Document ID: SEC-2023-0943-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2023-08-30T04:00Z

[Federal Register Volume 88, Number 167 (Wednesday, August 30, 2023)]
[Notices]
[Pages 59958-59968]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-18677]

[[Page 59958]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98212; File No. SR-FINRA-2022-032]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change Relating to 
Alternative Display Facility New Entrant

August 24, 2023.

I. Introduction

    On December 16, 2022, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change (the ``Proposal'') to add 
IntelligentCross ATS (``IntelligentCross'') as a new entrant to the 
Alternative Display Facility (``ADF''). The proposed rule change was 
published for comment in the Federal Register on December 27, 2022.\3\ 
On February 9, 2023, the Commission extended the time period within 
which to approve the proposed rule change, disapprove the proposed rule 
change, or institute proceedings to determine whether to approve or 
disapprove the proposed rule change to March 27, 2023.\4\ On March 24, 
2023, the Commission initiated proceedings under Section 19(b)(2)(B) of 
the Exchange Act \5\ to determine whether to approve or disapprove the 
proposed rule change.\6\ On June 21, 2023, the Commission extended the 
time period for Commission action to August 24, 2023.\7\ The Commission 
has received comments on the proposed rule change.\8\ This order 
approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 96550 (December 20, 
2022), 87 FR 79401 (``Notice'').
    \4\ See Securities Exchange Act Release No. 96864, 88 FR 9945 
(February 15, 2023).
    \5\ 15 U.S.C. 78s(b)(2)(B).
    \6\ See Securities Exchange Act Release No. 97195, 88 FR 19173 
(March 30, 2023).
    \7\ See Securities Exchange Act Release No. 97784, 88 FR 41710 
(June 27, 2023).
    \8\ Comments on the proposed rule change are available at: 
https://www.sec.gov/comments/sr-finra-2022-032/srfinra2022032.htm.
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II. Description of the Proposed Rule Change

    The ADF is a quotation collection and trade reporting facility that 
provides ADF participants (i.e., ADF-registered market makers or 
electronic communications networks) \9\ the ability to post quotations, 
display orders and report transactions in NMS stocks \10\ for 
submission to the securities information processors (``SIP'') for 
consolidation and dissemination to vendors and other market 
participants.\11\ The ADF is also designed to deliver real-time data to 
FINRA for regulatory purposes, including enforcement of requirements 
imposed by Regulation NMS.\12\
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    \9\ See FINRA Rule 6220(a)(3).
    \10\ See 17 CFR 242.600.
    \11\ See Notice, supra note 3, at 79401.
    \12\ See 17 CFR 242.600.
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    In particular, Regulation NMS includes an order protection rule 
that provides that a trading center ``shall establish, maintain, and 
enforce written policies and procedures that are reasonably designed to 
prevent trade-throughs on that trading center of protected quotations 
in NMS stocks'' that do not fall within one of the exceptions set forth 
in the rule.\13\ For quotations to be protected under the rule, they 
must be, among other things, executable ``immediately and 
automatically'' against an incoming immediate-or-cancel (``IOC'') 
order.\14\ In 2016, the Commission interpreted Regulation NMS's 
immediacy requirement to allow for ``an intentional access delay that 
is de minimis--i.e., a delay so short as to not frustrate the purposes 
