38166 Federal Register / Vol. 86, No. 135 / Monday, July 19, 2021 / Notices 

29 17 CFR 240.17Ad–22(e)(4), (e)(6) and (e)(7). 

References to Rule 17Ad–22(e)(6) and compliance 

therewith apply to the CCPs only and do not apply 

to DTC. 

30 Id. 

31 15 U.S.C. 78s(b)(3)(A). 

32 17 CFR 240.19b–4(f). 

33 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 91523 

(April 9, 2021), 86 FR 19912 (April 15, 2021) 

(‘‘Notice’’). 

4 15 U.S.C. 78s(b)(2). 

Framework describes the process by 

which the Clearing Agencies identify, 

measure, monitor, and manage the risks 

associated with the design, 

development, implementation, use, and 

validation of quantitative models. The 

quantitative models covered by the 

Framework are utilized by the Clearing 

Agencies, as applicable, to manage risks 

associated with the safeguarding of 

securities and funds that are in their 

custody or control or for which they are 

responsible, and the proposed rule 

change clarifies the applicability of the 

Framework to specific models, thereby 

better supporting the ability of the 

Clearing Agencies to perform these 

important risk management functions 

and comply with other regulatory 

requirements, including Rule 19b–4. 

Rule 17Ad–22(e)(4), (e)(6), and 

(e)(7) 29 requires, inter alia, that a 

covered clearing agency establish, 

implement, maintain and enforce 

written policies and procedures 

reasonably designed to manage risks 

associated with its credit risk 

management models, margin models, 

and liquidity risk management models, 

as applicable. As discussed above, the 

proposed rule change clarifies the 

applicability of the Framework to such 

types of models, thereby better 

supporting the ability of the Clearing 

Agencies to comply with these 

requirements. Therefore, the Clearing 

Agencies believe that the proposed 

changes to the Framework are consistent 

with Rule 17Ad–22(e)(4), (e)(6), and 

(e)(7).30

(B) Clearing Agency’s Statement on 

Burden on Competition 

The Clearing Agencies do not believe 

that the proposed rule change would 

have any impact, or impose any burden, 

on competition because the proposed 

rule change simply clarifies the scope 

and administration of the Framework by 

the Clearing Agencies and would not 

effectuate any changes to the Clearing 

Agencies’ model risk management tools 

as they currently apply to their 

respective Members or Participants. 

(C) Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants, or Others 

The Clearing Agencies have not 

solicited or received any written 

comments relating to this proposal. The 

Clearing Agencies will notify the 

Commission of any written comments 

received by the Clearing Agencies. 

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) 31 of the Act and paragraph 

(f) 32 of Rule 19b–4 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. 

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– 

NSCC–2021–008 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549. 

All submissions should refer to File 

Number SR–NSCC–2021–008. 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 NSCC and on DTCC’s website 

(http://dtcc.com/legal/sec-rulefilings.aspx). 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–NSCC– 

2021–008 and should be submitted on 

or before August 9, 2021. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.33

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–15189 Filed 7–16–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92398; File No. SR–IEX– 

2021–06] 

Self-Regulatory Organizations; 

Investors Exchange LLC; Notice of 

Filing of Amendment No. 1 and Order 

Granting Accelerated Approval of a 

Proposed Rule Change, as Modified by 

Amendment No. 1, To Revise the 

Definitions of Retail Orders and Retail 

Liquidity Provider Orders and 

Disseminate a Retail Liquidity Identifier 

Under the IEX Retail Price 

Improvement Program 

July 13, 2021. 

I. Introduction 

On April 1, 2021, the Investors 

Exchange LLC (‘‘IEX’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’), 

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

Securities Exchange Act of 1934 

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

proposed rule change to enhance its 

Retail Price Improvement Program for 

the benefit of retail investors. The 

proposed rule change was published for 

comment in the Federal Register on 

April 15, 2021.3 On May 26, 2021, 

pursuant to Section 19(b)(2) of the Act,4


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5See Securities Exchange Act Release No. 92029 

(May 26, 2021), 86 FR 29608 (June 2, 2021). 

6Comments received on the proposal are 

available on the Commission’s website at: https:// 

www.sec.gov/comments/sr-iex-2021-06/ 

sriex202106.htm. 

7 In Amendment No. 1, the Exchange proposes to 

modify the proposal to rank RLP orders (as defined 

below) in time priority with non-displayed orders 

priced to execute at the Midpoint Price (as defined 

below), rather than ahead of such orders as 

originally proposed. The full text of Amendment 

No. 1 is available on the Commission’s website at: 

https://www.sec.gov/comments/sr-iex-2021-06/ 

sriex202106-9041946-246227.pdf. 

