Document ID: SEC-2017-0688-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Investors Exchange LLC
Posted Date: 2017-04-28T04:00Z

[Federal Register Volume 82, Number 81 (Friday, April 28, 2017)]
[Notices]
[Pages 19763-19770]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08575]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80514; File No. SR-IEX-2017-11]

Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing of Proposed Rule Change To Modify the Manner in Which the 
Exchange Opens Trading for Non-IEX-Listed Securities

April 24, 2017.
    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 April 13, 2017, the Investors Exchange LLC (``IEX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, 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.
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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 Securities 
Exchange Act of 1934 (``Act''), and Rule 19b-4 thereunder, Investors 
Exchange LLC (``IEX'' or the ``Exchange'') is filing with the 
Securities and Exchange Commission (``Commission'') proposed rule 
changes to (i) amend Rule 11.231 to modify the manner in which the 
Exchange opens trading for non-IEX-listed securities beginning at the 
start of Regular Market Hours and retitle it ``Regular Market Session 
Opening Process for Non-IEX-Listed Securities''; and (ii) amend Rules 
11.190 and 11.220 to specify the order types eligible to participate in 
the proposed Regular Market Session Opening Process for non-IEX listed 
securities (``Opening Process'') described in proposed Rule 11.231 and 
priority thereof.
    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 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
Background
    The purpose of the proposed rule change is to (i) amend Rule 11.231 
to modify the manner in which the Exchange opens trading for non-IEX-
listed securities beginning at the start of Regular Market Hours and 
retitle it ``Regular Market Session Opening Process for Non-IEX-Listed 
Securities''; (ii) amend Rule 11.190(a)(2)(E) to allow market orders 
with a time-in-force of DAY to be entered in the Pre-Market Session for 
queuing and participation in the Regular Market Session Opening Process 
for non-IEX-listed securities (``Opening Process'') described in 
proposed Rule 11.231; (iii) amend Rule 11.220(a)(2) regarding the 
priority of orders eligible to execute in the proposed Opening Process; 
and (iv) amend Rule 11.190(b)(11) to clarify that orders with a Minimum 
Quantity as defined in Rule 11.190(b)(11) (``Minimum Quantity orders'') 
are not eligible to participate in the Opening Process pursuant to 
proposed Rule 11.231.
    Currently, the Exchange begins accepting limit orders with a time-
in-force of IOC, FOK, SYS, and GTT \3\ for non-IEX-listed securities 
for trading at the beginning of the Pre-Market Session and any such 
orders received by the Exchange are immediately eligible for execution 
in the Pre-Market Session. In addition, limit orders with a time-in-
force of DAY or GTX \4\ and pegged orders with a time-in-force of DAY 
that are entered during the Pre-Market Session are queued in the time 
sequence of their receipt by the System pursuant to Rule 11.220(a)(2), 
until the start of the Regular Market Session, or until the order is 
canceled by the User. Any such queued orders that are in the System at 
the beginning of Regular Market Hours are released to the Order Book as 
incoming orders in their relative time priority pursuant to Rule 
11.220(a)(2) and are immediately eligible for trading in the Regular 
Market Session, subject to the User's instructions and market 
conditions. Pursuant to IEX Rule 11.190(a)(2)(E), market orders may 
only be submitted in the Regular Market Session, and are rejected by 
the System in the Pre-Market Session and Post-Market Session. 
Furthermore, under paragraph (iii) of IEX Rule 11.190(a)(2)(E), market 
orders marked DAY, by default, are rejected. When elected by the User, 
market orders marked DAY submitted by that User are accepted and 
eligible to trade or route during the Regular Market Session. Market 
orders marked DAY are treated by the System as having a TIF of IOC.\5\
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    \3\ See Rules 11.190(c)(1), 11.190(c)(2), 11.190(c)(5), and 
11.190(c)(6), defining the time-in-force of IOC, FOK, SYS, and GTT, 
respectively.
    \4\ See Rules 11.190(c)(3), 11.190(c)(4), defining a time-in-
force of DAY and GTX, respectively.
    \5\ Members that would like to enter market orders with time-in-
force of DAY and have the Exchange accept such orders are required 
to have authorized personnel contact IEX Market Operation 
(marketops@iextrading.com) in writing requesting such port setting 
changes, and must specifically identify the order entry sessions to 
which such port setting will apply.

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[[Page 19764]]

