Document ID: SEC-2020-1542-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Investors Exchange, LLC
Posted Date: 2020-09-29T04:00Z

[Federal Register Volume 85, Number 189 (Tuesday, September 29, 2020)]
[Notices]
[Pages 61048-61050]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21404]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89968; File No. SR-IEX-2020-15]

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 Concerning the CQ Remove 
Fee

September 23, 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 September 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, pursuant to IEX Rule 15.110(a) and (c), to remove 
the Crumbling Quote Remove Fee (``CQ Remove Fee'' or ``CQRF''). Fee 
changes pursuant to this proposal are effective upon filing,\5\ and 
will be implemented as described herein.
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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 eliminate the CQ Remove Fee, which is an 
additional fee on Members that that execute more than a certain 
threshold of orders that take liquidity during periods when the IEX 
crumbling quote indicator (``CQI'') is on for the security in question.
Background
    The CQI is a transparent proprietary mathematical calculation 
(specified in IEX Rule 11.190(g)) designed to predict whether a 
particular quote is unstable or ``crumbling,'' meaning that the NBB is 
likely about to decline or the NBO is likely about to increase. The 
Exchange utilizes real time relative quoting activity of certain 
Protected Quotations \6\ and the 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 \7\ 
treats the quote as unstable and the 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 up to two milliseconds.
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    \6\ Pursuant to IEX Rule 11.190(g), references to ``Protected 
Quotations'' include quotations from the New York Stock Exchange LLC 
(``NYSE''); The Nasdaq Stock Market LLC (``Nasdaq''); NYSE Arca, 
Inc. (``NYSE Arca''); Nasdaq BX, Inc. (``Nasdaq BX''); Cboe BZX 
Exchange, Inc. (``Cboe BZX''); Cboe BYX Exchange, Inc. (``Cboe 
BYX''); Cboe EDGX Exchange, Inc. (``EDGX''); and Cboe EDGA Exchange, 
Inc. (``EDGA'').
    \7\ See IEX Rule 1.160(nn).
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    IEX currently offers two non-displayed order types--Discretionary 
Peg \8\ and primary peg \9\--that each leverage the protective features 
of the CQI by restricting such orders from exercising price discretion 
to a more aggressive price when the CQI is on. As described more fully 
below, the Commission recently approved a new IEX order type--D-Limit--
that can be displayed or non-displayed and will also leverage the 
protective features of the CQI and is pending deployment. Prior to 
deployment of the D-Limit order type, the CQ Remove Fee has been the 
only IEX functionality that was designed to leverage the CQI to protect 
displayed orders.
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    \8\ See IEX Rule 11.190(b)(10). IEX has two other order types 
that are based on the DPeg order type: The Retail Liquidity Provider 
order and the Corporate Discretionary Peg order. See IEX Rule 
11.190(b)(14) and (16).
    \9\ See IEX Rule 11.190(b)(8).
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    In the absence of a displayed order type that could leverage the 
protective features of the CQI, the CQ Remove Fee was designed to 
incentivize market participants to send orders (including displayed 
orders) to provide liquidity to IEX by reducing the volume of orders 
involving latency arbitrage trading strategies that seek to exploit 
information advantages during narrow time windows when the CQI is on.
    The Exchange currently charges the CQ Remove Fee to orders that 
remove resting liquidity when the CQI is on if such executions exceed 
the CQRF Threshold.\10\ Executions of orders that remove resting 
liquidity during periods when the CQI is on are assessed a fee of 
$0.0030 per each incremental share

[[Page 61049]]