8See Securities Exchange Act Release No. 86619 

(August 9, 2019), 84 FR 41769 (August 15, 2019) 

(SR–IEX–2019–05) (order approving the IEX Retail 

Price Improvement Program). 

9See also proposed IEX Rule 11.190(b)(15), 

Supplementary Material .01 (further defining 

‘‘Retail order’’). 10Under the proposal, certain ‘‘parent’’ orders 

that are broken into multiple ‘‘child’’ orders will 

count as one order even if the ‘‘child’’ orders are 

routed across multiple exchanges; with certain 

exceptions, any order that cancels and replaces an 

existing order will count as a separate order. See 

proposed IEX Rule 11.190(b)(15), Supplementary 

Material .01. 11Under the proposal, RMOs (as defined in IEX 

Rule 11.232) would be required to have reasonable 

policies and procedures in place to ensure that 

Retail orders are appropriately represented on the 

Exchange. Such policies and procedures would 

need to provide for a review of retail customers’ 

activity on at least a quarterly basis. Orders from 

any retail customer that exceeded an average of 390 

equity orders per day during any month of a 

calendar quarter may not be entered as ‘‘Retail 

orders’’ for the next calendar quarter. RMOs would 

be required to conduct a quarterly review and make 

any appropriate changes to the way in which they 

are representing orders within five business days 

after the end of each calendar quarter. While RMOs 

would only be required to review their accounts on 

a quarterly basis, if during a quarter the Exchange 

identifies a retail customer for which orders are 

being represented as Retail orders but that has 

averaged more than 390 equity orders per day 

during a month, the Exchange will notify the RMO, 

and the RMO will be required to change the manner 

in which it is representing the retail customer’s 

orders within five business days. See proposed IEX 

Rule 11.190(b)(15), Supplementary Material .02. 

12See Notice, supra note 3, at 19914. 

13The Exchange believes the one round lot 

requirement is appropriate in order to limit 

dissemination to when there is a material amount 

of RLP order interest available. See id. at 19915. 

14The Exchange notes that an RLP order could 

have a limit price less aggressive than the Midpoint 

Price, in which case it would not be eligible to trade 

with an incoming Retail order. Such RLP orders 

would not be included in the Retail Liquidity 

Identifier dissemination. See id. 

15The Exchange notes that, because the RLP 

orders will be resting at the Midpoint Price, IEX’s 

Retail Liquidity Identifier will reflect at least $0.005 

of price improvement for any orders priced at or 

above $1.00 per share, unless the national best bid 

or offer is locked or crossed. See id. 

16The Exchange notes that, while an explicit 

price will not be disseminated, because RLP orders 

are only eligible to trade at the Midpoint Price, 

dissemination will thus reflect the availability of 

price improvement at the Midpoint Price. See id. at 

19914–15. 

17See id. at 19915. 

18See id. 

19See id. at 19914. 

the Commission designated a longer 

period within which to either approve 

the proposed rule change, disapprove 

the proposed rule change, or institute 

proceedings to determine whether to 

disapprove the proposed rule change.5

The Commission received two 

comment letters regarding the proposed 

rule change, and one response to 

comments from the Exchange.6 On July 

2, 2021, the Exchange filed Amendment 

No. 1 to the proposed rule change.7 The 

Commission is publishing this notice to 

solicit comments on Amendment No. 1 

from interested persons, and issuing this 

order approving the proposed rule 

change, as modified by Amendment No. 

1, on an accelerated basis. 

II. Description of the Proposed Rule 

Change, as Modified by Amendment 

No. 1 

The Exchange proposes several 

changes to its Retail Price Improvement 

Program (the ‘‘Program’’).8 Under the 

Program, IEX members that qualify as 

Retail Member Organizations (‘‘RMOs’’) 

are eligible to submit certain agency or 

riskless principal orders that reflect the 

trading interest of a natural person with 

a ‘‘Retail order’’ modifier. Retail orders 

are only eligible to execute at the 

midpoint price of the national best bid 

and national best offer (‘‘Midpoint 

Price’’) or better. Any IEX member is 

able to provide price improvement to 

Retail orders by submitting contra-side 

orders priced to execute at the Midpoint 

Price or better, including Retail 

Liquidity Provider (‘‘RLP’’) orders that 

are only eligible to execute against a 

Retail order at the Midpoint Price. 