of Rule 611 by impairing fair and efficient access to an exchange's 
quotations.'' \15\ The Commission stated that ``[i]n the context of 
Regulation NMS, the term `immediate' does not preclude all intentional 
delays regardless of their duration, and such preclusion is not 
necessary to achieve the objectives of Rule 611. As long as any 
intentional delay is de minimis--i.e., does not impair fair and 
efficient access to an exchange's protected quotations--it is 
consistent with both the text and purpose of Rule 611.'' \16\
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    \13\ See 17 CFR 242.611 (``Order Protection Rule'' or ``Rule 
611'').
    \14\ 17 CFR 242.600(b)(6).
    \15\ Commission Interpretation Regarding Automated Quotations 
Under Regulation NMS, Securities Exchange Act Release No. 78102 
(June 17, 2016), 81 FR 40785, 40792 (June 23, 2016) (``Commission 
Interpretation of Automated Quotations'').
    \16\ See id. at 40789; see also Citadel Secs. LLC v. SEC, 45 
F.4th 27, 35 (D.C. Cir. 2022) (finding the Commission's conclusion 
that ``mere de minimis delays do not cause an order to violate 
Regulation NMS's immediacy requirement'' was reasonable).
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    In addition, Rule 610 of Regulation NMS requires that a trading 
center displaying quotations in an NMS stock through a self-regulatory 
organization (``SRO'') display-only facility (such as the ADF) 
``provide a level and cost of access to such quotations that is 
substantially equivalent to the level and cost of access to quotations 
displayed by SRO trading facilities in that stock.'' \17\ Rule 610 also 
requires that a trading center displaying quotations in an NMS stock 
through an SRO display-only facility not impose unfairly discriminatory 
terms that prevent or inhibit any person from obtaining efficient 
access to such quotations through a member, subscriber, or customer of 
the trading center.\18\ In articulating this standard, the Commission 
stated that the level and cost of access would ``encompass both (1) the 
policies, procedures, and standards that govern access to quotations of 
the trading center, and (2) the connectivity through which market 
participants can obtain access and the cost of such connectivity.'' 
\19\ The nature and cost of connections for market participants seeking 
to access an ADF participant's quotations would need to be 
substantially equivalent to the nature and cost of connections to SRO 
trading facilities.\20\
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    \17\ 17 CFR 242.610(b)(1).
    \18\ 17 CFR 242.610(b)(2).
    \19\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37549 (June 29, 2005) (``NMS Adopting 
Release'').
    \20\ See id.
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    In evaluating whether a prospective ADF participant meets the 
access standards under Rule 610, Regulation NMS requires FINRA to 
submit a proposed rule change under Section 19(b) of the Exchange Act 
in order to add the new ADF participant.\21\ Accordingly, FINRA is 
proposing to add IntelligentCross as a new ADF participant.\22\ 
IntelligentCross is an NMS stock alternative trading system (``ATS'') 
operating pursuant to an effective Form ATS-N.\23\ IntelligentCross 
currently operates three separate limit order books with optional 
display capability distinguished by different fee structures--the ASPEN 
fee/fee limit order book (``ASPEN Fee/Fee book''), ASPEN maker/taker 
limit order book, and ASPEN taker/maker limit order book (collectively, 
``IntelligentCross ASPEN'').\24\ FINRA

