Document ID: SEC-2020-2120-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Investors Exchange, LLC
Posted Date: 2020-12-30T05:00Z

[Federal Register Volume 85, Number 250 (Wednesday, December 30, 2020)]
[Notices]
[Pages 86617-86619]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28811]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90786; File No. SR-IEX-2020-19]

Self-Regulatory Organizations: Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Related to 
Transaction Fees Pursuant to IEX Rule 15.110

December 22, 2020.
    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 December 11, 2020, the Investors Exchange LLC (``IEX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) under the Act,\3\ 
and Rule 19b-4 thereunder,\4\ IEX is filing with the Commission a 
proposed rule change to amend its Fee Schedule, pursuant to IEX Rule 
15.110(a) and (c) (the ``Fee Schedule'') to modify certain promotional 
pricing incentives for the execution of Discretionary Limit (``D-
Limit'') orders. Changes to the Fee Schedule pursuant to this proposal 
are effective upon filing,\5\ and the Exchange plans to implement the 
changes on January 1, 2021.
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
    \5\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    The text of the proposed rule change is available at the Exchange's 
website at www.iextrading.com, at the principal office of the Exchange, 
and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend its Fee Schedule, pursuant to IEX 
Rule 15.110(a) and (c), to modify certain pricing incentives currently 
applicable to executions of Discretionary Limit (``D-Limit''), 
Discretionary Peg (``D-Peg''), and Midpoint Peg (``M-Peg'') order 
executions that were implemented with the launch of the D-limit order 
type on October 1 2020.\6\ Specifically, the Exchange proposes to 
eliminate the fee discount of $0.0002 per executed share available to 
IEX Members \7\ for liquidity-providing D-Peg and M-Peg orders.
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    \6\ See Securities Exchange Act Release No. 89967 (September 23, 
2020), 85 FR 63616 (October 8, 2020) (SR-IEX-2020-14).
    \7\ See IEX Rule 1.160(s).
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    The D-Limit order type was approved by the Commission on August 26, 
2020,\8\ and is designed to protect liquidity providers from potential 
adverse selection by latency arbitrage trading strategies in a fair and 
nondiscriminatory manner. A D-Limit order may be a displayed or non-
displayed limit order that upon entry and when posting to the Order 
Book \9\ is priced to be equal to and ranked at the order's limit 
price, but will be adjusted to a less-aggressive price during periods 
of quote instability, as defined in IEX Rule 11.190(g).\10\ Otherwise, 
a D-Limit order operates in the same manner as either a displayed or 
non-displayed limit order, as applicable,\11\ and accordingly, the 
Exchange determined that liquidity-taking D-Limit orders would be 
subject to the same transaction fees as other displayed or non-
displayed orders.\12\
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    \8\ See Securities Exchange Act Release No. 89686 (August 26, 
2020), 85 FR 54438 (September 1, 2020) (SR-IEX-2019-15).
    \9\ See IEX Rule 1.160(p).
    \10\ See IEX Rules 11.190(b)(7) and 11.190(g).
    \11\ See IEX Rule 11.190(b)(7).
    \12\ Generally, IEX currently charges $.0003 per share for any 
displayed orders that execute (whether they add or remove liquidity) 
and $.0009 per share for any non-displayed orders that execute 
(whether they add or remove liquidity). If the shares execute for 
less than $1.00 per share, the Exchange charges 0.30% of the total 
dollar value of the transaction. See IEX Fee Schedule, https://iextrading.com/trading/fees/.
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    Currently, a D-Limit order that provides liquidity and is executed 
at a price at or above $1.00 results in a free execution.\13\ In 
addition, D-Peg and M-Peg orders that provide liquidity and execute at 
a price at or above $1.00 per share are currently subject to a discount 
of $0.0002 per share from the fee that would otherwise be charged for 
the number of shares of such orders executed up to the number of shares 
of D-Limit orders that provided liquidity and executed at a price at or 
above $1.00 per share during such time period by the same Member, 
measured on a monthly basis.\14\
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    \13\ See IEX Fee Schedule, https://iextrading.com/trading/fees/.
    \14\ For purposes of the discount, IEX aggregates all of a 
Member's MPIDs to calculate each Member's D-Peg, M-Peg, and D-Limit 
liquidity providing orders on a monthly basis. Upon a Member's 
request and subject to IEX's review and verification of the 
affiliate's relationship to the requesting Member, IEX will 
aggregate the Member's activity with activity of the Member's 
affiliated Member(s).
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    The fee discounts were designed to provide a narrowly tailored 
incentive for Members to utilize D-limit orders, a new and innovative 
order type, taking