Retail Order Definition 

First, the Exchange proposes to revise 

the definition of ‘‘Retail order’’ in IEX 

Rule 11.190(b)(15) such that Retail 

orders may only be submitted on behalf 

of a retail customer that does not place 

more than 390 equity orders per day on 

average during a calendar month for its 

own beneficial account(s) (the ‘‘390- 

Order Limit’’).9 Currently, ‘‘Retail 

orders’’ under the Exchange’s Program 

must reflect the trading interest of a 

natural person and meet other 

requirements, but they are not classified 

based on a per-day order threshold. The 

Exchange’s proposal also specifies the 

counting methodology 10 and 

supervisory requirements 11 to 

determine whether a retail customer has 

reached the 390-Order Limit. 

Retail Liquidity Identifier 

Next, the Exchange proposes to 

disseminate a ‘‘Retail Liquidity 

Identifier’’ to inform RMOs of the 

presence of RLP trading interest on the 

Exchange in order to incentivize RMOs 

to send Retail orders to the Exchange.12

Specifically, the Exchange proposes 

new IEX Rule 11.232(f) to disseminate a 

Retail Liquidity Identifier through the 

Exchange’s proprietary market data 

feeds and the appropriate securities 

information processor (‘‘SIP’’) when 

resting available RLP order interest 

aggregates to form at least one round lot 

for a particular security,13 provided that 

the RLP order interest is resting at the 

Midpoint Price 14 and is priced at least 

$0.001 better 15 than the national best 

bid or national best offer. The Retail 

Liquidity Identifier will reflect the 

symbol and the side (buy or sell) of the 

RLP order interest, but will not include 

the price or size.16

RLP Order Definition 

In conjunction with the proposed 

Retail Liquidity Identifier, the Exchange 

proposes to revise the definition of 

‘‘RLP order’’ in IEX Rule 11.190(b)(14) 

so that such orders can only be 

midpoint peg orders (as defined in IEX 

Rule 11.190(b)(9)) and cannot include a 

minimum quantity restriction. 

Currently, an RLP order is a 

discretionary peg order (as defined in 

IEX Rule 11.190(b)(10)). The Exchange 

believes that continuing to have RLP 

orders be discretionary peg orders 

would unnecessarily complicate the 

Retail Liquidity Identifier because, 

under the Exchange’s rules, 

discretionary peg orders do not 

explicitly post to the Exchange’s order 

book (‘‘Order Book’’) at the Midpoint 

Price.17 The Exchange further notes that 

permitting an RLP order to include a 

minimum quantity restriction would 

reduce the determinism of the order’s 

availability to trade at the Midpoint 

Price; the Exchange believes that 

prohibiting quantity restrictions will 

increase execution rates for Retail 

orders.18

RLP Order Priority 

As originally proposed, the revised 

RLP orders would have been given 

Order Book priority over non-displayed 

orders priced to execute at the Midpoint 

Price.19 However, in Amendment No. 1, 

the Exchange revised its proposal so 

that the Exchange’s regular priority 

rules (i.e., price/time) would apply 

equally to RLP orders and non-RLP 

orders at the midpoint, thus eliminating 

the originally proposed Order Book 

priority for RLP orders. Accordingly, 

under the revised proposal set forth in 

Amendment No. 1, RLP orders resting at 

the Midpoint Price will be ranked 

against resting non-displayed orders 

priced to execute at the Midpoint Price 


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38168 Federal Register / Vol. 86, No. 135 / Monday, July 19, 2021 / Notices 

20See supra note 7. 

21 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

22 15 U.S.C. 78f(b)(5). 

23 15 U.S.C. 78f(b)(8). 

24See Notice, supra note 3, at 19914. 

25See id. 

26See id. 

27See letters to Vanessa Countryman, Secretary, 

Commission, from Mike Ianni, dated May 5, 2021 

(‘‘Ianni Letter 1’’) and May 30, 2021 (‘‘Ianni Letter 

2’’). 

28See letter to Vanessa Countryman, Secretary, 

Commission, from Claudia Crowley, Chief 

Regulatory Officer, IEX, dated June 29, 2021 (‘‘IEX 

Response’’). 

29See Ianni Letter 1, supra note 27, at 2–3; and 

Ianni Letter 2, supra note 27, at 2. 

30See Ianni Letter 1, supra note 27, at 4; and 

Ianni Letter 2, supra note 27, at 4 and 7–8. 

31See Ianni Letter 2, supra note 27, at 2. 

32See Ianni Letter 1, supra note 27, at 3. 

33See id. 

34See Ianni Letter 2, supra note 27, at 6. 

35See IEX Response, supra note 28, at 3. 

36See id. at 4. 

37See id. at 4–5. 

38See id. at 4. 