[[Page 59959]]

states that the ASPEN Fee/Fee book would be the only order book 
displaying orders on the ADF.\25\
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    \21\ See Notice, supra note 3, at 79401.
    \22\ According to FINRA, there have been no ADF participants 
since the first quarter of 2015. See id.
    \23\ See Form ATS-N Filings and Information page on the 
Commission's website, at https://www.sec.gov/divisions/marketreg/form-ats-n-filings.htm.
    \24\ See Notice, supra note 3, at 79402. FINRA states that all 
three IntelligentCross ASPEN order books act independently of each 
other (i.e., orders resting in one book do not rest on or interact 
with orders resting in another book). See id. In addition to 
IntelligentCross ASPEN, FINRA states that IntelligentCross also 
operates a midpoint book that only accepts non-displayed midpoint 
orders, which is distinct from and does not interact with the 
IntelligentCross ASPEN. See id. at n.17. All activity on 
IntelligentCross is identified and reported under the ``INCR'' 
market participant identifier (``MPID''). See id. at 79402.
    \25\ See id. at 79402. FINRA states that the ``effective date'' 
of the Proposal would be the date of the Commission's approval. See 
id. at 79404.
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    IntelligentCross provided FINRA with a summary of its policies and 
procedures regarding access to its quotations in an NMS stock displayed 
on the ADF, and a summary of its proposed fees for such access.\26\ 
Based on IntelligentCross' representations, FINRA believes that 
IntelligentCross' proposed level and cost of access to quotations on 
the ASPEN Fee/Fee book is substantially equivalent to the level and 
cost of access to quotations displayed by an SRO trading facility, both 
in absolute and relative terms.\27\ FINRA also believes that the 
quotations displayed on ASPEN Fee/Fee book would meet the definition of 
an ``automated quotation'' under Regulation NMS.\28\
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    \26\ See id. at 76341.
    \27\ See id. at 79404, n.37.
    \28\ See id. at 79403.
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    In particular, FINRA states that IntelligentCross only permits 
registered broker-dealers to be subscribers to IntelligentCross, and 
subscribers can interact with the ASPEN Fee/Fee book using conventional 
order types.\29\ The ASPEN Fee/Fee book will accept incoming 
intermarket sweep orders (``ISOs'') \30\ once it displays orders on the 
ADF.\31\
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    \29\ See id. at 79402. FINRA states that the ASPEN Fee/Fee book 
accepts limit orders with optional display instructions, IOC orders, 
and pegged orders (which are treated as regular orders with an 
automated repricing to the national best bid or offer (``NBBO'')). 
See id. Only limit orders and primary peg orders (with or without a 
limit price) are eligible to be displayed on the ASPEN Fee/Fee book, 
and therefore on the ADF. See id.
    \30\ 17 CFR 242.600(b)(38).
    \31\ See Notice, supra note 3, at 79402. IntelligentCross has 
represented to FINRA that the ASPEN Fee/Fee book will be the only 
IntelligentCross ASPEN order book that will accept ISOs. See id. at 
79402, n.22.
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    FINRA states that the ASPEN Fee/Fee book establishes a matching 
schedule \32\ using an overnight optimization process based on 
historical performance measurements from prior days' matches across all 
three IntelligentCross ASPEN books.\33\ The match event time is 
randomized within the time band throughout the course of the trading 
day and any order that arrives prior to a match event (and that has not 
been cancelled, become unmarketable, or repriced) \34\ is eligible to 
participate in the next match event for that security.\35\
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    \32\ See id. at 79402. FINRA states that the ASPEN Fee/Fee book 
match schedules are defined by minimum/maximum time bands for each 
security, and these bands can have a minimum time of 150 
microseconds and a maximum time of 900 microseconds. See id. For 
example, on a particular day, the match event band for XYZ stock may 
have a minimum time of 450 microseconds and a maximum time of 600 
microseconds. See id.
    \33\ See id.
    \34\ See id.
