41446 Federal Register / Vol. 82, No. 168 / Thursday, August 31, 2017 / Notices 

13 15 U.S.C. 78q–1(b)(3)(I). 14 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

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

5 17 CRF 240.19b–4. 

6See, Rule 600(b)(42) under Regulation NMS. 

purposes of the Act.13 LCH SA does not 

believe that its clearing of Index 

Swaptions will adversely affect 

competition in the trading market for 

those contracts or CDS generally. By 

allowing LCH SA to clear Index 

Swaptions, market participants will 

have additional choices on where to 

clear and which products to use for risk 

management purposes, which, in turn, 

will promote competition and further 

the development of CDS for risk 

management. In addition, LCH SA will 

apply its existing fair and open access 

criteria to the clearing of Index 

Swaptions and will apply the same 

criteria to every person who proposes to 

enter into the clearing of Index 

Swaptions. Such criteria are designed to 

identify persons with sufficient 

operational capacity and expertise in 

relation to Index Swaptions as part of 

the membership requirements that are 

necessary and appropriate for LCH SA 

to manage the risk arising from allowing 

persons to participate in Index 

Swaptions. Accordingly LCH SA does 

not believe that the proposed rule 

change will impose any burden on 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

C. Clearing Agency’s Statement on 

Comments on the Proposed Rule 

Change Received From Members, 

Participants or Others 

Written comments relating to the 

proposed rule change have not been 

solicited or received. LCH SA will 

notify the Commission of any written 

comments received by LCH SA. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

LCH SA–2017–006 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–LCH SA–2017–006. 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 Web site (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 Web site 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 LCH SA and on LCH SA’s Web 

site at http://www.lch.com/assetclasses/cdsclear. 

All comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–LCH SA–2017–006 and 

should be submitted on or before 

September 21, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–18450 Filed 8–30–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81484; File No. SR–IEX– 

2017–27] 

Self-Regulatory Organizations: 

Investors Exchange LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Related to 

Transaction Fees Pursuant to Rule 

15.110 

August 25, 2017. 

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 August 

11, 2017, the Investors Exchange LLC 

(‘‘IEX’’ or the ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) the proposed rule 

change as described in Items I, II and III 

below, which Items have been prepared 

by the self-regulatory organization. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of 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 Investors Exchange LLC 

(‘‘IEX’’ or ‘‘Exchange’’) is filing with the 

Commission a proposed rule change to 

increase the fees assessed under 

specified circumstances for execution of 

orders that take liquidity during periods 

when the IEX System has determined 

that a ‘‘crumbling quote’’ exists with 

respect to the Protected National Best 

Bid (‘‘NBB’’) or Protected National Best 

Offer (‘‘NBO’’) for such security.6

The text of the proposed rule change 

is available at the Exchange’s Web site 

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 statement may be examined at 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 82, No. 168 / Thursday, August 31, 2017 / Notices 41447 

7Pursuant to Rule 11.190(g), the Protected 

Quotations of the New York Stock Exchange, 

Nasdaq Stock Market, NYSE Arca, Nasdaq BX, Bats 

BZX Exchange, Bats BYX Exchange, Bats EDGX 

Exchange, and Bats EDGA Exchange. 

8See Rule 11.190(b)(10). 9See Rule 11.190(b)(8). 10The term markouts refers to changes in the 

midpoint of the NBBO measured from the 

perspective of either the liquidity providing resting 

order or liquidity removing taking order over a 

specified period of time following the time of 

execution. 

11For purposes of this analysis, a pro forma profit 

or loss is calculated as the difference between the 

midpoint of the NBBO at the time of the execution 

compared to one second after. 

12On a volume weighted basis, the CQI is on for 

6.50 seconds per day per symbol, 0.03% of the time 

during regular market hours. 

13An order is considered marketable for this 

analysis if it was a market order or its limit price 

is at or more aggressive than the far touch 

quotation. 

the places specified in Item IV below. 

The self-regulatory organization has 

prepared summaries, set forth in 

Sections A, B, and C below, of the most 

significant aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend its 

fee schedule, pursuant to IEX Rule 

15.110(a) and (c), to increase the fees 

assessed under specified circumstances 

for execution of orders that take 

liquidity during periods when the IEX 

System has determined that a 

‘‘crumbling quote’’ exists with respect to 

the Protected NBB or Protected NBO for 

such security. 