39See id. at 5–6. The Exchange also points to 

existing precedent for applying the 390-Order Limit 

to an equity exchange. See id. at 5 (citing Securities 

Exchange Act Release No. 87200 (October 2, 2019), 

84 FR 53788 (October 8, 2019) (SR–CboeEDGX– 

2019–012)). 

based on time priority since all such 

prices will be at the Midpoint Price.20

III. Discussion and Commission 

Findings 

After careful review, the Commission 

finds that the proposed rule change is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to a national 

securities exchange.21 In particular, the 

Commission finds that the proposed 

rule change is consistent with Section 

6(b)(5) of the Act,22 which requires, 

among other things, that the rules of a 

national securities exchange be 

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, and 

not be designed to permit unfair 

discrimination between customers, 

issuers, brokers or dealers; and with 

Section 6(b)(8) of the Act,23 which 

requires that the rules of a national 

securities exchange not impose any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

Retail Order Definition 

First, the Exchange proposes to 

amend the definition of Retail order by 

adopting the 390-Order Limit and 

setting forth criteria to determine when 

this limit is reached and how it is 

enforced. The Exchange notes that one 

other equities exchange, Cboe EDGX 

Exchange, Inc. (‘‘EDGX’’), uses the same 

390 orders-per-day average in its retail 

liquidity program to delineate EDGX 

Retail Priority Orders, and applies a 

counting methodology and supervisory 

requirements that are substantially 

similar to those being proposed by 

IEX.24 The Exchange believes that the 

390-Order Limit is reasonable and not 

overly restrictive because it 

contemplates active trading, while not 

reaching a level to indicate one is a 

professional trader.25 The Exchange 

further believes that limiting the types 

of investors on whose behalf Retail 

orders can be submitted to those who 

are less likely to be professional market 

participants, will expand the pool of 

market participants willing to provide 

contra-side liquidity because of the 

Retail orders’ non-professional 

characteristics, thereby increasing price 

improvement opportunities for Retail 

orders at midpoint prices.26

The Commission received two letters 

from one commenter, both of which 

focus on the 390-Order Limit,27 and the 

Exchange submitted a single response to 

both letters.28 The commenter expresses 

concern with the 390-Order Limit based 

on his experience with the use of 

‘‘professional’’ customer rules in the 

options market. Specifically, the 

commenter states that, in the presentday options market, there is low 

likelihood that customer origin code 

orders enjoy a meaningful priority 

advantage over market makers, and the 

390-order threshold effectively limits 

competition between non-professional 

liquidity providers and market 

makers.29 The commenter suggests that 

the ‘‘professional’’ customer designation 

in the options market has over time 

created a ‘‘two-tiered’’ market that 

benefits market makers and limits how 

many orders a ‘‘secondary’’ liquidity 

provider will be willing to display 

(before they trip the ‘‘professional’’ 

customer threshold), and thus detracts 

from the incentive for market makers to 

display their best price, which leads to 

wider bid/ask spreads for options.30 In 

addition, the commenter believes that 

the ‘‘professional’’ customer designation 

in options limits the probability of 

customer-to-customer trades, especially 

when accounting for the likelihood of 

make vs. take orders posting on different 

exchanges because of differing fee and 

rebate incentives.31 The commenter 

further states that applying a 390-order 

threshold to equities, as IEX proposes to 

do for its Program, would cater to 

preferred members by giving them a 

more attractive pool of order flow to 

trade against, and will provide a ‘‘short 

lived’’ benefit of better prices to retail 

customers.32 The commenter is critical 

of payment for order flow and the small 

amount of price improvement it often 

provides to customers, and recommends 

that the quality of an execution should 

be based on all liquidity in the market 

(including hidden liquidity) and not just 

displayed liquidity that can be 

negatively impacted by competitive 

dynamics.33 Further, the commenter is 

critical of the ambiguity inherent in the 

application of the 390-order threshold 

across broker-dealers in the options 

market, and believes similar interpretive 

questions could be present in the 

equities context.34

In its response letter, IEX states its 

belief that the commenter’s concerns 

about options market practices ‘‘cannot 

be reasonably extrapolated to the use of 

retail liquidity provider programs for 

equity exchanges, or to IEX’s Retail 

Program in particular.’’ 35 IEX points out 

that the commenter focuses on the 

impact of the 390-order threshold on 

options orders seeking to provide 

liquidity, but IEX explains that the 390- 

Order Limit only applies to Retail orders 

under the Program, which are never 

displayed and can only take resting 

liquidity.36 Accordingly, Retail orders 

will never post to the Order Book, will 

never be flagged as Retail orders in any 

market data, and do not directly 

contribute to or impact IEX’s bid/ask 

spread.37 Thus, IEX argues that the 

commenter’s concerns with the 390- 

Order Limit ‘‘are not at issue in our 

proposal.’’ 38

Further in response to the 

commenter’s concerns about how the 

390-order threshold in options can harm 

non-professionals who limit their 

trading to avoid crossing the threshold, 

the Exchange argues that the market for 

retail order flow is already ‘‘two-tiered’’ 