    \35\ See id. at 79402. According to FINRA, IntelligentCross has 
represented that both sides of the trade (buyers and sellers) are on 
equal footing for the next scheduled match event, while maintaining 
full control of their orders, i.e., both sides can cancel or update 
their orders at any time prior to the match. See id. at n.24. In 
addition, the ASPEN Fee/Fee book automatically updates its 
quotations, and all quotation updates, including those due to new or 
cancelled orders, are immediate. See id.
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    IntelligentCross has represented to FINRA that, in the following 
cases, an incoming order on ASPEN Fee/Fee book may not execute against 
a resting order at match event time when: (i) an existing resting order 
cancels prior to the next match event; (ii) an incoming order is 
cancelled prior to the next match event; (iii) the NBBO moves between 
the time an order is received and the next match event takes place, 
making either the incoming order or the resting order non-marketable; 
or (iv) the NBBO changed before the next match event and pegged orders 
were repriced to the new NBBO, making the incoming order or the resting 
pegged order non-marketable.\36\
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    \36\ See id. at 79402, n.23. IntelligentCross has represented to 
FINRA that non-match events on the ASPEN Fee/Fee book occur in a 
minority of cases. See id. at 79403. For a more detailed discussion 
of examples regarding situations where an incoming order may not 
execute against a resting order at match event time, see id. at 
79403.
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    FINRA states that the ASPEN Fee/Fee book's matching engine operates 
near-continuously and that, when a new order arrives in the ASPEN Fee/
Fee book, it would participate in the next scheduled match event by 
interacting with existing orders in the order book within a maximum 
time capped at 900 microseconds.\37\
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    \37\ See id. at 79403. FINRA states that the quotations 
displayed on the ASPEN Fee/Fee book are handled on an automated 
basis and that there is no human discretion in determining any 
action taken with respect to an order after the order is received. 
See id.
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    FINRA states that for each match event time, the ASPEN Fee/Fee book 
retrieves the NBBO and processes all the orders that have arrived and 
have not been cancelled in price-time priority.\38\ No subscriber to 
IntelligentCross (or non-subscriber accessing IntelligentCross through 
a subscriber) is given any priority through the matching process and 
the matching process is blind to the identity of the subscriber.\39\ 
All matches are reported immediately to subscribers and the SIPs via a 
FINRA trade reporting facility and disseminated on IntelligentCross' 
market data feed.\40\
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    \38\ See id. FINRA states that IntelligentCross uses a 
combination of SIP and proprietary direct feeds from national 
securities exchanges to determine the NBBO and protected quotes, and 
to price executions. See id. at 79402, n.27.
    \39\ See id.
    \40\ See id.
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    FINRA further states that IntelligentCross utilizes a fee/fee 
pricing model for activity on the ASPEN Fee/Fee book where both sides 
are charged the same fee \41\ for transactions.\42\ Eligible displayed 
orders are published via a free market data feed (``IQX Market Data 
Feed'').\43\ IntelligentCross does not charge connectivity fees to its 
subscribers.\44\ FINRA states that firms wishing to access liquidity on 
the ASPEN Fee/Fee book may connect in a variety of ways.\45\ Firms that 
are IntelligentCross subscribers can connect to the ASPEN Fee/Fee book 
via a Financial Information Exchange (``FIX'') connection.\46\ Such 
access is available to subscribers through an internet protocol address 
via communications that are compliant with the FIX application 
programming interface (``API'') provided by IntelligentCross.\47\ 
IntelligentCross does not accept orders via any other forms of 
communication (e.g., telephone, email, instant message).\48\ 
IntelligentCross allows a subscriber to determine its level of 
connectivity and