Pursuant to IEX Rule 11.190(g), in 

determining whether quote instability or 

a crumbling quote exists, the Exchange 

utilizes real time relative quoting 

activity of certain Protected Quotations 7

and a proprietary mathematical 

calculation (the ‘‘quote instability 

calculation’’) to assess the probability of 

an imminent change to the current 

Protected NBB to a lower price or 

Protected NBO to a higher price for a 

particular security (‘‘quote instability 

factor’’). When the quoting activity 

meets predefined criteria and the quote 

instability factor calculated is greater 

than the Exchange’s defined quote 

instability threshold, the System treats 

the quote as unstable and the crumbling 

quote indicator (‘‘CQI’’) is on. During all 

other times, the quote is considered 

stable, and the CQI is off. The System 

independently assesses the stability of 

the Protected NBB and Protected NBO 

for each security. When the System 

determines that a quote, either the 

Protected NBB or the Protected NBO, is 

unstable, the determination remains in 

effect at that price level for two 

milliseconds. The Exchange proposes to 

increase fees assessed for execution of 

buy (sell) orders that take liquidity at 

prices at or below (above) the NBO 

(NBB) during the two milliseconds 

when the CQI is on. Therefore, buy 

orders taking liquidity up to the 

Protected NBO and sell orders taking 

liquidity down to the Protected NBB 

when the CQI is on will be subject to the 

increased fee. 

When CQI is on, Discretionary Peg 

orders 8 and primary peg orders 9 do not 

exercise price discretion to meet the 

limit price of an active (i.e., taking) 

order. Specifically, as set forth in Rule 

11.190(b)(10), a Discretionary Peg order 

pegs to the less aggressive of the 

primary quote (i.e., NBB for buy orders 

and NBO for sell orders) or the order’s 

limit price, if any, but, will exercise 

price discretion in order to meet the 

limit price of an active order up to the 

less aggressive of the Midpoint Price or 

the order’s limit price, if any. However, 

a Discretionary Peg order will not 

exercise such price discretion when the 

CQI is on. Similarly, as set forth in Rule 

11.190(b)(8), a primary peg order pegs to 

a price that is the less aggressive of one 

(1) minimum price variant (‘‘MPV’’) less 

aggressive than the primary quote (i.e., 

one MPV below (above) the NBB (NBO) 

for buy (sell) orders) or the order’s limit 

price, if any, but will exercise price 

discretion in order to meet the limit 

price of an active order up to the NBB 

(for buy orders) or down to the NBO (for 

sell orders), except when the CQI is on 

or if the order is resting at its limit price, 

if any. 

By not permitting resting 

Discretionary Peg orders and primary 

peg orders to exercise price discretion 

during periods of quote instability, the 

Exchange is designed to protect such 

orders from unfavorable executions 

when its probabilistic model identifies 

that the market appears to be moving 

adversely to them. As noted above, 

when the IEX System determines that a 

quote (either the Protected NBB or the 

Protected NBO) is unstable, the 

determination, and corresponding 

limitation on Discretionary Peg and 

primary peg orders exercising price 

discretion, remains in effect at that price 

level for only two milliseconds. This 

limitation is designed to appropriately 

balance the protective benefits to 

Discretionary Peg and primary peg 

orders with the interest of avoiding 

potentially undue trading restrictions. 

Based on market data analysis during 

June 2017, the Exchange identified that 

there are significant differences in short 

term markouts 10 (and pro forma profit 

and loss 11) for resting and taking orders 

between executions when the CQI is on 

and off, regardless of whether the NBB 

(NBO) moves lower (higher) within two 

milliseconds of the Exchange’s 

determination of quote instability. 

Specifically, when the CQI is on, 

liquidity removing orders that execute 

on IEX (trading with a liquidity 

providing order resting on the order 

book, including but not limited to 

Discretionary Peg and primary peg 

orders) experience positive price 

markouts one second after the trade on 

a share basis 75.6% of the time, 

compared to 23.9% of the time when 

the CQI is off. Correspondingly, resting 

liquidity providing orders that trade 

when the CQI is on experience negative 

price markouts one second after the 

trade 75.6% of the time, compared to 

23.9% of the time when CQI is off. 