in that the preponderance of retail 

orders are executed on non-exchange 

venues, and that this proposal seeks to 

enhance IEX’s ability to compete for 

retail order flow while providing 

meaningful price improvement to retail 

customers.39

The Commission believes that the 

commenter raises concerns that merit 

further consideration about the 

application of a 390-order threshold for 

‘‘professional’’ customer status in the 

options market, particularly as that 

market has continued to evolve since 

those designations were first 

introduced. In the options market, 


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40While RLP orders will only execute with 

incoming Retail orders, an incoming Retail order 

can interact with any order (i.e., not just RLP 

orders) priced to execute at the Midpoint Price or 

better. 

41See Ianni Letter 1, supra note 27, at 3–4. 

42With respect to the commenter’s statement that 

the quality of a fill should be based on all liquidity 

available in the market (including hidden liquidity) 

(see Ianni Letter 1, supra note 27, at 3), the 

Commission recently adopted rules to require that 

certain displayable odd-lot orders be included in 

core consolidated market data and thus reflected in 

the best bid and ask prices. See Securities Exchange 

Act Release No. 90610 (December 9, 2020), 86 FR 

18596 (April 9, 2021) (S7–03–20) at 18611–14. 

43See Ianni Letter 2, supra note 27, at 4. In both 

letters, the commenter also provides analysis of 

problems within the options market structure as it 

applies to giving retail customers priority. See, e.g., 

Ianni Letter 1, supra note 27, at 1 (stating that 

‘‘there is NO real customer ‘priority’ advantage 

gained by retail options customers because of the 

following: (1) More strikes and volatile markets (2) 

Payment for order flow accounting for a majority of 

customer orders (3) Market fragmentation (4) Price 

Improvement rules’’). The Commission appreciates 

the commenter taking time to provide such an 

analysis. However, any such issues related to the 

options market structure are outside the scope of 

this approval order, and thus, cannot be addressed 

by the Commission herein. 

44See Ianni Letter 1, supra note 27, at 4 (‘‘I will 

knowingly pay a ‘likely’ higher price for an option 

just to save on the number of orders I send. I would 

argue that there is no such thing as ‘best execution’ 

for retail customers in the equity options market 

today because of the 390-order rule. You are asking 

all investors to sacrifice ‘best execution’ over 

customer status.’’) 

45See Ianni Letter 2, supra note 27, at 7. 

46See IEX Response, supra note 28, at 3–4. 

47Retail orders cannot affect the IEX bid-ask 

spread because those orders neither display nor rest 

on the Order Book. 

48See Ianni Letter 2, supra note 27, at 5. 

49See Notice, supra note 3, at 19916. 

50See proposed IEX Rule 11.190(b)(15) and 

Supplementary Material .01 thereto. 

particularly those that offer to the 

‘‘customer’’ origin code the highest 

priority (including over market makers) 

and often low or no fees, there can 

potentially be a meaningful difference 

between being classified as a 

‘‘customer’’ or a ‘‘professional’’ 

customer, as the latter is typically 

subject to the same priority and fee 

levels as other broker-dealers, including 

those with the most sophisticated and 

costly trading resources. Thus, in the 

options market, crossing the 390-order 

threshold and being labeled as a 

‘‘professional’’ customer can potentially 

matter to some frequent traders. 

However, IEX is not proposing to use 

the 390-Order Limit to classify order 

origin codes into ‘‘customer’’ and 

‘‘professional’’ customer for general 

trading purposes. IEX is not creating a 

new class of ‘‘professional’’ customer for 

the equities market. Rather, the 390- 

Order Limit will only be used to classify 

certain orders seeking to take liquidity 

in the exclusive context of IEX’s 

Program. IEX’s proposal provides a 

bright-line test that broker-dealers can 

use to ascertain whether orders they 

route to IEX under IEX’s Program are 

individual retail investor orders or are 

orders from market participants that IEX 

believes trade with a frequency that is 

uncharacteristic of a typical individual 

retail investor trading for her personal 

investment account. Moreover, whether 

a retail investor exceeds the 390-Order 

Limit or not, IEX’s proposal will not 

change the priority status or fees of any 

customer order outside of the Program. 