[[Page 59960]]

does not tier or discriminate among subscribers.\49\
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    \41\ See id. at 79404. FINRA states that the IntelligentCross' 
fee schedule is published in the IntelligentCross Form ATS-N and 
advance notice is provided to its subscribers prior to a pricing 
change. See id.
    \42\ See id. FINRA states that the base rate charged by 
IntelligentCross is $0.0008 per share for each side of a transaction 
on the ASPEN Fee/Fee book. See id.
    \43\ See id. IntelligentCross has represented to FINRA that 
displayed orders from all three IntelligentCross ASPEN order books 
are available in the IQX Market Data Feed. See id. at 79402, n.28.
    \44\ See id. at 79404. IntelligentCross has represented to FINRA 
that it is not involved in the installation of cross-connects; thus, 
subscribers must establish a relationship directly with the network 
service provider in NY4. See id. Further, IntelligentCross does not 
currently charge connectivity fees to access the ASPEN Fee/Fee book 
and has offered to pay for certain of subscribers' cross-connect 
fees at NY4. See id. In particular, IntelligentCross currently 
covers payment for one primary connection and one back-up 
connection, and any direct subscriber is eligible for this payment. 
See id. IntelligentCross' network provider and other similar network 
providers may charge fees relating to connectivity in NY4. See id. 
IntelligentCross has represented to FINRA that any such connectivity 
fees would be substantially equivalent to the costs to connect to 
any other trading center, such as an exchange. See id.
    \45\ See id.
    \46\ See id.
    \47\ See id.
    \48\ See id.
    \49\ See id.
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    Additionally, FINRA states that IntelligentCross has established 
and maintains policies and procedures related to periodic system 
capacity reviews and tests to ensure future capacity, as well as 
policies and procedures to identify potential weaknesses and reduce the 
risks of system failures and threats to system integrity.\50\ FINRA 
also states that, for purposes of displaying orders through the ADF, 
IntelligentCross' policies and procedures require continuous monitoring 
of the ASPEN Fee/Fee book's connections with an SRO display-only 
facility and, in the event that the ASPEN Fee/Fee book loses connection 
with the ADF, IntelligentCross has contingency plans in place, 
including removing (i.e., ``zeroing out'') all quotes previously 
published by the system to the ADF and notifying its subscribers of 
such interruption.\51\
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    \50\ See id.
    \51\ See id.
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    In the event that IntelligentCross makes a material change to the 
policies and procedures governing access to IntelligentCross, including 
a change to its fees, IntelligentCross has represented to FINRA that it 
will submit the changes made to FINRA, and acknowledges that FINRA will 
post on its website an amended description of IntelligentCross' 
policies, procedures and fees governing access.\52\
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    \52\ See id. at 79404, n.43.
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    Finally, FINRA states that all members in good standing of an SRO 
would be eligible to become a subscriber to the ASPEN Fee/Fee book and 
would be subject to eligibility requirements set by 
IntelligentCross.\53\
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    \53\ See id. at 79405.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Exchange Act and the 
rules and regulations thereunder applicable to a national securities 
association.\54\ Specifically, the Commission finds that the proposed 
rule change is consistent with the provisions of Section 15A(b)(6) of 
the Exchange Act,\55\ which requires, among other things, that FINRA 
rules must be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, and, in 
general, to protect investors and the public interest. The Commission 
also finds that the proposed rule change by FINRA to allow 
IntelligentCross to operate as an ADF participant is consistent with 
Rule 610(b) of Regulation NMS,\56\ which requires that any trading 
center that displays quotations in an NMS stock through an SRO display-
only facility (such as the ADF) provide a level and cost of access to 
such quotations that is substantially equivalent to the level and cost 
of access to quotations displayed by an SRO trading facility in that 
stock, and not impose unfairly discriminatory terms that would prevent 
or inhibit any person from obtaining efficient access to such 
quotations through a member, subscriber, or customer of the trading 
center. In addition, the Commission finds that IntelligentCross would 
operate as an automated trading center, in compliance with Rule 
600(b)(7) of Regulation NMS,\57\ such that its quotations would be 
``automated'' under Rule 600(b)(6),\58\ and thus ``protected'' under 
Rule 611 of Regulation NMS.\59\
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    \54\ In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \55\ 15 U.S.C. 78o-3(b)(6).
    \56\ See 17 CFR 242.610(b).
    \57\ See 17 CFR 242.600(b)(7).
    \58\ See 17 CFR 242.600(b)(6).
    \59\ See 17 CFR 242.611. Rule 611(a)(1) requires a trading 
