Document ID: SEC-2018-1320-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Investors Exchange, LLC
Posted Date: 2018-08-22T04:00Z

[Federal Register Volume 83, Number 163 (Wednesday, August 22, 2018)]
[Notices]
[Pages 42538-42540]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18060]

[[Page 42538]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83862; File No. SR-IEX-2018-18]

Self-Regulatory Organizations: Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the 
Definition of the Cross Price Constraint Utilized in the Opening 
Process for Non-IEX-Listed Securities Pursuant to Rule 11.231

August 16, 2018.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on August 9, 2018, 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 and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 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''),\4\ and Rule 19b-4 thereunder,\5\ 
Investors Exchange LLC (``IEX'' or ``Exchange'') is filing with the 
Securities and Exchange Commission (``Commission'') a proposed rule 
change to amend the definition of the Cross Price Constraint utilized 
in the opening process for non-IEX-listed securities pursuant to Rule 
11.231. The Exchange has designated this rule change as ``non-
controversial'' under Section 19(b)(3)(A) of the Act \6\ and provided 
the Commission with the notice required by Rule 19b-4(f)(6) 
thereunder.\7\
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CRF 240.19b-4.
    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4.
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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 statement [sic] 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
Background
    The purpose of this proposed rule change is to amend the definition 
of the Cross Price Constraint utilized in the opening process for non-
IEX-listed securities pursuant to Rule 11.231. On July 24, 2017, the 
Commission approved a proposed rule change filed by the Exchange to 
amend IEX 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 (the ``Opening Process'').\8\
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    \8\ See Securities Exchange Act Release No. 81195 (July 24, 
2017), 82 FR 35250 (July 28, 2017).
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Opening Process for Non-IEX-Listed Securities
    Pursuant to Rule 11.231, the Exchange attempts to perform the 
Opening Process in each non-IEX-listed security, in 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'') as 
well as all eligible interest queued for execution in the Regular 
Market Session (i.e., orders on the ``Cross Book'') are executed at a 
single price (the ``Opening Match''). 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'').
    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'').\9\
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    \9\ See Rule 11.220(a)(2). See also Rule 11.231(a)(1).
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IEX Order Collar
    Rule 11.190(f)(1) sets forth the operation of the IEX Order Collar. 
Except for orders that are eligible for the Cross Book, the IEX Order 
Collar prevents any incoming order (including those marked ISO), or 
order resting on the Order Book, from executing at prices outside of 
the Order Collar price range.\10\ The Order Collar price range is 
calculated by applying the numerical guidelines for clearly erroneous 
executions to the Order Collar Reference Price.\11\ The Order Collar 
Reference Price is defined as the most current of the following: \12\
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    \10\ See Rule 11.190(f)(1) for a complete description of the IEX 
Order Collar.
    \11\ The upper (lower) Order Collar price range is calculated by 
adding (subtracting) the appropriate percentage (consistent with the 
numerical guidelines for clearly erroneous executions) to the Order 
Collar Reference Price.
    \12\ In the event there is no valid Order Collar Reference 
Price, the Exchange generally rejects orders for the security. See 
Rule 11.190(f)(1).
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     The consolidated last sale price disseminated during the 
Regular Market Session on the current trade date;
     Last trade price disseminated outside of the Regular 
Market Session (Form T, as communicated by the relevant SIP) on trade 
date which other than for the Form T designation would have been 
considered a valid last sale price; or
     If neither of the prices above are available, the prior 
days Official Closing Price from the listing exchange, adjusted to 
account for corporate actions, news events, etc.\13\
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    \13\ See Rule 11.190(f)(1)(A).
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Proposed Changes
    The Exchange recently identified a minor omission in the Cross 
Price Constraint rule provisions with respect to manner in which the 
IEX Order Collar price range applies. Specifically, as described above, 
the Exchange does not apply the IEX Order Collar to orders eligible for 
the Cross Book so that it does not impact their relative priority of 
execution.\14\ However, while the IEX Order Collar does not apply to 
orders

[[Page 42539]]