Instead, the new threshold only further 

restricts what types of incoming take 

orders can interact with a resting RLP 

order.40

While the commenter acknowledges 

the potential for price improvement for 

retail investors under IEX’s proposal, 

the commenter believes that any such 

benefits will be ‘‘short lived,’’ and that 

this proposal opens up the possibilities 

for similar rules by other equity 

exchanges that could have negative 

consequences to liquidity in the equity 

market over the longer term, such as 

higher fees for ‘‘professional’’ 

customers.41 The Commission does not 

believe that the proposal’s benefits of 

providing midpoint prices (or better) to 

retail investors under the Program will 

be short-lived because midpoint prices 

can provide meaningful price 

improvement under different market 

conditions.42 Further, because IEX’s 

proposal is limited to classifying 

incoming retail orders that remove 

liquidity for the narrow purpose of its 

Program, it is not comparable to a 

broader ‘‘professional’’ customer rule as 

currently exists in the options market. 

The commenter also points to what 

the commenter believes to be 

competitive harm that the options 

market versions of a 390-order threshold 

have caused. The commenter believes 

that some retail traders in the options 

market may stop trading as they 

approach the 390-order threshold, often 

after being warned by their retail broker 

that they are approaching the threshold, 

so as to avoid losing ‘‘regular’’ customer 

status should they exceed that limit.43

The commenter also cautions that a 

desire to limit trading to stay under the 

390-order threshold in the options 

market can limit the ability of traders to 

use small orders to seek out the best 

hidden prices 44 and can potentially 

result in wider options spreads if 

secondary liquidity providers do not 

compete to provide liquidity in order to 

limit their trading to stay under the 

threshold.45 The Commission agrees 

with the Exchange that it is difficult to 

definitely ascribe, without more 

evidence, a causal link between the 

adoption of professional customer status 

in the options markets with wider 

spreads.46 Nevertheless, the proposal’s 

390-Order Limit should not constrain 

the ability or willingness of liquidity 

providers to provide liquidity. First, any 

liquidity-providing market participant 

can submit RLP orders and exceeding 

390 orders per day would have no effect 

on the participant’s ability to do so. 

Second, RLP orders are non-displayed 

orders that yield priority to displayed 

orders, including displayable odd lot 

orders at executable prices, and thus 

should not directly impact IEX’s bid/ask 

spreads.47 While a program that 

segments retail order flow away from 

displayed exchange quotes could 

theoretically impact spreads if it 

impacts the willingness of liquidity 

providers to display tighter quotes, IEX 

correctly notes that much of the retail 

volume today executes away from 

exchanges, and thus, IEX’s proposal is 

appropriately regarded as a way to 

compete to bring that flow back onto an 

exchange. Third, while the proposed 

threshold could impact liquidity takers 

(i.e., retail traders that exceed the 390- 

Order Limit) because they would lose 

the ability to interact with resting RLP 

orders on IEX, liquidity takers’ orders 

could still be submitted to IEX or other 

exchanges for potential midpoint 

executions (e.g., against midpoint peg 

orders). 

Finally, citing to his experience in the 

options market, the commenter believes 

that interpretation and enforcement of 

the 390-Order Limit could be difficult 

because, for example, he has observed 

ambiguity and inconsistency among 

broker-dealers in the options market 

with respect to how orders should be 

counted towards the 390 threshold.48

IEX has represented that its regulatory 

program will be enhanced for this 

proposal.49 The Commission believes 

that the proposed threshold is clear and 

applies to an investor that places ‘‘more 

than 390 equity orders per day on 

average during a calendar month for its 

own beneficial account(s)’’.50 To the 

extent that market participants have 

interpretive questions, the Exchange 

should address them and, if necessary, 

amend its rule to provide additional 

clarity. 

Accordingly, and based on the 

foregoing, the Commission finds that the 

proposed changes to the Exchange’s 

definition of Retail order, including the 

proposed new 390-Order Limit, are 

consistent with the Act. 


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38170 Federal Register / Vol. 86, No. 135 / Monday, July 19, 2021 / Notices 

51See Notice, supra note 3, at 19914. 52See id. at 19915. 53See id. 54See id. 

55 In connection with this proposal, the Exchange 

states that it plans to submit a letter requesting that 

the staff of the Division of Trading and Markets not 

recommend any enforcement action under Rule 602 

of Regulation NMS (‘‘Quote Rule’’) based on the 

Exchange’s and its members’ participation in the 

Program. See id. at 19914 n.39. In its filing, the 

Exchange asserts that the information proposed to 

be contained in the Retail Liquidity Identifier does 

not constitute a ‘‘quote’’ within the meaning of 

Regulation NMS because it would not include a 

specific price or size of the interest. See id. at 

19914. 

56See Notice, supra note 3, at 19914. 

57See Amendment No. 1, supra note 7, at 8 

(citing NYSE Arca Rule 7.44–E(l)). 