center to establish, maintain and enforce written policies and 
procedures that are reasonably designed to prevent trade-throughs on 
the trading center of protection quotations. 17 CFR 242.611(a)(1).
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    The Commission received several comment letters opposing the 
Proposal,\60\ a comment letter supporting the Proposal,\61\ and 
responses by FINRA and IntelligentCross.\62\ Commenters opposing the 
Proposal generally state the Proposal lacks sufficient detail necessary 
for the Commission to approve the Proposal and raise concerns about 
whether the Proposal: (1) complies with the requirements of Regulation 
NMS; (2) should contain additional processes for the ongoing operations 
of IntelligentCross while it is an ADF participant; (3) provides a 
sufficient implementation period for the industry to adopt changes due 
to the addition of IntelligentCross as an ADF participant; and (4) has 
provided information that the ADF has appropriate technological 
infrastructure.\63\
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    \60\ See Letter from Tyler Gellasch, President and CEO, Healthy 
Markets Association, dated January 13, 2023 (``Healthy Markets 
Letter''); Letter from Brett Kitt, Associate Vice President & 
Principal Associate General Counsel, Nasdaq, Inc., dated January 17, 
2023 (``Nasdaq Letter''); Letter from Joanna Mallers, Secretary, FIA 
Principal Traders Group, dated January 17, 2023 (``FIA PTG 
Letter''); Letter from Stephen John Berger, Managing Director, 
Global Head of Government & Regulatory Policy, Citadel Securities, 
dated January 23, 2023 (``Citadel Letter''); Letter from Ellen 
Greene, Managing Director, Equities & Options Market Structure, 
SIFMA, dated February 8, 2023 (``SIFMA Letter''); Letter from Joanna 
Mallers, Secretary, FIA Principal Traders Group, dated March 8, 2023 
(``FIA PTG Letter II''); Letter from Tyler Gellasch, President and 
CEO, Healthy Markets Association, dated March 14, 2023 (``Healthy 
Markets Letter II''); Letter from John Ramsay, Chief Market Policy 
Officer, Investors Exchange LLC, dated April 14, 2023 (``IEX 
Letter''); Letter from Stephen John Berger, Managing Director, 
Global Head of Government & Regulatory Policy, Citadel Securities, 
dated May 4, 2023 (``Citadel Letter II''); Letter from Stephen John 
Berger, Managing Director, Global Head of Government & Regulatory 
Policy, Citadel Securities, dated August 3, 2023 (``Citadel Letter 
III''); Letter from John Ramsay, Chief Market Policy Officer, 
Investors Exchange LLC, dated August 4, 2023 (``IEX Letter II'').
    \61\ See Letter from Nataliya Bershova, Head of Execution 
Research, Sanford C. Bernstein & Co., LLC, dated January 17, 2023. 
This commenter states that adding IntelligentCross' displayed 
liquidity to the public quote would enable market participants to 
interact with better prices, enhance price discovery, and minimize 
pricing errors. See id.
    \62\ See Letter from Faisal Sheikh, Assistant General Counsel, 
FINRA, dated March 13, 2023 (``FINRA Letter''); Letter from Faisal 
Sheikh, Assistant General Counsel, FINRA, dated August 22, 2023 
(``FINRA Letter II''); Letter from Ari Burstein, General Counsel, 
Imperative Execution, dated February 16, 2023 (``IntelligentCross 
Letter''); Letter from Ari Burstein, General Counsel, Imperative 
Execution, dated July 14, 2023 (``IntelligentCross Letter II''); 
Letter from Ari Burstein, General Counsel, Imperative Execution, 
dated August 18, 2023 (``IntelligentCross Letter III'').
    \63\ In particular, one commenter states that the Commission 
should reconsider and withdraw the Commission Interpretation of 
Automated Quotations. See Citadel Letter at 1-4, 8 (stating, among 
other things, that the Commission Interpretation of Automated 
Quotations is ``inconsistent with the plain text of Regulation NMS 
and therefore invalid''); Citadel Letter II at 3; Citadel Letter III 
at 2, n.11. Some commenters question the appropriateness of the ADF 
in today's market structure, including the need for the ADF given 
the number of exchanges and active non-display ATSs in the 
marketplace. See Nasdaq Letter at 2; Healthy Markets Letter at 8; 
IEX Letter at 10. One commenter recommends that the Commission 
should consider ``whether the ADF is still needed or should be 
eliminated entirely.'' Nasdaq Letter at 1, 3 (stating that the ADF 
``continues to exist in form only, while serving no productive 
function''). One commenter raises general questions regarding the 
potential impact to competing consolidators of adding 
IntelligentCross protected quotes after the implementation of the 
Commission's Market Data Infrastructure Rule. See IEX Letter at 9. 
Finally, some commenters state that approval of the Proposal may 
undermine the recent Commission proposals to modernize equity market 
structure. See Healthy Markets Letter at 16; Nasdaq Letter at 2. One 
of these commenters also questions how recent proposed reforms to 
Rule 605 of Regulation NMS would apply to the Proposal, particularly 
in relation to the single MPID that IntelligentCross uses to 
identify and report its transaction activity. See Healthy Markets 
Letter at 5, 16. These comments raise issues that are beyond the 
scope of the Commission's consideration of whether the present 
Proposal is consistent with the Exchange Act and the rules and 
regulations thereunder.