[[Page 86618]]

into account that Members seeking to utilize the new D-Limit order type 
may have needed to modify and test new trading strategies and order 
entry systems in order to do so. Accordingly, the pricing incentives 
implemented by the Exchange were designed to provide a meaningful 
economic incentive for such efforts and to encourage use of this new 
order type.
    However, IEX has concluded that, while free executions for 
liquidity providing D-Limit orders priced at or above $1.00 continues 
to be an appropriate incentive, elimination of the related fee discount 
of $0.0002 per share for the execution of liquidity providing D-Peg and 
M-Peg orders is appropriate in order to simplify the fee structure. 
Specifically, based on informal discussions with Members, the Exchange 
understands that the fee discounts for non-D-Limit related order flow 
has created complexities in tracking applicable fees and corresponding 
billing for some Members and therefore do not provide a meaningful 
incentive for the use of D-Limit orders. As a result, the Exchange 
proposes to eliminate the fee discount of $0.0002 per share for the 
execution of liquidity providing D-Peg and M-Peg orders.
    The Fee Schedule will continue to provide that execution of a D-
Limit order that adds liquidity will result in a free execution, with 
the exception of executions below $1.00, which will continue to be 
assessed a fee of 0.30% of TDV (unless otherwise eligible for a free 
execution in accordance with the IEX Fee Schedule).
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\15\ in general, and furthers the 
objectives of Section 6(b)(4) \16\ of the Act, in particular, in that 
it is designed to provide for the equitable allocation of reasonable 
fees among IEX Members and persons using its facilities. Additionally, 
IEX believes that the proposed changes to the Fee Schedule are 
consistent with the investor protection objectives of Section 6(b)(5) 
\17\ of the Act, in particular, in that they are designed to prevent 
fraudulent and manipulative acts and practices; to promote just and 
equitable principles of trade; to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities; 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, brokers, or dealers.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4).
    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed changes are consistent with 
the Act because they will be applicable to all Members on a fair, equal 
and nondiscriminatory basis. The transaction fee discount was part of a 
narrowly tailored approach, designed to maximize participation for the 
launch of D-Limit, while free executions for liquidity providing D-
Limit orders priced at or above $1.00 per share is designed to provide 
the primary pricing incentive. As with any new order type, the 
implementation of D-Limit required a period during which Members needed 
to become familiar with its operation and potentially adjust order 
entry systems and trading strategies to effectively use D-Limit orders. 
However, based on informal Member feedback regarding the complexity 
such discounts have created, IEX believes that the transaction fee 
discounts are no longer necessary to incentivize Members to use D-Limit 
orders.
    The Exchange further believes that the proposed amendment is 
consistent with the Act's requirement that the Exchange provide for an 
equitable allocation of fees. The Exchange's proposal involves the 
elimination of transaction fee incentives that were available to all 
Members based on executions of liquidity adding D-Peg and M-Peg orders. 
Similarly, eliminating the transaction fee incentive will apply in an 
equal and nondiscriminatory manner to all Members. All Members will 
continue to be subject to the same fees for the use of D-Limit orders. 
Moreover, eliminating the fee discount will operate to simplify the 
Exchange's fee structure and reduce any corresponding order tracking 
and billing complexities on the part of Members.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange does not 
believe that the proposed fees will impose any burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The Exchange operates in a highly competitive 
market in which market participants can easily direct their orders to 
competing venues, including off-exchange venues, if its fees are viewed 
as non-competitive. Moreover, IEX believes that the proposed fees, as 
amended, continue to be designed to enhance competition by increasing 
the Exchange's pool of both displayed and non-displayed liquidity, and 
to the extent that displayed liquidity increases, would contribute to 
the public price discovery process. Further, subject to the SEC rule 
filing process, other exchanges could adopt a similar order type and 
fee incentive.
    The Exchange also 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. While Members 
that add liquidity using certain D-Limit orders will be subject to 
different fees based on this usage, those differences are not based on 
the type of Member entering orders but on whether the Member chose to 
submit certain liquidity providing D-Limit orders. As noted above, not 
only can any Member submit certain liquidity adding D-Limit orders, but 
every Member would benefit from the availability of more liquidity on 
the Exchange that the proposed fees are designed to incentivize. The 
Exchange is proposing to eliminate discounted transaction fees for 
certain D-Peg and M-peg orders that were part of a narrowly tailored 
incentive for Members to begin using the D-Limit order type. As 
discussed in the Purpose and Statutory Basis sections, the Exchange has 
concluded that the fee transaction discounts are no longer necessary to 
incentivize Members to use D-Limit orders and can operate to introduce 
certain complexities in order tracking and billing. Accordingly, the 
Exchange does not believe that eliminating the transaction fee 
discounts will have any impact on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) \18\ of the Act.
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    \18\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if

[[Page 86619]]

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) \19\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \19\ 15 U.S.C. 78s(b)(2)(B).
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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-2020-19 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-2020-19. 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 offices of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-IEX-2020-19, and should be submitted on 
or before January 20, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2020-28811 Filed 12-29-20; 8:45 am]
BILLING CODE 8011-01-P