Retail Liquidity Identifier and Revisions 

to RLP Orders 

Next, the Exchange proposes to 

disseminate a Retail Liquidity Identifier 

when RLP orders resting on the Order 

Book aggregate to form at least one 

round lot, provided that the RLP order 

interest is resting at the Midpoint Price 

and is priced at least $0.001 better than 

the national best bid or national best 

offer. According to the Exchange, the 

purpose of the Retail Liquidity Identifier 

is to provide relevant market 

information to RMOs that there is some 

RLP trading interest at the Midpoint 

Price on the Exchange, thereby 

incentivizing RMOs to send Retail 

orders to IEX.51 In conjunction with its 

proposal to disseminate the Retail 

Liquidity Identifier, the Exchange 

proposes to amend the definition of RLP 

orders so such orders can only be 

midpoint peg orders without a 

minimum quantity restriction. The 

Exchange believes that disseminating a 

Retail Liquidity Identifier to indicate 

RLP orders resting at the Midpoint Price 

would be unnecessarily complicated if 

RLP orders were to continue to be 

discretionary peg orders, because 

discretionary peg orders do not 

explicitly post to the Order Book at the 

Midpoint Price.52 Likewise, the 

Exchange believes that attaching a 

minimum quantity to an RLP order 

would hinder a market participant’s 

ability to determine the availability of 

trading interest at the Midpoint Price, 

given that the interest would only be 

available to counterparties able to meet 

the minimum quantities.53

As noted by the Exchange, similar 

retail liquidity identifiers are currently 

disseminated by other exchanges that 

offer retail programs, though other 

exchange programs typically allow the 

equivalent to RLP orders to rest 

undisplayed at prices that improve the 

displayed quote by subpenny 

increments.54 The Commission believes 

that IEX’s Retail Liquidity Identifier will 

serve a similar purpose as the identifiers 

currently disseminated by other 

exchanges, as it will inform market 

participants that have or control retail 

order flow about the availability of price 

improvement opportunities for Retail 

orders. In turn, market participants that 

have or control retail order flow would 

normally be expected to use that 

information as they assess the best 

prices available for the customer. Given 

the potential benefits to individual 

investors and any increased likelihood 

that they may be able to obtain midpoint 

executions, the Commission believes 

that the Retail Liquidity Identifier is 

appropriately designed to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system.55

Furthermore, the Commission finds 

that limiting RLP orders to be midpoint 

peg orders without a minimum quantity 

option is an appropriate compliment to 

the proposed Retail Liquidity Identifier. 

As explained above, the Retail Liquidity 

Identifier is meant to notify RMOs that 

there is Midpoint-Priced liquidity 

available on the Exchange. As such, the 

Commission believes that requiring RLP 

orders to be midpoint peg orders 

without the option to designate a 

minimum quantity condition provides 

an increased chance of execution to 

incoming Retail orders and makes the 

Retail Liquidity Identifier a more 

reliable indicator of available midpoint 

liquidity. 

Finally, as originally proposed, the 

revised RLP orders would have been 

given Order Book priority over nondisplayed orders priced to execute at the 

Midpoint Price.56 However, in 

Amendment No. 1, the Exchange 

revised its proposal so that the 

Exchange’s regular priority rules (i.e., 

price/time) would apply equally to RLP 

orders and such non-displayed orders, 

thus eliminating the originally proposed 

Order Book priority for RLP orders. IEX 

cites to precedent from at least one other 

exchange’s retail program providing that 

when a retail liquidity providing order 

is at the same price as a non-displayed 

order, the orders will be ranked together 

with time priority.57 The Commission 

finds that IEX’s revised proposal to not 

provide a priority advantage to RLP 

orders over other non-displayed orders 

priced to execute at the Midpoint Price 

is not unfairly discriminatory as it does 

not provide an advantage to an order 

that will only interact with incoming 

Retail orders (i.e., RLP orders) over 

orders that are not so restricted (e.g., 

midpoint peg orders). Treating both in 

time priority and allowing incoming 

Retail orders to interact with either is 

designed to promote just and equitable 

principles of trade and not impose an 

inappropriate burden on competition. 

For the foregoing reasons, the 

Commission believes that IEX’s 

proposed changes to its Program are 

consistent with the Act in that they are 

reasonably 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, and are not designed to 

permit unfair discrimination between 

customers, issuers, brokers or dealers. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether Amendment No. 1 to 

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–2021–06 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–2021–06. 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 this 

filing will also be available for 

inspection and copying at the principal 


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Federal Register / Vol. 86, No. 135 / Monday, July 19, 2021 / Notices 38171 

58See supra note 57 and accompanying text. 

59 15 U.S.C. 78s(b)(2). 

60 15 U.S.C. 78s(b)(2). 