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[[Page 59961]]

1. Compliance With Regulation NMS and Ongoing Obligation To File

a. Definition of Automated Quotation and Protected Quote Status
    As discussed above, FINRA believes that the quotations displayed on 
the ASPEN Fee/Fee book would meet the definition of an ``automated 
quotation'' under Regulation NMS,\64\ and thus ``protected'' under the 
Order Protection Rule.\65\
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    \64\ See Notice, supra note 3, at 79403.
    \65\ 17 CFR 242.611. Rule 611(a)(1) requires a trading center to 
establish, maintain and enforce written policies and procedures that 
are reasonably designed to prevent trade-throughs on the trading 
center of protection quotations. 17 CFR 242.611(a)(1).
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    Some commenters raise concern that IntelligentCross' displayed 
quotations do not meet the Commission's definition of ``automated 
quotations'' due to the intentional delay built into IntelligentCross' 
delayed matching process.\66\ In particular, some commenters state that 
the Proposal does not demonstrate how the intentionally delayed 
matching process is de minimis.\67\ Some commenters state that the 
Proposal wrongly assumes that any delay under a millisecond is de 
minimis.\68\ One commenter questions whether IntelligentCross' delayed 
matching process ``frustrates the purposes of Rule 611 by impairing 
fair and efficient access'' as required by the Commission 
Interpretation of Automated Quotations.\69\
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    \66\ See Citadel Letter at 1; SIFMA Letter at 3; FIA PTG Letter 
at 1-2; FIA PTG Letter II at 1-2; Nasdaq Letter at 2; Healthy 
Markets Letter at 13; Citadel Letter II at 1; Citadel Letter III at 
1.
    \67\ See Citadel Letter at 1; FIA PTG Letter at 1-2; FIA PTG 
Letter II at 1-2; SIFMA Letter at 4; Citadel Letter III at 2.
    \68\ See Citadel Letter at 4; FIA PTG Letter at 2; Citadel 
Letter II at 3; Citadel Letter III at 2.
    \69\ See Citadel Letter at 3; Citadel Letter II at 5; Citadel 
Letter III at 4.
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    In response, IntelligentCross states that its matching process is 
consistent with the Commission Interpretation of Automated 
Quotations.\70\ IntelligentCross states that, while the Commission did 
not establish a ``bright line de minimis threshold,'' the ASPEN Fee/Fee 
book's matching engine ``operates near-continuously and when a new 
order arrives in the ASPEN Fee/Fee book, it will participate in the 
next scheduled match event by interacting with existing orders in the 
order book within a maximum time capped at 900 microseconds.'' \71\ The 
Commission also disagrees with commenters who assert that as a result 
of IntelligentCross' matching system, quotations displayed on the ASPEN 
Fee/Fee book would not meet the definition of an ``automated 
quotation'' under Regulation NMS. The Commission issued a final 
interpretation that, when determining whether a trading center 
maintains an ``automated quotation'' for purposes of Rule 611 of 
Regulation NMS, the term ``immediate'' in Rule 600(b)(6) precludes any 
coding of automated systems or other type of intentional device that 
would delay the action taken with respect to a quotation unless such 
delay is de minimis--i.e., so short as to not frustrate the purposes of 
Rule 611 by impairing fair and efficient access to an exchange's 
quotations.\72\ In accordance with that interpretation, the Commission 
does not believe that IntelligentCross' delayed matching functionality 
precludes IntelligentCross from maintaining an automated quotation. 
Because the delay imposed by IntelligentCross is well within geographic 
and technological latencies experienced today that do not impair fair 
and efficient access to an exchange's quotations or otherwise frustrate 
the objectives of Regulation NMS, the Commission believes that such 
intentional delay will not frustrate the purposes of Regulation NMS by 
impairing fair and efficient access to IntelligentCross' 
quotations.\73\ Accordingly, the delay in IntelligentCross' matching 
functionality (a randomized delay of up to 900 microseconds) is de 
minimis and thus IntelligentCross can maintain a protected 
quotation.\74\
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    \70\ See IntelligentCross Letter at 9.
    \71\ Id. FINRA also highlights the overall record of the 
Proposal, including the information and analysis provided by FINRA 
in the Notice and the letters by FINRA and IntelligentCross 
responding to comments regarding the qualification of 
IntelligentCross' quotes as ``protected quotations'' under 
Regulation NMS. See FINRA Letter II at 3. Accordingly, FINRA states 
that the ``Commission has available detailed information regarding 
IntelligentCross' operations and the nature of its quotations that 
is sufficient to enable the Commission to make a substantive 
determination regarding whether FINRA's rule filing to add 
IntelligentCross as an ADF participant is consistent with the 
Exchange Act.'' Id. at 3.
    \72\ See Commission Interpretation of Automated Quotations, 
supra note 15.
    \73\ See Citadel Secs., 45 F.4th at 37 (upholding Commission's 
determination that a 350-millisecond delay was de minimis, noting 
that it was ``similar to the delay that traders' communications 
already experience when traveling between various other exchanges 
across the country'').
    \74\ See Commission Interpretation of Automated Quotations, 
supra note 15.
---------------------------------------------------------------------------

