed. 

With regard to inter-market 

competition, other exchanges are free to 

adopt similar quote instability 

calculations. In this regard, the 

Exchange notes that that NYSE 

American LLC has adopted a rule 

copying an earlier iteration of the 

Exchange’s Discretionary Peg Order type 

and quote instability calculation.46

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 

The Exchange has designated this rule 

filing as non-controversial under 

Section 19(b)(3)(A) 47 of the Act and 

Rule 19b–4(f)(6) 48 thereunder. Because 

the proposed rule change does not: (i) 

significantly affect the protection of 

investors or the public interest; (ii) 

impose any significant burden on 

competition; and (iii) become operative 

for 30 days from the date on which it 

was filed, or such shorter time as the 

Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act and Rule 19b– 

4(f)(6) thereunder. 

The Exchange believes that the 

proposed rule change meets the criteria 


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Federal Register / Vol. 88, No. 191 / Wednesday, October 4, 2023 / Notices 68715 

49 17 CFR 240.19b–4(f)(6). 

50See Securities Exchange Act Release No. 58092 

(July 3, 2008), 73 FR 40144, 40147 (July 11, 2008). 

51 17 CFR 240.19b–4(f)(6). 52 15 U.S.C. 78s(b)(2)(B). 

53 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A)(iii). 

4 17 CFR 240.19b–4(f)(6). 

of subparagraph (f)(6) of Rule 19b–4 49

because it would not significantly affect 

the protection of investors or the public 

interest. Rather, the proposed rule 

change is designed to benefit investors 

and the public interest by enhancing the 

existing protections provided by DLimit orders by using the SEC approved 

CQI 2 to make quote instability 

determinations, as discussed in the 

Purpose and Statutory Basis sections. 

IEX notes (as discussed in the 

Statutory Basis section) that the D-Limit 

order type and CQI 2 were each 

approved by the Commission, and this 

proposed rule change merely combines 

these two aspects of IEX’s rules. 

Consistent with ‘‘Commission Guidance 

and Amendment to the Rule Relating to 

Organization and Program Management 

Concerning Proposed Rule Changes by 

Self-Regulatory Organizations,’’ 50 each 

policy issue raised by this proposed rule 

change has been previously considered 

by the Commission when IEX’s D-Limit 

order type and CQI 2 were approved 

pursuant to Section 19(b)(2) of the Act, 

and the proposed rule change resolves 

each such policy issue in a manner 

consistent with such prior approvals. 

Accordingly, the Exchange believes that 

the proposed rule change is 

noncontroversial and satisfies the 

requirements of Rule 19b–4(f)(6).51

Furthermore, Rule 19b–4(f)(6) 

requires a self-regulatory organization to 

give the Commission written notice of 

its intent to file the proposed rule 

change at least five business days prior 

to the date of filing of the proposed rule 

change, or such shorter time as 

designated by the Commission. The 

Exchange has satisfied this requirement. 

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is: (i) necessary or appropriate in 

the public interest; (ii) for the protection 

of investors; or (iii) otherwise in 

furtherance of the purposes of the Act. 

If the Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or disapproved. 

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

under Section 19(b)(2)(B) 52 of the Act to 

determine whether the proposed rule 

change should be approved or 

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– 

IEX–2023–10 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–IEX–2023–10. 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–IEX–2023–10 and should be 

submitted on or before October 25, 

2023. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.53

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2023–21955 Filed 10–3–23; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–98635; File No. SR– 

CboeBZX–2023–073] 

Self-Regulatory Organizations; Cboe 

BZX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of 

Proposed Rule To Extend the Pilot 

Programs in Connection With the 

Listing and Trading of P.M.-Settled 

Series on Certain Broad-Based Index 

Options 

September 28, 2023. 

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

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on 

September 28, 2023, Cboe BZX 

Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’) 

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 Exchange. The 

Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change 

pursuant to Section 19(b)(3)(A)(iii) of 

the Act 3 and Rule 19b–4(f)(6) 

thereunder.4 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 

Cboe BZX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BZX Options’’) 

proposes to extend the pilot programs in 

connection with the listing and trading 

of P.M.-settled series on certain broadbased index options. 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/ 

equities/regulation/rule_filings/bzx/), at 


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