Similarly, 72.1% of all orders received 

when the CQI is on (whether or not 

executed on IEX) arrive immediately 

prior to a favorable price move (based 

on one second markouts), compared to 

18.2% of orders received when the CQI 

is off. 

Moreover, the breakdown of orders 

entered and shares removed when the 

CQI is on or off evidences that certain 

trading strategies appear to involve 

entering liquidity taking orders targeting 

resting orders at prices that are likely to 

move adversely from the perspective of 

the resting order. Across all 

approximately 8,000 symbols available 

for trading on IEX, the CQI is on only 

1.24 seconds per symbol per day on 

average (0.005% of the time during 

regular market hours),12 but 30.4% of 

marketable orders 13 are received during 

those time periods, which indicates that 

certain types of trading strategies are 

seeking to aggressively target liquidity 

providers during periods of quote 

instability. 

The Exchange believes that this data 

is particularly significant and evidences 

that Members entering liquidity taking 

orders when the CQI is on appear to be 

able to engage in a form of latency 

arbitrage by leveraging fast proprietary 

market data feeds and connectivity 

along with predictive strategies to chase 

short-term price momentum and 

successfully target resting orders at 

unstable prices. IEX believes that these 

types of trading strategies, with 

concentrated and aggressive tactics 

during moments of quote instability, are 

detrimental to the experience of other 

IEX participants. IEX further believes 


sradovich on DSK3GMQ082PROD with NOTICES
41448 Federal Register / Vol. 82, No. 168 / Thursday, August 31, 2017 / Notices 

14 15 U.S.C. 78f. 

15 15 U.S.C. 78f(b)(4). 

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

17See, e.g., New York Stock Exchange Price List 

2017, available at https://www.nyse.com/ 

publicdocs/nyse/markets/nyse/NYSE_Price_

List.pdf. See also, Nasdaq Rule 7018. 

18See, e.g., Securities Exchange Act Release No. 

80034 (February 14, 2017), 82 FR 11275 (February 

21, 2017) (File No. SR–BatsEDGX–2017–09). 

19See note 15 supra. 

that such trading strategies create 

disparate burdens on resting orders, 

particularly those that are displayed and 

therefore ineligible to benefit from the 

CQI. 

Accordingly, to incentivize additional 

resting liquidity, including displayed 

liquidity, on IEX, the Exchange 

proposes to increase the fees applicable 

to orders that remove resting liquidity 

when the CQI is on if such orders 

constitute at least 5% of the Member’s 

volume executed on IEX and at least 

1,000,000 shares, on a monthly basis, 

measured on a per market participant 

identifier (‘‘MPID’’) basis. As proposed, 

such orders that exceed the 5% and 

1,000,000 share thresholds would be 

assessed a fee of $0.0030 per each 

incremental share executed (or 0.3% of 

the total dollar value of the transaction 

for securities priced below $1.00) that 

exceeds the threshold. For example, 

assume Member XYZ executed 

100,000,000 shares through its MPID 

1234 during a particular month, and 

6,000,000 of such shares removed 

liquidity while the CQI was on. The 

6,000,000 shares executed when the CQI 

was on exceed the threshold since such 

shares are more than 5% of MPID 1234’s 

monthly volume (i.e., 5,000,000) and at 

least 1,000,000 shares. Member XYZ 

would therefore be charged the fee on 

1,000,000 shares which is the 

incremental number of shares above 5% 

of the 100,000,000 shares executed by 

MPID 1234 during the month. 

Setting the fee threshold at 5% and 

1,000,000 shares is a narrowly tailored 

approach, designed to only charge the 

increased fee in circumstances where 

the Member executes a meaningful 

portion of its volume via liquidity 

removing orders when the CQI is on, 

and not charge the fee for executions of 

this type that are more likely to be 

incidental to broader trading activity by 

the Member and not part of a specific 

trading strategy that targets resting 

liquidity during periods of quote 

instability. The Exchange proposes to 

refer to this pricing as the ‘‘Crumbling 

Quote Remove Fee’’ on the Fee 

Schedule with a Fee Code Indicator of 

‘‘Q’’ to be provided by the Exchange on 

execution reports to Members removing 

liquidity when the CQI is on. 

As proposed, to provide transparency 

about potential fees, the Exchange will 

begin providing Fee Code Indicator Q 

on execution reports at least one month 

prior to implementation of the 

Crumbling Quote Remove Fee so that 

Members can assess the impact of the 

new fee and make any corresponding 

adjustments to their trading strategies. 