Description of Proposed Rule Change
    The Exchange proposes to amend Rule 11.231 to offer an enhanced 
opening process for non-IEX-listed securities. Specifically, as 
proposed, the Exchange will attempt to perform the Opening Process in 
each non-IEX-listed security pursuant to which all eligible interest 
resting on the Order Book in the Pre-Market Session available for 
continuous trading (i.e., orders on the ``Continuous Book'') or orders 
queued for execution in the Regular Market Session (i.e., orders on the 
``Cross Book'') will be executed at a single price. As proposed, the 
Opening Process offers Users an opportunity to participate in an 
electronic price discovery mechanism that efficiently matches all 
eligible buy and sell orders in each non-IEX-listed security queued for 
the Opening Process along with all eligible orders resting on the 
Continuous Book from the Pre-Market Session at a single price. The 
Opening Process is designed to efficiently maximize the number of 
shares executed at a single price that is reflective of the broader 
market for the security, as described more fully below.
    As proposed, prior to the beginning of Regular Market Hours, Users 
who wish to participate in the Opening Process may enter limit, market, 
and pegged orders designated with a time-in-force of DAY and limit 
orders designated with a time-in-force of GTX, which shall queue in the 
System and are eligible for execution in the Opening Process (orders on 
the Cross Book); interest resting on the Order Book in the Pre-Market 
Session available for continuous trading (i.e., orders on the 
Continuous Book) are also eligible for execution in the Opening Process 
(collectively, ``Cross Eligible Orders''). Minimum Quantity orders are 
not eligible for execution in the Opening Process, and are therefore 
not Cross Eligible Orders. Accordingly, the Exchange is proposing to 
amend Rule 11.190(a)(2)(E) to extend the queuing functionality to 
market orders with a time-in-force of DAY that are entered during the 
Pre-Market Session and are not designated to route pursuant to Rule 
11.230(c), allowing such orders to queue in the System for 
participation in the Opening Process.\6\ Orders with a time-in-force of 
IOC or FOK do not rest on the Order Book and are therefore ineligible 
to participate in the Opening Process. In addition, the Exchange is 
proposing to make a minor conforming change to the language used in 
reference to LULD Price Bands in Rule 11.190(a)(1)(2) [sic] in order to 
conform the reference to the language used throughout the Exchange's 
rules.
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    \6\ Orders canceled before the Opening Process will not 
participate in the Opening Process. Market orders with a time-in-
force of DAY that are entered during the Pre-Market Session and are 
designated to route pursuant to Rule 11.230(c) will be rejected upon 
entry.
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    As proposed, orders on the Continuous Book and orders on the Cross 
Book (collectively, the Order Book) shall be ranked and maintained for 
the Opening Process pursuant to Rule 11.220(a)(2), as follows:
     Midpoint peg orders, as defined in IEX Rule 11.190(b)(9), 
on the Cross Book are ranked and eligible for execution in the Opening 
Process at the less aggressive of the Midpoint Price or the order's 
limit price, if any.
     Primary peg orders, as defined in IEX Rule 11.190(b)(8), 
on the Cross Book are ranked and eligible for execution in the Opening 
Process at the less aggressive of one (1) MPV below (above) the NBB 
(NBO) for buy (sell) orders or the order's limit price, if any, but may 
exercise price discretion up (down) to the Opening Match Price, subject 
to the less aggressive of the NBB (NBO) or the order's limit price, if 
any, except during periods of quote instability, as defined in IEX Rule 
11.190(g). When exercising price discretion, primary peg orders are 
ranked behind any non-displayed interest at the Opening Match Price for 
the duration of the Opening Process. If multiple primary peg orders are 
exercising price discretion during the Opening Process, they maintain 
their relative time priority at the Opening Match Price.
     Discretionary Peg orders, as defined in IEX Rule 
11.190(b)(10), on the Cross Book are ranked and eligible for execution 
in the Opening Process at the less aggressive of the NBB (NBO) for buy 
(sell) orders or the order's limit price, if any, but may exercise 
price discretion up (down) to the Opening Match Price, subject to the 
less aggressive of the Midpoint Price or the order's limit price, if 
any, except during periods of quote instability, as defined in IEX Rule 
11.190(g). When exercising price discretion, Discretionary Peg orders 
are ranked behind any non-displayed interest at the Opening Match Price 
for the duration of the Opening Process. If multiple Discretionary Peg 
orders are exercising price discretion during the Opening Process, they 
maintain their relative time priority at the Opening Match Price.
     Limit orders on the Cross Book are ranked and eligible for 
execution in the Opening Process at their limit price.
     Non-displayed limit orders and non-displayed portions of 
reserve orders on the Continuous Book are ranked and eligible for 
execution in the Opening Process at the less aggressive of the Midpoint 
Price or the order's limit price.
     Displayed limit orders on the Continuous Book are ranked 
and eligible for execution in the Opening Process at their resting 
price.
    As noted above, orders shall be ranked and prioritized for the 
Opening Process in price--display--time priority pursuant to proposed 
Rule 11.220(a)(2). Specifically, the best priced Cross Eligible Order 
(the highest priced resting order to buy or the lowest priced resting 
order to sell) has priority over all other orders to buy (or orders to 
sell) in all cases. Market orders have precedence over limit orders. 
Cross Eligible Orders resting on the Continuous Book are ranked by the 
price at which they are resting on the Continuous Book and Cross 
Eligible Orders resting on the Cross Book are ranked by the limit price 
defined by the User, if any, except in the case of pegged orders, which 
are ranked by their current book price (in each case, the order's 
``resting price''). Equally priced Cross Eligible Orders are ranked by 
display priority, i.e., displayed orders and displayed portions of 
Cross Eligible Orders will have precedence over non-displayed orders 
and non-displayed portions of Cross Eligible Orders at a given price. 
Equally priced Cross Eligible Orders with the same display priority are 
ranked in time priority, i.e., where Cross Eligible Orders to buy (or 
sell) are ranked at the same price with the same display priority, the 
oldest order at such price and display shall have precedence at that 
price and display. Orders are ranked by the time at which they are 
posted to the Order Book at a given price, the first to be posted at a 
given price being the oldest. Cross Eligible Orders maintain their time 
priority once booked until:
     In the case of an order on the Cross Book, the order is: 
(i) Incremented by the User, (ii) re-priced by the User, (iii) the 
Minimum Quantity instruction is removed from an order by the User, and 
therefore becomes a Cross Eligible Order, or (iv) a pegged order is re-
priced by the System in response to changes in the NBBO, at which time 
the order will receive a new timestamp. Pursuant to IEX Rule 
11.231(a)(1)(ii) and (iii), respectively, when exercising price 
discretion, primary peg and Discretionary Peg orders maintain time 
priority at their resting price, however they are prioritized behind 
any non-displayed interest at the Opening Match