executed at or above $1.00 that exceeds the CQ Remove Fee 
Threshold.\11\
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    \10\ The threshold is equal to 5% of the sum of a Member's total 
monthly executions on IEX, measured on a per logical port (i.e., 
session) per MPID basis. See Investors Exchange Fee Schedule, 
available on the Exchange public website.
    \11\ Executions below $1.00 are assessed a fee of 0.30% of the 
total dollar value (``TDV'') of the execution unless the Fee Code 
Combination results in a free execution. See Investors Exchange Fee 
Schedule, available on the Exchange public website.
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    The CQ Remove Fee has resulted in a small incremental reduction in 
the use of latency arbitrage strategies on IEX. IEX believes the 
limited impact of the CQ Remove Fee is a result of the fact that the 
potential profits from the use of such strategies substantially exceed 
the profits lost from the CQ Remove Fee.\12\
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    \12\ The Exchange is effectively limited in setting the CQ 
Remove Fee by Rule 610(c) of Regulation NMS. 17 CFR 242.610(c).
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Proposal
    IEX proposes to eliminate the CQ Remove Fee, as of October 1, 2020, 
to coincide with the October 1, 2020 full deployment of the D-Limit 
order type.\13\ As noted above, the CQ Remove Fee has been only 
minimally effective in reducing the use of latency arbitrage strategies 
targeting resting orders on IEX at potentially stale prices. With the 
launch of the D-Limit order type, which is designed to protect both 
displayed and non-displayed orders from the same type of latency 
arbitrage strategies as the CQ Remove Fee, market participants seeking 
protection from such strategies through non-pegged orders, including 
displayed orders, can use D-Limit orders instead of other limit orders.
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    \13\ Deployment of the D-Limit order type is scheduled to begin 
in test symbols on Friday, September 25, 2020 and conclude in all 
symbols on Thursday, October 1, 2020. See IEX Trading Alert #2020-
024 (Discretionary Limit (D-Limit) Order Type Launch) issued on 
August 28, 2020, available at https://iextrading.com/alerts/#/121.
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    Therefore, IEX proposes to amend the IEX Fee Schedule to delete 
references to the CQ Remove Fee and related references as follows:
     Delete the following lines from the ``Definitions'' in the 
``Transaction fees'' section:
    [cir] ``Quote instability'' is defined in IEX Rule 11.190(g).
    [cir] ``CQRF Threshold'' means the Crumbling Quote Remove Fee 
Threshold. The threshold is equal to 5% of the sum of a Member's total 
monthly executions on IEX measured on a per logical port (i.e., 
session) per MPID basis.
     Delete the following row from the ``Fee Code Modifiers'' 
table:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Q..............................  Crumbling Quote Remove         $0.0030
                                  Fee: Removes
                                  liquidity during
                                  periods of quote
                                  instability at or
                                  within the NBBO above
                                  the CQRF Threshold,
                                  measured on an MPID
                                  basis.\1\
------------------------------------------------------------------------

     Delete the following rows from the ``Fee Code Combinations 
and Associated Fees'' table:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
IQ \1\.........................  Removes non-displayed          $0.0009
                                  liquidity during
                                  periods of quote
                                  instability.
LQ \1\.........................  Removes displayed              $0.0003
                                  liquidity during
                                  periods of quote
                                  instability.
ISQ \1\........................  Member removes non-               FREE
                                  displayed liquidity
                                  provided by such
                                  Member during periods
                                  of quote instability.
IQR \12\.......................  Retail order removes              FREE
                                  non-displayed
                                  liquidity during
                                  periods of quote
                                  instability.
LSQ \1\........................  Member removes                    FREE
                                  displayed liquidity
                                  provided by such
                                  Member during periods
                                  of quote instability.
LQR \12\.......................  Retail order removes              FREE
                                  displayed liquidity
                                  during periods of
                                  quote instability.
ISQR \12\......................  Retail order removes              FREE
                                  non-displayed
                                  liquidity provided by
                                  such Member during
                                  periods of quote
                                  instability.
LSQR \12\......................  Retail order removes              FREE
                                  displayed liquidity
                                  provided by such
                                  Member during periods
                                  of quote instability.
------------------------------------------------------------------------

     Delete Footnote 1 (in the ``Transaction fees'' section of 
the Fee Schedule):

[cir] \1\ Crumbling Quote Remove Fee: Executions with Fee Code Q 
that exceed the CQRF Threshold are subject to the Crumbling Quote 
Remove Fee identified in the Fee Code Modifiers table. Executions 
with Fee Code Q that do not exceed the CQRF Threshold are subject to 
the fees identified in the Fee Codes and Associated Fees table.