IEX will announce the availability of 

new Fee Code Indicator Q 

approximately 30 days after 

effectiveness of this rule filing. IEX will 

provide at least ten business days’ 

notice of implementation of the 

proposed fee within 90 days of 

effectiveness of this rule filing. 

2. Statutory Basis 

IEX believes that the proposed rule 

change is consistent with the provisions 

of Section 6(b) 14 of the Act in general, 

and furthers the objectives of Sections 

6(b)(4) 15 of the Act, in particular, in that 

it is designed to provide for the 

equitable allocation of reasonable dues, 

fees and other charges among its 

Members and other persons using its 

facilities. Additionally, IEX believes that 

the proposed fee is consistent with the 

investor protection objectives of Section 

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

it is designed to promote just and 

equitable principles of trade, to remove 

impediments to a free and open market 

and national market system, and in 

general to protect investors and the 

public interest. 

The proposed new Crumbling Quote 

Remove Fee is designed to enhance the 

Exchange’s market quality by 

encouraging Members and other market 

participants to add more liquidity to the 

Exchange order book, which benefits all 

investors by deepening the Exchange’s 

liquidity pool. Specifically, the 

Exchange believes that trading strategies 

that target resting liquidity during 

periods of quote instability seek to trade 

at prices that are about to become stale, 

and thus discourage other market 

participants from entering liquidity 

providing orders on the Exchange. Thus, 

the Exchange believes that the proposal 

is reasonable because it would create an 

added incentive for Members and other 

market participants to provide liquidity 

on IEX since the increased fee may 

result in fewer orders seeking to remove 

liquidity when the CQI is on, and 

concomitant overall better execution 

quality. 

Other exchanges offer incentives in 

the form of rebates and/or reduced fees 

that are designed to encourage market 

participants to send increased levels of 

order flow to such exchanges. These 

typically take the form of lower fees and 

higher rebates for meeting specified 

volume tiers.17 These fee and rebate 

structures are typically justified by other 

exchanges on the basis that increased 

liquidity benefits all investors by 

deepening the exchange’s liquidity pool, 

which provides price discovery and 

investor protection benefits.18 The 

Exchange also notes that other 

exchanges charge different fees (or 

provide rebates) to the buyer and seller 

to an execution, which are generally 

referred to as either maker-taker or 

taker-maker pricing schemes. Typically, 

the exchange offering such pricing is 

seeking to incentivize orders that 

provide or remove liquidity, based on 

which type of orders receive a rebate. 

While these pricing schemes 

discriminate against the Member party 

to the trade that is charged a fee (in 

favor of the Member party to the trade 

that is paid a rebate) the Commission 

has not found these fees to be unfairly 

discriminatory in violation of the Act.19

Similarly, the proposal seeks to 

promote increased liquidity and price 

discovery on the Exchange by providing 

a fee designed to incentivize liquidity 

providing orders that can improve the 

quality of the market. The Exchange 

believes that, to the extent the fee is 

successful in reducing targeted and 

aggressive liquidity removing orders, it 

would contribute to investors’ 

confidence in the fairness of 

transactions and the market generally, 

thereby benefiting multiple classes of 

market participants and supporting the 

public interest and investor protection 

purposes of the Act. 

The Exchange believes that makertaker and taker-maker pricing schemes 

in general create needless complexity in 

market structure in various ways and 

result in conflicts of interest between 

brokers and their customers. 

Accordingly, IEX has made a decision 

not to adopt rebate provisions in favor 

of a more transparent pricing structure 

that generally charges equal fees (or in 

some cases, no fee) for a particular trade 

to both the ‘‘maker’’ and ‘‘taker’’ of 

liquidity. Given this decision, IEX must 

use other means to incentivize orders to 

rest on its order book. IEX’s execution 

quality is one important incentive, but 

this incentive can be undercut by 

trading strategies that target resting 

orders during periods of quote 

instability. Accordingly, IEX believes 

that the proposed Crumbling Quote 

Remove Fee is one reasonable way to 

compete with other exchanges for order 

flow, consistent with its alternative 

exchange model and without relying on 

rebates. 

As discussed in the Purpose section, 

the increased fee would only be charged 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 82, No. 168 / Thursday, August 31, 2017 / Notices 41449 

20The overall range would have been $426.49 to 

$123,897.20. 