[[Page 19765]]

Price for the duration of the Opening Process.
     In the case of an order on the Continuous Book, any one of 
the events specified in IEX Rule 11.220(a)(1)(C) occurs to an order, at 
which time the order will receive a new timestamp.
    Under proposed Rule 11.231(b), beginning at the start of Regular 
Market Hours, Cross Eligible Orders that are eligible to trade at the 
Opening Match Price (as described below) will be processed in 
accordance with price--display--time priority pursuant to proposed Rule 
11.220(a)(2). First, to the extent there is contra side interest 
eligible to trade at the Opening Match Price, market orders will be 
executed at the Opening Match Price in time priority. After the 
execution of all market orders, the remaining Cross Eligible Orders 
priced more aggressively than the Opening Match Price will be executed 
in price--display--time priority at the Opening Match Price. All 
remaining Cross Eligible Orders priced equal to the Opening Match Price 
will execute in display--time priority at the Opening Match Price. 
Executions will occur until there is no remaining volume or there is an 
imbalance of orders (i.e., there are no remaining eligible shares to 
buy (sell), while eligible shares to sell (buy) remain unexecuted) (the 
process described above, collectively, being the ``Opening Match''). 
AGID modifiers, as defined in Rule 11.190(e), will not be supported for 
executions in the Opening Match, but will be enforced on all unexecuted 
shares released to the Order Book following the Opening Match.
    An imbalance of Cross Eligible Orders on the buy side or sell side 
may result in orders that are not executed in whole or in part. 
Unexecuted Cross Eligible Orders to buy (sell) that are priced at or 
above (below) the Cross Price Constraint (but remained unexecuted due 
to an imbalance of Cross Eligible Orders) will price slide pursuant to 
IEX Rule 11.190(h) and all remaining unexecuted Cross Eligible Orders, 
along with any orders that were either ineligible to participate in the 
Opening Process or too passive to be executed in the Opening Process, 
will be released to the Order Book for continuous trading or canceled 
in accordance with the terms of the order. Routable orders that are 
released to the Order Book will be routed in accordance with IEX Rule 
11.230(c)(3) (Re-Sweep Behavior), subject to the order's instructions.
    Proposed Rule 11.231(c)(1) sets forth proposed definitions 
applicable to the Opening Process. As proposed:
     The term ``Away Protected NBB'' or ``Away Protected NBO'' 
shall mean the national best bid or offer, respectively, that is a 
Protected Quotation and not a quotation of the Exchange.
     The term ``Away Protected Bid'' or ``Away Protected 
Offer'' shall mean a Protected Bid or Protected Offer, respectively, 
that is not a quotation of the Exchange.
     The term ``Cross Price Constraint'' shall mean, 
collectively, the upper and lower threshold prices within which the 
Opening Match must occur, inclusive of the boundaries. During a crossed 
market, if the upper threshold price is below the lower threshold price 
when performing the Opening Process, no Opening Match will occur and 
orders eligible to post on the Order Book will price slide in 
accordance with the price sliding process, pursuant to IEX Rule 
11.190(h), and the security will open for trading on IEX in accordance 
with prevailing market session rules.
    [cir] The upper threshold price of the Cross Price Constraint is 
equal to the price of the Away Protected NBO, except in the event that 
an Away Protected Bid is crossing an Away Protected Offer, the upper 
threshold price is equal to the greater of five cents ($0.05) or one 
half of a percent (0.5%) higher than the lowest Away Protected Offer.
    [cir] The lower threshold price of the Cross Price Constraint is 
equal to the price of the Away Protected NBB, except in the event that 
an Away Protected Bid is crossing an Away Protected Offer, the lower 
threshold price is equal to the greater of five cents ($0.05) or one 
half of a percent (0.5%) lower than the highest Away Protected Bid.
     The term ``Cross Tie Breaker'' shall mean the price of the 
most current Order Collar Reference Price pursuant to IEX Rule 
11.190(f).\7\
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    \7\ Rule 11.190(f)(1)(A) defines the Order Collar Reference 
Price as the most current of: (i) The consolidated last sale price 
disseminated during the Regular Market Session on the current trade 
date, (ii) the last trade price disseminated outside of the Regular 
Market Session by the SIP (Form T, as communicated by the relevant 
SIP) on the current trade date, which but for the Form T designation 
would have been considered a valid last sale price, or, (iii) if no 
such trades exist, the previous official closing price. If no Pre-
Market Session trades have occurred that qualify to update the Order 
Collar Reference Price and the previous official closing price for 
the security is not available, in the interest of maintaining a fair 
and orderly market, the Exchange will prevent trading in a security 
pursuant to Rule 11.190(f)(1)(B) by rejecting orders beginning at 
the start of the Pre-Market Session, and will not conduct an Opening 
Match in such security. Accordingly, in such cases, the Opening 
Process will conclude with IEX opening the Regular Market Session 
without an Opening Match, and trading will begin upon receipt of the 
first Order Collar Reference Price for the security.
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    Under proposed Rule 11.231(c)(2), if both an Away Protected Bid and 
Away Protected Offer exists (i.e., a two-sided market) the price of the 
Opening Match (``Opening Match Price'') will be the price that 
maximizes the number of shares of Cross Eligible Orders to be executed. 
If more than one price exists that maximizes the number of shares of 
Cross Eligible Orders to be executed, the Opening Match shall occur at 
the entered price at which shares will remain unexecuted in the match 
(i.e., the price of the most aggressive unexecuted order). If Cross 
Eligible Order shares are maximized and left unexecuted at more than 
one price, the Opening Match shall occur at the price that minimizes 
the distance from the Cross Tie Breaker (i.e., the price at or higher 
than the most aggressive unexecuted buy order and at or lower than the 
most aggressive unexecuted sell order that is closest or equal to the 
Cross Tie Breaker). Lastly, if the Opening Match Price established 
pursuant to the procedures above is below (above) the lower (upper) 
threshold price of the Cross Price Constraint, the Opening Match shall 
occur at the lower (upper) threshold price of the Cross Price 
Constraint.
    The following examples are designed to illustrate the process for 
determining the Opening Match Price in a two-sided market, as described 
above. Each example below assumes the Away Protected NBB is $10.09, the 
Away Protected NBO is $10.11, and the last trade price that qualified 
as an Order Collar Reference Price was $10.10:

 Example 1
    [cir] The Cross Book includes the following orders:
    [ssquf] Limit order to buy 1,500 shares with a limit price of 
$10.10; and
    [ssquf] Limit order to sell 1,000 shares with a limit price of 
$10.10.
    [cir] Shares are maximized at $10.10; therefore
    [ssquf] 1,000 shares would execute at the Opening Match Price of 
$10.10.

 Example 2
    [cir] The Cross Book contains the following orders:
    [ssquf] Limit order to buy 1,500 shares with a limit price of 
$10.10; and
    [ssquf] Market order to sell 1,000 shares.
    [cir] Shares are maximized at each price at and between the lower 
threshold of the Cross Price Constraint (i.e., $10.09) and $10.10;
    [cir] The price at which shares will remain unexecuted in the 
auction is $10.10; \8\ therefore
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    \8\ Note, while shares are maximized at and between the lower 
threshold of the Cross Price Constraint ($10.09) and $10.10, the 
entered price at which shares will remain unexecuted in the auction 
is $10.10, as $10.10 is the resting price of the most aggressive 
order where shares remain unexecuted.

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[[Page 19766]]

    [ssquf] 1,000 shares would execute at the Opening Match Price of 
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$10.10.

 Example 3
    [cir] The Cross Book contains the following orders:
    [ssquf] Limit order to buy 2,000 shares with a limit price of 
$10.11;
    [ssquf] Limit order to sell 2,000 shares with a limit price of 
$10.09.
    [cir] The Continuous Book contains the following orders:
    [ssquf] Displayed limit order to buy 500 shares with a limit price 
of $10.09;
    [ssquf] Displayed limit order to sell 600 shares with a limit price 
of $10.11.
    [cir] Shares are maximized at each price at or between $10.09 and 
$10.11;
    [cir] The range of prices at or between the prices at which shares 
will remain unexecuted in the auction is $10.09 and $10.11;
    [cir] Because a range of prices exist after evaluating the prior 
two conditions (i.e., an auction price range), the price closest to the 
Cross Tie Breaker (i.e., the last trade price that qualified as an 
Order Collar Reference Price) within the auction price range is $10.10; 
therefore
    [ssquf] 2,000 shares would execute at the Opening Match Price of 
$10.10.

 Example 4
    [cir] The Cross Book contains the following orders:
    [ssquf] Limit order to buy 2,000 shares with a limit price of 
$10.08;
    [ssquf] Limit order to sell 2,000 shares with a limit price of 
$10.08.
    [cir] The Continuous Book contains the following orders:
    [ssquf] Displayed limit order to buy 500 shares with a limit price 
of $10.09;
    [ssquf] Displayed limit order to sell 600 shares with a limit price 
of $10.11.
    [cir] Shares are maximized at $10.08, however $10.08 is below the 
lower threshold of the Cross Price Constraint (i.e., $10.09); therefore
    [ssquf] 500 shares would execute at the Opening Match Price of 
$10.09.
    The following examples are designed to illustrate the process for 
determining the Opening Match Price and the proposed execution priority 
including non-displayed orders on the Cross Book in two-sided market, 
as described above. Each example below assumes the Away Protected NBB 
is $20.19, the Away Protected NBO is $20.21, and the last trade price 
that qualified as an Order Collar Reference Price was $20.20:

 Example 1
    [cir] The Cross Book includes the following orders:
    [ssquf] Midpoint Peg order to buy 2,500 shares with a resting price 
of $20.20.
    [ssquf] Limit order to buy 500 shares with a limit price of $20.18; 
and
    [ssquf] Limit order to sell 2,000 shares with a limit price of 
$20.18.
    [cir] For purposes of determining the Opening Match Price, the 
Midpoint Peg order is priced at its resting price ($20.20);
    [cir] Accordingly, shares are maximized between $20.18 and $20.20, 
and the price at which shares are left unexecuted within such range, is 
$20.20; therefore
    [ssquf] 2,000 shares would execute at the Opening Match Price of 
$20.20;
     The Midpoint Peg buy order would receive an execution of 
2,000 shares and the remaining 500 shares remain booked at the midpoint 
of the NBBO;
     The limit sell order would receive an execution of 2,000 
shares, and thus be fully filled; and
     The limit buy order would not receive an execution, 
because the limit sell order is fully filled after matching with the 
Midpoint Peg buy order with superior priority. The entire limit buy 
order is booked at the $20.18.