61 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The term ‘‘Competitive Market Maker’’ means a 

Member that is approved to exercise trading 

privileges associated with CMM Rights. See Options 

1, Section 1(a)(12). 

4The term ‘‘Primary Market Maker’’ means a 

Member that is approved to exercise trading 

privileges associated with PMM Rights. See Options 

1, Section 1(a)(35). 

5Options 2, Section 5(e). 

6Options 2, Section 4(b)(4) describes bid/ask 

differentials. 

7The term ‘‘Member’’ means an organization that 

has been approved to exercise trading rights 

associated with Exchange Rights. See General 1, 

Section 1(a)(13)[sic]. 

8Options 2, Section 5(e)(1). 

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–2021–06 and should 

be submitted on or before August 9, 

2021. 

V. Accelerated Approval of Proposed 

Rule Change, as Modified by 

Amendment No. 1 

The Commission finds good cause to 

approve the proposed rule change, as 

modified by Amendment No. 1, prior to 

the 30th day after the date of 

publication of notice of Amendment No. 

1 in the Federal Register. Amendment 

No. 1 revises the original proposal by 

amending IEX Rule 11.232(e)(3)(A) to 

provide that RLP orders now will be 

ranked in time priority with nondisplayed orders priced to execute at the 

Midpoint Price, rather than ahead of 

such orders as was originally proposed. 

Thus, at the priority level specified in 

IEX Rule 11.232(e)(3)(A)(iii), incoming 

Retail orders will execute against RLP 

orders and non-displayed orders priced 

to trade at the Midpoint Price in price/ 

time priority. 

In Amendment No. 1, the Exchange 

states that based on additional analysis 

of the potential benefits and burdens of 

RLP orders and non-displayed orders 

priced to trade at the Midpoint Price, it 

determined that RLP orders should be 

ranked in time priority with such other 

orders, consistent with the Exchange’s 

regular price/time priority. The 

Exchange states that the proposed 

priority change does not raise any new 

or novel issues as it is consistent with 

the rules of other exchanges’ retail 

liquidity programs, including NYSE 

Arca, as noted above.58

The changes to the proposal do not 

raise any novel regulatory issues, as 

they are consistent with the rules of 

other exchange retail programs 

previously approved by the 

Commission. Further, the changes assist 

the Commission in evaluating the 

Exchange’s proposal and in determining 

that it is consistent with the Act as 

discussed above. Accordingly, the 

Commission finds good cause, pursuant 

to Section 19(b)(2) of the Act,59 to 

approve the proposed rule change, as 

modified by Amendment No. 1, on an 

accelerated basis. 

VI. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act,60

that the proposed rule change (SR–IEX– 

2021–06), as modified by Amendment 

No. 1, be, and hereby is, approved on an 

accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.61

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2021–15199 Filed 7–16–21; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92384; File No. SR–GEMX– 

2021–06] 

Self-Regulatory Organizations; Nasdaq 

GEMX, LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend Options 2, 

Section 5, Market Maker Quotations 

July 13, 2021. 

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 June 30, 

2021, Nasdaq GEMX, LLC (‘‘GEMX’’ or 

‘‘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 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 Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

Options 2, Section 5, Market Maker 

Quotations. 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/gemx/rules, 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 

Exchange 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 

Exchange 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 

GEMX Rules at Options 2, Section 5, 

Market Maker Quotations. Currently, the 

Exchange requires Competitive Market 

Makers 3 and Primary Market Makers 4

to enter bids and offers for the options 

to which they are registered, except in 

an assigned options series listed intraday on the Exchange.5 Quotations must 

meet the legal quote width requirements 

specified in Options 2, Section 4(b)(4).6

On any given day, a Competitive Market 

Maker is not required to enter 

quotations in the options classes to 

which it is appointed. A Competitive 

Market Maker may initiate quoting in 

options classes to which it is appointed 

intra-day. If a Competitive Market 

Maker initiates quoting in an options 

class, the Competitive Market Maker, 

associated with the same Member,7 is 

collectively required to provide twosided quotations in 60% of the 

cumulative number of seconds, or such 

higher percentage as the Exchange may 

announce in advance, for which that 

Member’s assigned options class is open 

for trading.8 Notwithstanding the 

foregoing, a Competitive Market Maker 

shall not be required to make two-sided 

markets pursuant to Options 2, Section 

5(e)(1) in any Quarterly Options Series, 

any adjusted options series, and any 

option series with an expiration of nine 

months or greater for options on equities 

and exchange-traded funds (‘‘ETFs’’) or 

with an expiration of twelve months or 

greater for index options. Competitive 

Market Makers may choose to quote 

such series in addition to regular series 


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