21Analysis of trading on IEX during April, May 

and July is consistent with the June data analysis. 

22See Securities Exchange Act Release No. 80976 

(June 20, 2017), 82 FR 28920 (June 26, 2017) (SR– 

BatsEDGA–2017–18). 

23See, e.g., Securities Exchange Act Release No. 

69066 (March 7, 2013), 78 FR 16023 (March 13, 

2013) (SR–EDGA–2013–10). 

24See Bats BZX Exchange Fee Schedule, available 

at: http://www.bats.com/us/equities/membership/ 

fee_schedule/bzx/. 

on incremental orders above the 5% and 

1,000,000 share monthly thresholds that 

remove resting liquidity when the CQI 

is on. The Exchange believes that 

limiting the fee to such circumstances is 

reasonable and equitable because it 

would not apply when executions 

taking liquidity while the CQI is on are 

likely to be incidental and not part of a 

deliberate trading strategy that targets 

resting liquidity during periods of quote 

instability. Consequently, the Exchange 

believes that the proposed fee structure 

is not unfairly discriminatory because it 

is narrowly tailored to charge a fee only 

on trading activity that is indicative of 

a trading strategy that may adversely 

affect execution quality on IEX and is 

reasonably related to the purpose of 

encouraging liquidity providing orders 

on IEX without the use of rebates. 

The Exchange also believes that it is 

appropriate, and consistent with the 

Act, to not charge a fee to Members that 

do not exceed the 5% and 1,000,000 

share thresholds during the month in 

question. This flexibility is designed to 

address limited inadvertent liquidity 

removal when the CQI is on for 

Members whose order flow during such 

times is incidental. In addition, the 

Exchange believes it is appropriate, and 

consistent with the Act, to not charge a 

fee to Members for the execution of buy 

(sell) orders that take liquidity at prices 

above (below) the Protected NBO (NBB) 

during the two milliseconds when the 

CQI is on because such executions are 

not indicative of a trading strategy that 

targets resting orders at soon to be stale 

prices during periods of quote 

instability. 

Further, the Exchange believes that 

the data from June 2017 supports the 

position that the proposed threshold is 

narrowly tailored to only charge the fee 

based on objective criteria indicating 

that execution of the orders in question 

reasonably appear to be part of a 

deliberate trading strategy that targets 

resting liquidity during periods of quote 

instability. Based on data from June 

2017, the Exchange estimates that only 

13 Members each using one unique 

MPID (out of 125 total Members trading 

through 158 MPIDS that traded on IEX 

during the month) would have been 

subject to the proposed fee, five of 

which would have paid less than $1,500 

in such fees.20 The Members that were 

above the threshold also present a 

significantly different order entry profile 

than Members below the threshold with 

respect to orders entered when the CQI 

was on. For the 13 Member MPIDs 

above the threshold, 63.1% of such 

orders were marketable to the midpoint 

of the NBBO (64.3% for the eight 

Member MPIDs that would have paid 

more than $1,500), while for Member 

MPIDs below this number was only 

13.4%. The Exchange believes that this 

difference evidences that Members 

above the threshold were more likely to 

be engaging in a deliberate strategy to 

target resting orders at soon to be stale 

prices.21

The Exchange also believes that it is 

consistent with the Act and an equitable 

allocation of reasonable dues, fees and 

other charges among its members and 

other persons using its facilities to 

measure whether the threshold is 

reached on an MPID basis. As discussed 

above, the threshold is designed to 

narrowly focus on executions that 

appear to be part of a deliberate trading 

strategy that targets resting liquidity 

during periods of quote instability. The 

Exchange believes that Members that 

utilize multiple MPIDs generally use 

different MPIDs for different trading 

strategies or customers. Therefore, the 

Exchange believes that measuring by 

MPID is a more precise manner of 

assessing whether a Member’s trading 

strategy (or that of a customer) is part of 

a deliberate trading strategy that targets 

resting liquidity during periods of quote 

instability. 

Accordingly, the Exchange submits 

that the proposed threshold is narrowly 

tailored to address particular trading 

strategies (rather than particular classes 

of Members) that may operate to 

disincentivize the entry of resting orders 

by other market participants. 

Specifically, and as discussed above, to 

the extent the proposed fee is successful 

in reducing such trading strategies on 

IEX, it may result in market quality 

improvements which could benefit 

multiple classes of market participants. 