 Example 2
    [cir] The Cross Book includes the following orders:
    [ssquf] Primary Peg order to buy 2,500 shares with a resting price 
of $20.18, and limit price of $20.20;
    [ssquf] Limit order to buy 500 shares with a limit price of $20.19; 
and
    [ssquf] Displayed limit order to sell 2,000 shares with a limit 
price of 20.19.
    [cir] For purposes of determining the Opening Match Price, the 
Primary Peg order is priced at its resting price ($20.18); the Primary 
Peg order is eligible exercise price discretion up to the Opening Match 
Price, so long as the match price is at or below the less aggressive of 
the NBB or the order's limit price;
    [cir] Accordingly, shares are maximized at $20.19; therefore
    [ssquf] 2,000 shares would execute at the Opening Match Price of 
$20.19;
     The limit buy order would receive an execution of 500 
shares;
     Assuming IEX has determined the quote to be stable 
pursuant to IEX Rule 11.190(g), the Primary Peg buy order would 
exercise discretion up to the Opening Match Price and receive an 
execution of 1,500 shares; the remaining 1,000 shares remain booked at 
$20.18; and
     Assuming IEX has determined the quote to be stable 
pursuant to IEX Rule 11.190(g), the limit sell order would receive an 
execution of 2,000 shares. If IEX has determined the quote to be 
unstable pursuant to IEX Rule 11.190(g), the limit sell order would 
receive an execution of 500 shares and the remaining 1,500 shares would 
post, in accordance with the display-price sliding behavior, 1 MPV 
above the NBB at $20.20.

 Example 3
    [cir] The Cross Book includes the following orders:
    [ssquf] Midpoint Peg order to buy 2,500 shares with a resting price 
of $20.20.
    [ssquf] Displayed limit order to buy 500 shares with a limit price 
of $20.20; and
    [ssquf] Limit order to sell 2,000 shares with a limit price of 
$20.20.
    [cir] For purposes of determining the Opening Match Price, the 
Midpoint Peg order is priced at its resting price ($20.20);
    [cir] Accordingly, shares are maximized at $20.20; therefore
    [ssquf] 2,000 shares would execute at the Opening Match Price of 
$20.20;
     The limit buy order would receive an execution of 500 
shares;
     The Midpoint Peg buy order would receive an execution of 
1,500 shares; and
     The limit sell order would receive an execution of 2,000 
shares.

 Example 4
    [cir] The Cross Book includes the following orders:
    [ssquf] Discretionary Peg order to buy 2,500 shares with a resting 
price of $20.19, and limit price of $20.21;
    [ssquf] Limit order to buy 500 shares with a limit price of $20.20; 
and
    [ssquf] Limit order to sell 2,000 shares with a limit price of 
$20.20.
    [cir] For purposes of determining the Opening Match Price, the 
Discretionary Peg order is priced at its resting price ($20.19); the 
Discretionary Peg order is eligible exercise price discretion up to the 
Opening Match Price, so long as the match price is at or below the less 
aggressive of the midpoint of the NBBO or the order's limit price.
    [cir] Accordingly, shares are maximized at $20.20; therefore
    [ssquf] 2,000 shares would execute at the Opening Match Price of 
$20.20;
     The limit buy order would receive an execution of 500 
shares;
     Assuming IEX has determined the quote to be stable 
pursuant to IEX Rule 11.190(g), the Discretionary Peg buy order would 
exercise discretion up to the Opening Match Price and receive an 
execution of 1,500 shares; and
     Assuming IEX has determined the quote to be stable 
pursuant to IEX Rule 11.190(g), the limit sell order would receive an 
execution of 2,000 shares. If IEX has determined the quote to be 
unstable pursuant to IEX Rule 11.190(g), the limit sell order would 
receive an execution of 500 shares and the

[[Page 19767]]

remaining 1,500 shares would post at $20.20.
    Under proposed Rule 11.231(c)(3), if there is a lack of an Away 
Protected Bid and/or Away Protected Offer (i.e., a one-sided, or zero-
sided market) the Opening Match Price will be the price of the Cross 
Tie Breaker. If the price of the Cross Tie Breaker is below (above) the 
lower (upper) threshold price of the Cross Price Constraint, the 
Opening Match shall occur at the lower (upper) threshold price of the 
Cross Price Constraint.\9\
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    \9\ In a one-sided market where there is no Away Protected NBB 
or no Away Protected NBO, the Cross Tie Breaker is compared to the 
available threshold price of the Cross Price Constraint (i.e., the 
Opening Match Price will be at or above the lower threshold price, 
or at or below the upper threshold price of the Cross Price 
Constraint, as applicable). In a zero-sided market, the Opening 
Match Price will be the Cross Tie Breaker.
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    The following examples are designed to illustrate the process for 
determining the Opening Match Price in a one-sided or zero-sided market 
as described above. Each example below assumes the last trade price 
that qualified as an Order Collar Reference Price was $10.10:

 Example 1
    [cir] Away Protected NBB is $10.09;
    [cir] The Cross Book includes the following orders:
    [ssquf] Limit order to buy 1,500 shares with a limit price of 
$10.11; and
    [ssquf] Limit order to sell 1,000 shares with a limit price of 
$10.09.
    [cir] The Cross Tie Breaker is $10.10 and such price is above the 
lower threshold of the Cross Price Constraint (i.e., $10.09); \10\ 
therefore
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    \10\ Note, there is no upper threshold price of the Cross Price 
Constraint because there is no Away Protected NBO, and therefore the 
Cross Tie Breaker of $10.10 is compared to the available lower 
threshold price of the Cross Price Constraint ($10.09).
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    [ssquf] 1,000 shares would execute at the Opening Match Price of 
$10.10.