    IEX also proposes to make conforming changes to the Fee Schedule by 
renumbering Transaction Fee Footnote ``2'' to Footnote ``1'' and 
changing all current references to Footnote ``2'' to instead reference 
Footnote ``1,'' specifically for the following fee codes and fee code 
combinations.
     ``R'', ``IR'', ``LR'', ``ISR'', and ``LSR.''
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 elimination of the 
CQ Remove 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.
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    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4).
    \16\ 15 U.S.C. 78f(b)(5).
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    As discussed in the Purpose Section, the CQ Remove Fee was designed 
to incentivize market participants to send orders (including displayed 
orders) to provide liquidity to IEX by reducing the volume of orders 
involving latency arbitrage trading strategies that seek to exploit 
information advantages during narrow time windows when the CQI is on. 
As discussed above, the CQ Remove Fee resulted in only a minimal 
reduction in the use of such latency arbitrage strategies, and with the 
launch of the D-Limit order type, which is designed to protect both 
displayed and non-displayed orders from the same type of latency 
arbitrage strategies as the CQ Remove Fee, market participants seeking 
protection from such strategies through non-pegged orders (including 
displayed orders) can use D-Limit orders. IEX believes that use of D-
Limit orders, as compared to the CQ Remove Fee, will provide a more 
direct and effective means for market participants to obtain such 
protection. Therefore, the Exchange believes the proposal to eliminate 
the CQ Remove Fee is reasonable because, as discussed above, the CQ 
Remove Fee has been only modestly successful in achieving its intended 
purpose of disincentivizing latency arbitrage trading strategies that

[[Page 61050]]

seek to exploit information advantages during narrow time windows when 
the CQI is on. The Exchange has limited resources available to it to 
devote to the operation of pricing disincentives such as the CQ Remove 
Fee and as such, it is reasonable and equitable for the Exchange to 
reallocate those resources away from programs that are less effective. 
The Exchange also believes that proposed change is equitable and not 
unfairly discriminatory because elimination of the CQ Remove Fee will 
apply to all Members in the same manner.
    Moreover, the Exchange notes that eliminating the CQ Remove Fee 
will mean that orders that take liquidity during periods of quote 
instability above the CQRF Threshold will be assessed the same fees 
that were assessed by the Exchange prior to the introduction of the CQ 
Remove Fee, pursuant to the IEX Fee Schedule that was filed with the 
Commission pursuant to the Act.\17\ Thus, the Exchange believes the 
proposed change does not present any unique or novel issues under the 
Act that have not already been considered by the Commission.
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    \17\ See Securities Exchange Act Release No. 78550 (August 11, 
2016), 81 FR 54873 (August 17, 2016) (SR-IEX-2016-09).
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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 not necessary or appropriate in 
furtherance of the purposes of the Act. With regard to intra-market 
competition, the Exchange notes that the removal of the CQ Remove Fee 
will apply equally to all Members. While the CQ Remove Fee was designed 
to disincentivize certain latency arbitrage trading strategies, as 
described in the Purpose and Statutory Basis sections, the Exchange 
believes that the new D-Limit order type will provide more direct and 
effective protection to Members and other market participants from such 
strategies. Consequently, the Exchange does not believe that 
elimination of the CQ Remove Fee will impose any burden on intra-market 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
    With regard to inter-market competition, the Exchange notes that it 
operates in a highly competitive market in which market participants 
can readily favor competing venues if they deem fee levels at a 
particular venue to be excessive. In such an environment, the Exchange 
must continually adjust its fees to remain competitive with other 
exchanges and alternative trading systems. Because competitors are free 
to modify their own fees in response, subject to the SEC rule filing 
process as applicable, and because market participants may readily 
adjust their order routing practices, the Exchange believes that the 
degree to which IEX fee changes could impose any burden on inter-market 
competition is extremely limited.
    Further, as discussed in the Statutory Basis section, the 
elimination of the CQ Remove Fee will mean that orders that take 
liquidity during periods of quote instability above the CQRF Threshold 
will be assessed the same fees that were assessed by the Exchange prior 
to the introduction of the CQ Remove Fee, pursuant to the IEX Fee 
Schedule that was filed with the Commission pursuant to the Act.\18\ 
Thus, the Exchange believes the proposed change does not present any 
unique or novel issues under the Act that have not already been 
considered by the Commission.
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    \18\ See Securities Exchange Act Release No. 78550 (August 11, 
2016), 81 FR 54873 (August 17, 2016) (SR-IEX-2016-09).
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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) \19\ of the Act.
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    \19\ 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 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) \20\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \20\ 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-2020-15 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-2020-15. 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-2020-15, and should be submitted on 
or before October 20, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-21404 Filed 9-28-20; 8:45 am]
BILLING CODE 8011-01-P