The Exchange further believes that 

charging the Crumbling Quote Remove 

Fee only to the liquidity remover is 

equitable and not unfairly 

discriminatory because it is designed to 

incentivize order flow that enhances the 

quality of trading on the Exchange and 

disincentivize trading that does not. As 

discussed above, IEX believes that there 

are precedents for exchanges to charge 

different fees based upon meeting (or 

not meeting) particular criteria, as well 

as maker-taker and taker-maker pricing 

structures whereby the liquidity adder 

and remover to a trade are subject to 

differing fees and rebates, to incentivize 

certain types of trading activity. Fees 

and rebates based on maker-taker and 

taker-maker pricing as well as on 

volume-based tiers have been widely 

adopted by equities exchanges. And in 

some cases, maker-taker or taker-maker 

pricing has been combined with 

volume-based tiers that result in 

differential fees and rebates for different 

exchange members. These fee structures 

have been permitted by the 

Commission. For example, Bats EDGA 

Exchange, Inc. (‘‘EDGA’’) previously 

offered a rebate contingent upon adding 

specified amounts of liquidity to 

EDGA.22 Notwithstanding that certain 

classes of members (e.g., exchange 

routing brokers) do not typically add 

liquidity on competing exchanges, this 

fee structure was justified by EDGA on 

the basis that, generally, it encourages 

growth in liquidity on EDGA and 

applies equally to all members.23

Similarly, while the proposed IEX fee 

structure will result in the Crumbling 

Quote Remove Fee being imposed only 

on members using specific trading 

strategies, it is also designed to attract 

liquidity to IEX and applies equally to 

all Members. 

The Exchange also notes that there is 

precedent to charge a different fee (or 

pay a different rebate) based on the 

execution price of an order. The Bats 

BZX Exchange, Inc. pays a rebate of 

$0.0017 to a non-displayed order that 

adds liquidity, while if such an order 

receives price improvement it does not 

receive a rebate or pay a fee.24

Thus, maker-taker, taker-maker, and 

volume tier based fee structures 

(separately or in combination) have 

been adopted by other exchanges on the 

basis that they may discriminate in 

favor of certain types of members but 

not in an unfairly discriminatory 

manner in violation of the Act. As with 

such fee structures, the Exchange 

believes that the proposed fee change is 

equitable and not unfairly 

discriminatory because it is narrowly 

tailored to disincentive to all Members 

from deploying trading strategies 

designed to chase short-term price 

momentum during periods when the 

CQI is on and thus potentially adversely 

impact liquidity providing orders. IEX 

believes that, to the extent it is 

successful in this regard, the proposed 

fee structure may lead to increased 

liquidity providing orders on IEX which 

could benefit multiple classes of market 

participants through increased trading 


sradovich on DSK3GMQ082PROD with NOTICES
41450 Federal Register / Vol. 82, No. 168 / Thursday, August 31, 2017 / Notices 

25See Nasdaq Rule 7018(a)(3)(m). 26See, Securities Exchange Act Release No. 66951 

(May 9, 2012), 77 FR 28647 (May 15, 2012) (File No. 

SR–NASDAQ–2012–055). 27 Id. 28See note 14 supra. 29 17 CFR 242.610(c)(1). 

opportunities and reduced latency 

arbitrage. 

Further, the Exchange notes that the 

Nasdaq Stock Market (‘‘Nasdaq’’) 

charges excess order fees (ranging from 

$0.005 to $0.01 per excess weighted 

order) on certain members that have a 

relatively high ratio of orders entered 

away from the NBBO to orders executed 

in whole or in part, subject to a carveouts for specified lower volume 

members and certain registered market 

makers.25 In its rule filing adopting the 

fee Nasdaq justified it as designed to 

achieve improvements in the quality of 

displayed liquidity to the benefit of all 

market participants.26 Nasdaq also 

asserted that the fee is reasonable 

because market participants may readily 

avoid the fee by making improvements 

in their order entry practices, noting 

that ‘‘[i]deally, the fee will be applied to 

no one because market participants will 

adjust their behavior to avoid the fee.’’ 27

Similarly, the proposed IEX fee is 

designed to incentivize the entry of 

liquidity providing orders that can 

enhance the quality of the market and 

disincentivize certain liquidity 

removing orders that can degrade the 

quality of the market. Participants can 

manage their fees by making 

adjustments to their order entry 

practices, to decrease their entry of 

orders designed to target resting 

liquidity during periods of quote 

instability. And, as with the Nasdaq 

excess order fees, ideally, the fee will be 

applied to no one, because participants 

will adjust their trading activity to 

account for the pricing change. Thus, 

the Exchange believes that the $0.0030 

per share executed fee is reasonably 

related to the trading activity IEX is 

seeking to disincentivize. 