 Example 2
    [cir] Away Protected NBB is $10.11;
    [cir] The Cross Book includes the following orders:
    [ssquf] Limit order to buy 1,500 shares with a limit price of 
$10.11; and
    [ssquf] Limit order to sell 1,000 shares with a limit price of 
$10.09.
    [cir] The Cross Tie Breaker is $10.10 however such price is below 
the lower threshold of the Cross Price Constraint (i.e., $10.11); 
therefore
    [ssquf] 1,000 shares would execute at the Opening Match Price of 
$10.11.

 Example 3
    [cir] There is neither an Away Protected NBB nor an Away Protected 
NBO;
    [cir] The Cross Book includes the following orders:
    [ssquf] Limit order to buy 1,500 shares with a limit price of 
$10.11; and
    [ssquf] Limit order to sell 1,000 shares with a limit price of 
$10.09.
    [cir] The Cross Tie Breaker is $10.10; \11\ therefore
---------------------------------------------------------------------------

    \11\ Note, there is neither an upper threshold price nor a lower 
threshold price of the Cross Price Constraint because there are no 
away protected quotations.
---------------------------------------------------------------------------

    [ssquf] 1,000 shares would execute at the Opening Match Price of 
$10.10.
    Proposed Rule 11.231(e) provides that if a security is subject to a 
halt, suspension, or pause in trading during the Pre-Market Session, 
the Exchange will not accept orders in the security for continuous 
trading, or for queuing and participation in the Opening Process. 
Pursuant to IEX Rule 11.271, any order submitted during a halt will be 
rejected by the System. Any orders resting on the Order Book at the 
time of a trading halt will not be canceled by the System, and will be 
unavailable for trading or re-sweep during the trading halt, but will 
be available for cancelation by the submitting User. Orders that were 
submitted prior to the halt, suspension, or pause in trading that 
joined the Cross Book or the Continuous Book will remain on the Cross 
Book or the Continuous Book unless canceled by the User. If the halt, 
suspension, or pause remains in effect at the start of the Regular 
Market Hours, the Opening Process will not occur at the normally 
scheduled time. Instead, once the security resumes trading, the 
Exchange will conduct the Opening Process, as described in proposed 
Rule 11.231(b) and (c), including all Cross Eligible Orders that remain 
on the Cross Book and the Continuous Book. Following the conclusion of 
the Opening Process, the Exchange will accept and execute orders as 
usual in accordance with prevailing market session rules.
    In the event of a disruption that prevents the execution of the 
Opening Process, Rule 11.231(d) provides for Opening Process 
Contingency Procedures designed to allow for timely and orderly opening 
of non-IEX-listed securities. As proposed, rather than matching orders 
at the Opening Match Price as described in Rule 11.231(c), IEX will 
publicly announce that no Opening Process will occur.\12\ All orders on 
the Order Book will be canceled, and IEX will open the security for 
trading without an Opening Match.
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    \12\ Note, the Exchange intends to disseminate a System Status 
Alert to publicly announce that no Opening Process will occur, which 
automatically publishes an email alert, twitter update, and text 
message to all persons registered to receive such alerts, as well as 
publishing to the IEX public Web site. To register for System Status 
Alerts, visit https://www.iextrading.com/status/#/.
---------------------------------------------------------------------------

    Lastly, proposed Rule 11.231(f) states that for purposes of Rule 
611(b)(3) of Regulation NMS, and section VI(D)(6) of the Plan to 
Implement a Tick Size Pilot Program, orders executed in the Opening 
Process shall constitute a single-priced opening transaction by the 
Exchange and may trade-through or trade-at the price of any other 
Trading Center's Manual or Protected Quotations. Each of the orders 
executed in the Opening Process are by definition a single priced 
opening or re-opening transaction, and therefore meet the letter and 
spirit of Rule 611(B)(3) of Regulation NMS and section VI(D)(6) of the 
plan to Implement a Tick Size Pilot Program, consistent with the 
protection of investors and the public interest.
Implementation
    The Exchange plans to implement the proposed changes during the 
second quarter of 2017 pending completion of necessary technology 
changes and subject to Commission approval. The Exchange will announce 
the implementation date of the proposed changes by Trader Alert at 
least 10 business days in advance of such implementation date and 
within 90 days of approval of this proposed rule change.
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with 
Section 6(b) of the Act \13\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\14\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest. Specifically, the Exchange 
believes that the proposal is consistent with the protection of 
investors and the public interest in that the price discovery mechanism 
utilized to determine the Opening Match Price under proposed Rule 
11.231(c) will provide the greatest opportunity to match buy and sell 
orders at a price that is reflective of market conditions for the 
security, while also providing for orderly and timely openings of non-
IEX-listed securities.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Specifically, the Exchange believes that constraining the Opening 
Match Price to prices at or between the Away Protected NBB and Away 
Protected NBO is designed to respect the fact that

[[Page 19768]]