eligible for the Cross Book, the current implementation of the Cross 
Price Constraint mechanism is in fact adjusted by the IEX Order Collar 
price range in limited circumstances when the upper or lower threshold 
of such price is less aggressive than the upper or lower threshold of 
the Cross Price Constraint, respectively. In other words, if the Away 
Protected NBB is below the lower threshold of the IEX Order Collar 
price range, or the Away Protected NBO is above the upper threshold of 
the IEX Order Collar price range, the Opening Process execution is 
constrained by the upper and/or lower thresholds of the IEX Order 
Collar. Adjusting the Cross Price Constraint by the IEX Order Collar 
price range does not impact the relative priority of orders eligible 
for the Cross Book because the constraint is not applied at the order 
level but instead to the cross price, in connection with the Opening 
Match.
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    \14\ See Securities Exchange Act Release No. 81662 (September 
20, 2017), 82 FR 44861 (September 26, 2017) (SR-IEX-2017-31), a 
proposed rule change to clarify the inapplicability of the 
Exchange's Order Collar[thinsp]and Router Constraint[thinsp]to 
certain orders that are eligible for participation in the opening 
process for non-IEX-listed securities pursuant to Rule 11.231, or 
for auctions in IEX-listed securities pursuant to Rule 11.350.
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    Based on the foregoing, the Exchange believes the existing Cross 
Price Constraint definition should explicitly account for the IEX Order 
Collar price range. Accordingly, the Exchange is proposing to amend 
rule 11.231(c)(1)(iii) to explicitly state that the Cross Price 
Constraint is adjusted by the IEX Order Collar price range, as 
described below:
     The upper threshold price of the Cross Price Constraint is 
equal to the lesser of the price of the Away Protected NBO or the upper 
threshold of the Order Collar price range for the Regular Market 
Session, calculated pursuant to Rule 11.190(f)(1)(C), 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; and
     The lower threshold price of the Cross Price Constraint is 
equal to the greater of the price of the Away Protected NBB or the 
lower threshold of the Order Collar price range for the Regular Market 
Session, calculated pursuant to Rule 11.190(f)(1)(C), 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.\15\
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    \15\ Rule 11.231(b)(2) states in relevant part that 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. Thus, as part of 
the transition to the Regular Market Session (see Rule 1.160(gg)), 
unexecuted Cross Eligible Orders to buy (sell) that are priced at or 
above (below) the Cross Price Constraint (but remain 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. Thus, the Exchange notes that when the Cross Price Constraint 
is narrowed because the Away Protected NBB is below the lower 
threshold of the IEX Order Collar price range, or the Away Protected 
NBO is above the upper threshold of the IEX Order Collar price 
range, there may be a smaller quantity of shares executed in the 
Opening Process, which may result in a larger quantity of unexecuted 
Cross Eligible Order shares that are priced equal to or more 
aggressively than the more narrow Cross Price Constraint (as 
proposed) transitioning to the RMS and price sliding pursuant to 
Rule 11.190(h), or canceling pursuant to the terms of the order, as 
applicable.
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2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6(b) \16\ of the Act in general, and furthers the 
objectives of Section 6(b)(5) of the Act \17\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.
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    \16\ 15 U.S.C. 78f.
    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes it is consistent with the protection of 
investors and the public interest to constrain the Opening Process 
match by the IEX Order Collar price range because executions outside of 
the Order Collar price range are significantly dislocated from recent 
trading activity (as measured by the Order Collar Reference Price), and 
often are the result of erroneous system processing or manual trading 
errors. The Exchange also notes that executions outside of the IEX 
Order Collar price range often meet the clearly erroneous criteria and 
are therefore eligible to be reviewed for cancellation pursuant to Rule 
11.270. Thus, the Exchange believes that applying the IEX Order Collar 
to the cross price in connection with the Opening Match is consistent 
with the protection of investors and the public interest because it is 
designed to prevent executions at dislocated prices that are 
significantly dislocated from recent trading activity and may be 
canceled pursuant to Rule 11.270.
    Furthermore, the Exchange believes that the proposed rule change 
does not materially alter the Opening Process, because the Opening 
Process match is already subject to the Cross Price Constraint. 
Instead, the Exchange believes the proposed changes are designed to 
make the Cross Price Constraint definition more robust by accounting 
for the rare scenarios where the Away Protected NBB is below the lower 
threshold of the IEX Order Collar price range, or the Away Protected 
NBO is above the upper threshold of the IEX Order Collar price range 
(i.e., when the spread between the Away Protected NBBO is excessively 
wide, such that it may not reflect the market for the security). The 
Exchange further believes that the proposed rule changes are consistent 
with the protection of investors and the public interest because the 
proposed changes are designed to avoid any potential confusion 
regarding the Opening Process functionality, and to make the Exchange's 
rules more accurate, complete, and descriptive of the System's 
functionality.

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

    IEX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that the 
proposed changes do not impact competition in any respect since it is 
designed to avoid any potential confusion regarding the Opening Process 
functionality, and to make the Exchange's rules more accurate, 
complete, and descriptive of the System's functionality without 
materially changing the Opening Process. In addition, the Exchange 
believes there will be no impact on intra-market competition, as the 
proposed changes will apply equally to all Members and therefore no new 
burdens are being proposed. Furthermore, the Exchange believes there 
will be no impact on intra-market competition because as discussed 
above, the proposed changes to the Cross Price Constraint do not impact 
the relative execution priority of orders eligible for the Cross Book, 
as the constraint is not applied at the order level but instead to the 
cross price in connection with the Opening Match.

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

    Because the proposed rule change does not: (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on

[[Page 42540]]

which it was filed, or such shorter time as the Commission may 
designate, it has become effective pursuant to Section 19(b)(3)(A) of 
the Act \18\ and Rule 19b-4(f)(6) thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \20\ normally does not become operative for 30 days after the date 
of its filing. However, pursuant to Rule 19b-4(f)(6)(iii),\21\ the 
Commission may designate a shorter time if such action is consistent 
with the protection of investors and the public interest. In its filing 
with the Commission, the Exchange has asked the Commission to waive the 
30-day operative delay so that the proposed rule change may become 
operative upon filing. The Exchange represents that the proposed rule 
change would protect against executions in the Opening Process that are 
significantly disclocated from recent trading activity and may be 
cancelled pursuant to Rule 11.270. In addition, the Exchange notes that 
while the proposed change to the Cross Price Constraint may affect the 
cross price in limited circumstances, there will be no change to the 
relative priority of execution for Cross Eligible Orders. Furthermore, 
the Exchange states that waiver of the operative delay would allow the 
Exchange to update its rules without delay to avoid potential confusion 
among market participants regarding the Exchange's Opening Process 
functionality and immediately protect against dislocated executions in 
the Opening Process. The Commission does not believe that any new or 
novel issues are raised by the proposal. For these reasons, the 
Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Therefore, the Commission hereby waives the operative delay and 
designates the proposed rule change operative upon filing.\22\
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    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 17 CFR 240.19b-4(f)(6)(iii).
    \22\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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) of the Act \23\ to determine whether the proposed 
rule change should be approved or disapproved.
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    \23\ 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 [email protected]. Please include 
File Number SR-IEX-2018-18 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-2018-18. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of 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-2018-18, and should be submitted on 
or before September 12, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-18060 Filed 8-21-18; 8:45 am]
 BILLING CODE 8011-01-P