IEX also believes that it is 

appropriate, reasonable and consistent 

with the Act, to charge a fee of $0.0030 

per share executed (or 0.3% of the total 

dollar value of the transaction for 

securities priced below $1.00) that 

exceed the threshold described herein 

because it is within the transaction fee 

range charged by other exchanges 28 and 

consistent with Rule 610(c) of 

Regulation NMS.29 Although the 

amount of the Crumbling Quote Remove 

Fee may not be adequate to fully 

disincentivize Members from deploying 

trading strategies designed to chase 

short-term price momentum during 

periods when the CQI is on, the 

Exchange is hopeful that it will at least 

reduce such activity based on the 

economic disincentives that the fee will 

provide. 

Additionally, the Exchange believes 

that its proposed new fee code 

indicator, to be provided on execution 

reports, will provide transparency and 

predictability to Members as to 

applicable transaction fees. In this 

regard, IEX notes that Members will be 

able to maintain a tally of executions of 

liquidity taking orders potentially 

subject to the CQI fee on a monthly 

basis, and calculate whether the 

proportion of such orders is more than 

5% of their total monthly volume on 

IEX. Using IEX execution reports, 

Members can calculate whether the sum 

of liquidity removing shares executed 

with Fee Code Indicator Q is more than 

1,000,000 shares, and whether the sum 

of shares executed with Fee Code 

Indicator Q divided by the sum of total 

volume executed on IEX is more than 

5%. In addition, IEX will provide the 

new feed code indicator to Members for 

at least one month prior to 

implementation of the Crumbling Quote 

Remove Fee so that Members can assess 

the potential impact of the new fee on 

their IEX order entry practices, and 

make any adjustments that the Members 

determines are warranted. The 

Exchange does not believe that it would 

be useful to publicly disseminate when 

the CQI is on in a particular security 

through a proprietary market data feed 

in view of the fact that the CQI is only 

on for two milliseconds at a time, given 

the latencies inherent in dissemination 

and receipt of proprietary market data. 

IEX Rule 11.190(g) describes with 

specificity when the CQI is on. And, as 

discussed above, the data suggests that 

Members that would be potentially 

impacted by the Crumbling Quote 

Remove Fee are engaging in purposeful 

activity and are thus able to determine 

with reasonable certainty when the CQI 

is on. 

Moreover, IEX believes that the fee 

will help to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

regulating, clearing, settling, processing 

information with respect to, and 

facilitating transactions in securities, 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, because the fee is 

designed to reduce the entry of liquidity 

removing orders that can degrade the 

quality of the market and incentivize 

liquidity providing orders that can 

improve the quality of the market, 

thereby promoting greater order 

interaction and inhibiting potentially 

abusive trading practices. 

Finally, and as discussed in the 

Burden on Competition section, the 

Exchange notes that it operates in a 

highly competitive market in which 

Members and market participants can 

readily direct order flow to competing 

venues if they deem fee levels to be 

excessive. 

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. The 

Exchange does not believe that the 

proposed rule change will impose any 

burden on intermarket competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act. 

To the contrary, the Exchange believes 

that the proposed pricing structure may 

increase competition and hopefully 

draw additional volume to the Exchange 

by enhancing the quality of executions 

across all participants when the CQI is 

on. As discussed in the Statutory Basis 

section, the proposed fee structure is a 

narrowly tailored approach, designed to 

enhance the Exchange’s market quality 

by incentivizing trading activity that the 

Exchange believes enhances the quality 

of its market. The Exchange believes 

that the proposed fee would contribute 

to, rather than burden, competition, as 

the fee is intended to incentivize 

Members and market participants to 

send increased liquidity providing order 

flow to the Exchange, which may 

increase IEX’s liquidity and market 

quality, thereby enhancing the 

Exchange’s ability to compete with 

other exchanges. Further, the proposed 

fee is in line with fees charged by other 

exchanges. 