much of the liquidity seeking execution at the start of Regular Market 
Hours is aggregated at the primary market center. Therefore, including 
the quotations of the primary market (along with those of all other 
protected markets) for purposes of pricing the Opening Match is 
designed to provide the greatest opportunity to match buy and sell 
orders at a price that is reflective of the market for the security, in 
furtherance of the perfection of a free and open market and a national 
market system, and consistent with the protection of investors and the 
public interest. The Exchange notes that as proposed, the Cross Price 
Constraint will not include IEX's protected quotations when determining 
the upper and lower threshold prices within which the Opening Match 
must occur, because the inclusion of such quotes may unnecessarily 
constrain the prices at which the Opening Match may occur, needlessly 
restricting price discovery in the Opening Process when the Opening 
Match would maximize shares traded at a price beyond the IEX best bid 
(offer) but within the Away Protected NBB (NBO). However, shares that 
comprise protected quotations on IEX would necessarily be included in 
the Opening Process pursuant to proposed Rule 11.220(a)(2) regarding 
priority. Accordingly, the Exchange believes that excluding IEX's 
protected quotations is consistent with the protection of investors and 
the public interest, in that it is designed to allow for robust price 
discovery to occur at or within the prices which best reflect the 
broader market for the security.
    The Exchange believes that not supporting AGID modifiers in the 
Opening Process is consistent with the protection of investors and the 
public interest because within the context of the Opening Match 
process, counterparties are not considered; only the aggregate 
available volume for execution is considered. It is illogical to cancel 
an order that happens to be allocated an execution against an order 
entered using the same MPID, because both orders execute at the exact 
same price to the exact same effect where the orders happen to execute 
against orders of a different MPID. Furthermore, the Exchange believes 
that supporting AGID modifiers and including Minimum Quantity orders in 
the Opening Process would introduce additional technical complexities 
to the Opening Process, and the Exchange believes providing simplicity 
in this regard is in the interest of the protection of investors and 
the public interest.\15\
---------------------------------------------------------------------------

    \15\ The Exchange notes that Bats BZX Exchange, Inc (``Bats'') 
does not support broker self-match restrictions in their opening 
process for non-listed securities. See Bats Rule 11.24(b), which 
states that all MTP modifiers, as defined in Bats Rule 11.9(f), will 
be ignored as it relates to executions occurring as part of the Bats 
opening match process.
---------------------------------------------------------------------------

    The Exchange notes that the proposed handling of Minimum Quantity 
orders in the Opening Process is distinct from the proposed handling of 
such orders in the Opening Auction for IEX-listed securities pursuant 
to proposed Rule 11.350(c).\16\ Specifically, in the case of an Opening 
Auction for an IEX-listed security pursuant to proposed Rule 
11.350(c)(2)(C), Minimum Quantity orders are eligible for execution in 
the auction, but the minimum quantity instructions will not be 
supported, although it will be enforced on all unexecuted shares 
released for continuous trading following the Opening Auction match. 
Conversely, for the Opening Process for non-IEX-listed securities, 
Minimum Quantity orders are not eligible for execution in the Opening 
Process. The Exchange believes the Opening Process will yield small 
execution sizes in comparison the size of an Opening Auction. 
Accordingly, the Exchange does not believe that including Minimum 
Quantity orders but not supporting the instruction is an effective 
approach for handling such orders because the Opening Match is likely 
to result in more executions that are smaller than an order's minimum 
quantity instruction. Accordingly, the Exchange believes that the 
proposed functionality regarding Minimum Quantity orders is consistent 
with the protection of investors and the public interest.
---------------------------------------------------------------------------

    \16\ See proposed Rule 11.350(c)(2)(C) in SR-IEX-2017-10 
available at https://www.iextrading.com/regulation/rule-filings/.
---------------------------------------------------------------------------

    Furthermore, the Exchange believes that the proposed changes to 
Rule 11.220(a)(2) regarding the priority of orders eligible to execute 
in the proposed Opening Process is consistent with the protection of 
investors and the public interest because the proposed Opening Process 
priority is designed to create continuity between the priority rules 
applied during continuous trading and in the Opening Process. 
Specifically, identical to the Pre-Market, Regular Market, and Post 
Market Sessions, the Exchange is proposing to apply price--display--
time priority for purpose of ranking and maintaining orders eligible to 
execute in the proposed Opening Process. Furthermore, the Exchange 
notes that the proposed priority for the Opening Process is 
substantially similar to the priority of the opening processes for non-
listed securities on NYSE Arca, Inc. (``NYSE Arca'') and the Nasdaq 
Stock Market (``Nasdaq'').\17\
---------------------------------------------------------------------------

    \17\ See, e.g., Nasdaq Rule 4752(d)(3)(A)-(D), and NYSE Arca 
Rule 7.35(a)(6) and 7.35(c)(4), describing priority for the opening 
auction.
---------------------------------------------------------------------------

    The Exchange believes that allowing primary peg, midpoint peg and 
Discretionary Peg orders to participate in the proposed Opening Process 
is designed to promote just and equitable principles of trade, remove 
impediments to and perfect the mechanisms of a free and open market and 
a national market system, and protect investors and the public 
interest. Specifically, as proposed, primary peg, midpoint peg, and 
Discretionary Peg orders as set forth in Rules 11.190(b)(8), 
11.190(b)(9), and 11.190(b)(10), respectively, would be ranked and 
eligible for execution in the Opening Process at their resting price. 
As proposed, primary peg and Discretionary Peg orders would have the 
ability to exercise price discretion to execute at the Opening Match 
Price. When primary peg and Discretionary Peg orders exercise 
discretion to execute at the Opening Match Price, such orders are 
prioritized behind all other non-displayed interest at the Opening 
Match Price; if multiple orders exercise discretion, they maintain 
their relative time priority at the Opening Match Price. Primary peg 
orders may exercise price discretion up (down) to the Opening Match 
Price, subject to the less aggressive of the NBB (NBO) or the order's 
limit price, if any, except during periods of quote instability, as 
defined in IEX Rule 11.190(g). Discretionary Peg orders may exercise 
price discretion up (down) to the Opening Match Price, subject to the 
less aggressive of the Midpoint Price or the order's limit price, if 
any, except during periods of quote instability, as defined in IEX Rule 
11.190(g). The Exchange believes that inclusion of such orders is 
designed to maximize the liquidity available for execution in the 
Opening Process, thereby facilitating price discovery and a more 
orderly opening.
    As proposed, primary peg, midpoint peg, and Discretionary Peg 
orders participate in the Opening Process in a manner that is 
fundamentally substantially similar to the behavior of such orders 
during continuous trading. Specifically, the manner in which such 
orders are eligible for execution in the Opening Process are 
functionally identical to their eligibility for execution during 
continuous trading. For example, a resting Discretionary Peg