The Exchange operates in a highly 

competitive market in which market 

participants can readily favor competing 

venues if fee schedules at other venues 

are viewed as more favorable. 

Consequently, the Exchange believes 

that the degree to which IEX fees could 

impose any burden on competition is 

extremely limited, and does not believe 

that such fees would burden 

competition of Members or competing 

venues in a manner that is not necessary 

or appropriate in furtherance of the 

purposes of the Act. 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on intramarket competition 

that is not necessary or appropriate in 

furtherance of the purposes of the Act 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 82, No. 168 / Thursday, August 31, 2017 / Notices 41451 

30 15 U.S.C. 78s(b)(3)(A)(ii). 

31 15 U.S.C. 78s(b)(2)(B). 32 17 CFR 200.30–3(a)(12). 

because, while the proposed fee would 

only be assessed in some circumstances, 

those circumstances are not based on 

the type of Member entering the 

liquidity removing order but on the 

percent and amount of liquidity 

removing volume that the Member 

executes when the CQI is on. Further, 

the proposed fee is intended to 

encourage market participants to bring 

increased volume to the Exchange, 

which benefits all market participants. 

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) 30 of the Act. 

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) 31 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 (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

IEX–2017–27 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–2017–27. 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 Web site (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 Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549 on official 

business days between the hours of 

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

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–IEX– 

2017–27, and should be submitted on or 

before September 21, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.32

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–18447 Filed 8–30–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. IC–32796] 

Notice of Applications for 

Deregistration Under Section 8(f) of the 

Investment Company Act of 1940 

August 25, 2017. 

The following is a notice of 

applications for deregistration under 

section 8(f) of the Investment Company 

Act of 1940 for the month of August 

2017. A copy of each application may be 

obtained via the Commission’s Web site 

by searching for the file number, or for 

an applicant using the Company name 

box, at http://www.sec.gov/search/ 

search.htm or by calling (202) 551– 

8090. An order granting each 

application will be issued unless the 

SEC orders a hearing. Interested persons 

may request a hearing on any 

application by writing to the SEC’s 

Secretary at the address below and 

serving the relevant applicant with a 

copy of the request, personally or by 

mail. Hearing requests should be 

received by the SEC by 5:30 p.m. on 

September 19, 2017, and should be 

accompanied by proof of service on 

applicants, in the form of an affidavit or, 

for lawyers, a certificate of service. 

Pursuant to Rule 0–5 under the Act, 

hearing requests should state the nature 

of the writer’s interest, any facts bearing 

upon the desirability of a hearing on the 

matter, the reason for the request, and 

the issues contested. Persons who wish 

to be notified of a hearing may request 

notification by writing to the 

Commission’s Secretary. 

ADDRESSES: The Commission: Secretary, 

U.S. Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

FOR FURTHER INFORMATION CONTACT: HaeSung Lee, Attorney-Adviser, at (202) 

551–7345 or Chief Counsel’s Office at 

(202) 551–6821; SEC, Division of 

Investment Management, Chief 

Counsel’s Office, 100 F Street NE., 

Washington, DC 20549–8010. 

Cash Reserve Fund, Inc. [File No. 811– 

03196] 

Summary: Applicant seeks an order 

declaring that it has ceased to be an 

investment company. On April 21, 

2017, applicant made a liquidating 

distribution to its shareholders, based 

on net asset value. Expenses of $2,325 

incurred in connection with the 

liquidation were paid by the applicant. 

Filing Date: The application was filed 

on July 28, 2017. 

Applicant’s Address: 345 Park 

Avenue, New York, New York 10154. 

Goldman Sachs Diversified Income 

Fund [File No. 811–23083] 

Summary: Applicant, a closed-end 

investment company, seeks an order 

declaring that it has ceased to be an 

investment company. Applicant has 

never made a public offering of its 

securities and does not propose to make 

a public offering or engage in business 

of any kind. 

Filing Date: The application was filed 

on August 3, 2017. 

Applicant’s Address: 200 West Street, 

New York, New York 10282. 

Goldman Sachs Dynamic Income 

Opportunities Fund [File No. 811– 

22868] 

Summary: Applicant, a closed-end 

investment company, seeks an order 


sradovich on DSK3GMQ082PROD with NOTICES