[[Page 19769]]

order would exercise discretion up (down) to the less aggressive of the 
Midpoint Price or the order's limit price to interact with an incoming 
spread crossing order. Similarly, in the Opening Process, a 
Discretionary Peg order would exercise discretion up (down) to the 
Opening Match Price, subject to the less aggressive of the Midpoint 
Price, or the order's limit price to interact contra-side liquidity in 
the Opening Process. Accordingly, inclusion of such orders would be in 
accord with existing functionality already approved by the Commission 
in connection with its grant of IEX's application for registration as a 
national securities exchange under Sections 6 and 19 of the Act, 
wherein the Commission specifically found IEX's order type rules to be 
consistent with the Act and, in particular, the Section 6(b)(5) 
requirement that the Exchange's rules be designed to promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanisms of a free and open market and a national market system, and 
protect investors and the public interest.\18\ Accordingly, the 
Exchange does not believe that allowing these orders to participate in 
the proposed Opening Process in accordance with their current 
functionality raises any new or novel issues that have not already been 
considered by the Commission, and is thus consistent with the 
protection of investors and the public interest.
---------------------------------------------------------------------------

    \18\ See Securities Exchange Act Release No. 34-78101 at 47 
(June 17, 2016), 81 FR 41142 (June 23, 2016) (File No. 10-222).
---------------------------------------------------------------------------

    The Exchange also believes that the proposal is designed 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 proposed Rule 11.231(d) sets forth an opening 
process contingency procedure, which provides a clear and transparent 
process designed to provide a means for trading in a non-IEX-listed 
security to open in an orderly and timely manner even after a 
disruption has prevented the execution of the Opening Process. 
Furthermore, the Exchange believes that proposed Rule 11.231(e) is 
designed 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 in that the Exchange would 
conduct the Opening Process for non-IEX-listed securities that were 
subject to and remained in a halt, suspension, or pause in trading at 
the commencement of the Opening Process, while still allowing Users to 
cancel any queued interest prior to the commencement of the Opening 
Process. Applying the proposed Opening Process for securities that open 
after the start of Regular Market Hours as a result of a halt, 
suspension, or pause in trading provides the greatest opportunity to 
match buy and sell orders at a price that is reflective of market 
conditions for the security, while also providing for orderly and 
timely openings of non-IEX-listed securities, and creating uniformity 
among all non-IEX-listed securities by applying a consistent approach 
to open trading on IEX in such securities.
    In addition, the Exchange believes that allowing market orders with 
a time-in-force of DAY to be entered into the System for queueing in 
the Pre-Market session while also allowing such orders to participate 
in the Opening Process provides Users with greater control and 
flexibility with respect to entering orders, and may simplify the order 
entry process for Users. In this regard, Users are able to enter orders 
that will either queue on the Cross Book for participation in the 
Opening Process, or are eligible for execution in the Pre-Market 
Session prior to participating in the Opening Process, which removes 
impediments to a free and open market and benefits all Users of the 
Exchange. In addition, the Exchange believes that its proposal to make 
a minor conforming change to the language used in reference to the LULD 
Price Bands in Rule 11.190(a)(1)(2) [sic] in order to conform the 
reference to the language used throughout the Exchange's rules is 
consistent with the protection of investors and the public interest 
because it is designed to provide consistency and clarity in the 
Exchange's rules, which benefits all market participants.
    The Exchange is not proposing to disseminate indicative pricing or 
imbalance information relating to the Opening Process. The Exchange is 
not proposing to disseminate indicative pricing or imbalance 
information prior to the Opening Process because the Exchange is not 
trying to establish equilibrium in order to determine the official 
opening price of the security. Rather, the Opening Process is designed 
to efficiently resolve the queue of orders awaiting the Regular Market 
Session at a fair price, that reflects the broader market for the 
security. Accordingly, the Exchange believes that not providing 
indicative pricing or imbalance information related to the Opening 
Process is consistent with the protection of investors and the public 
interest.\19\
---------------------------------------------------------------------------

    \19\ The Exchange notes that Bats does not provide indicative 
pricing or imbalance information for its process for opening non-
listed securities pursuant to Bats Rule 11.24.
---------------------------------------------------------------------------

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

    IEX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. To the contrary, the Exchange 
believes that the proposed Opening Process is designed to promote fair 
competition among brokers and dealers and among exchange markets by 
offering an Opening Process that competes with existing opening 
processes for non-listed securities offered by IEX's competitors, 
thereby promoting intermarket competition between exchanges in 
furtherance of the principles of Section 11A(a)(1).\20\
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------

    With respect to intramarket competition, the proposed Opening 
Process will apply equally to all non-IEX-listed securities, and all 
Members and market participants that send orders to IEX through 
Members. Members are permitted to enter any type of Cross Eligible 
Order and there are no privileged participants who receive enhanced 
priority, or have access to special order types. Consequently, IEX does 
not believe that the proposal will impose any burden on intramarket 
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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

[[Page 19770]]

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-2017-11 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-IEX-2017-11. 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 such 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-2017-11, and should be 
submitted on or before May 19, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-08575 Filed 4-27-17; 8:45 am]
 BILLING CODE 8011-01-P