    One commenter states that the ``novel features'' of the Proposal 
have not been adequately assessed to provide the Commission with 
sufficient basis to make an affirmative finding that the Proposal is 
consistent with the Exchange Act.\75\ One commenter states that 
IntelligentCross should provide additional transparency on the 
operation of its matching process.\76\ This commenter states that all 
markets, including ATSs and registered exchanges, ``should be subject 
to an equivalent level of transparency and review'' regarding ``how 
their quotes may be accessed and displayed and how executions involving 
those quotes may occur.'' \77\ This commenter also states that market 
participants need enough information ``so that those who wish to do so 
can replicate how the mechanism will affect results in various market 
conditions.'' \78\ Additionally, this commenter states that it is 
unclear whether market participants could alter their routing 
strategies to account for IntelligentCross' ``randomized delay in the 
same way they can account for static

[[Page 59962]]

and geographic delays.'' \79\ Similarly, another commenter states that 
the randomized nature of the matching process ``creates significant 
challenges for best execution for brokers'' and prevents ``predictable 
staging of order sending activity by brokers across multiple venues,'' 
resulting in ``significant risk of material information leakage and 
quote fading--leading to materially worse execution quality for 
investors.'' \80\
---------------------------------------------------------------------------

    \75\ See Citadel Letter at 4. This commenter states that the 
``required assessment of whether or not an intentional delay is de 
minimis must consider the impact of the intentional delay on fill 
rates and execution quality and whether it operates to frustrate the 
purposes of Rule 611 by impairing fair and efficient access to 
displayed quotations.'' Id. at 8. The commenter further states that 
based on the data presented in the Proposal, ``nearly 9% of 
executable transactions do not occur'' because of the reasons 
described by the commenter in its letter, which the commenter states 
is ``certainly not de minimis.'' Id. The commenter also states that 
granting ``protected quotation'' status for the first time to a 
matching process that uses discrete match events would treat the 
IntelligentCross displayed quote as equivalent to those on other 
market centers, even though the matching of counterparties and the 
execution of transactions only occurs after the match event is 
conducted. Id. at 7. See also Citadel Letter II at 9 (stating that 
the Proposal does not contain any analysis as to the whether the 
intentional delay may be inconsistent with Exchange Act Section 
15A(b)(6) or Rule 610(b)(2) of Regulation NMS); IEX Letter II at 1 
(stating that there are ``meaningful differences between the 
matching process proposed to be used by IntelligentCross and the 
processes used by all other markets with protected quotes today.'').
    \76\ IEX Letter at 2; IEX Letter II at 2. This commenter states 
that there should be additional transparency on the ``specific 
inputs and the formula(s) applied'' and the ``technology or methods 
used to apply the randomized delay within the timebands.'' Id. at 2-
3. One commenter states that ``FINRA must provide all necessary 
information and analysis in its own proposal so that the `public 
[can] provide meaningful comment' on FINRA's analysis.'' Citadel 
Letter III at 3.
    \77\ IEX Letter at 3. See also IEX Letter II at 3-4 (contrasting 
the Proposal's level of disclosures on the IntelligentCross matching 
process with a recent exchange proposed rule change on a new order 
type and noting that a matching process driven by ``artificial 
intelligence'' requires further inquiry and disclosure, especially 
in the application of displaying and accessing protected 
quotations).
    \78\ IEX Letter II at 4 (``Specifically, [market participants] 
would not know the amount of time to account for in `staggering' the 
routing of their orders to IntelligentCross. If they send individual 
orders to arrive on all markets simultaneously, the order to 
IntelligentCross will be subject to a maximum delay of 900 
microseconds. If the execution of the IntelligentCross order were 
delayed substantially longer than the minimum time required to 
receive execution reports from other markets, this could allow fast 
market participants to cancel resting orders on IntelligentCross 
before the execution could occur.'').
    \79\ IEX Letter at 6.
    \80\ See Healthy Markets Letter at 14. This commenter also 
states, without identifying specifics, that the delayed randomized 
match creates ``some challenges regarding the operation of ISOs.'' 
See id. at 4. See also Healthy Markets Letter II at 4; Citadel 
Letter at 6-7 (stating that market participants could have 
difficulty adopting routing strategies to account for 
IntelligentCross' randomized intentional delay); Citadel Letter III 
at 6-7 (stating that the randomized intentional delay ``makes it 
practically impossible for market participants to stagger order 
routing such that orders are executed at IntelligentCross and other 
venues at precisely the same time''); IEX Letter II at 2 (stating 
that the matching process used by IntelligentCross is ``relatively 
opaque and unpredictable compared to other markets with protected 
quotes'').
---------------------------------------------------------------------------

    One commenter raises concerns about the relative ability of 
different market participants to react to market price movements in 
deciding whether to cancel after their orders have been accepted by the 
IntelligentCross system and during the delay before execution.\81\ This 
commenter believes that some ``participants could use their superior 
ability to track price changes on other markets within the variable 
delay period to determine whether to cancel their orders.'' \82\ This 
commenter asserts that this is a unique challenge that market 
participants do not face in managing the orders that they send to other 
protected quote venues.\83\
---------------------------------------------------------------------------

    \81\ See IEX Letter II at 4.
    \82\ See id. at 5.
    \83\ See id. at 4.
---------------------------------------------------------------------------

    Some commenters state that the ability for liquidity providers to 
cancel displayed ADF orders through IntelligentCross' functionality at 
any time raises questions about whether its functionality is consistent 
with Regulation NMS and prior Commission guidance.\84\ For example, 
some commenters state that they are concerned that a resting limit 
order could be cancelled at any time (even after the incoming order is 
received) prior to the match, including when such incoming orders are 
routed to IntelligentCross consistent with regulatory obligations under 
the Order Protection Rule.\85\ One commenter states, according to data 
it compiled on typical routing latencies using fiber infrastructure 
between datacenters, a liquidity provider on IntelligentCross has ample 
time to observe the trades executed on other U.S. equities exchanges 
before determining whether to cancel its own resting order.\86\ The 
commenter states that this option to cancel benefits liquidity 
providers on IntelligentCross at the expense of liquidity takers and 
hurts market competition across venues.\87\ The commenter further 
states that the non-match event data stated in the Proposal is a 
``material'' figure that ``likely understates expected cancellation 
rates'' if market participants are required to route order flow to 
IntelligentCross.\88\ Another commenter states that order posters in 
the ASPEN Fee/Fee book have the ability to immediately cancel their 
orders, whereas order transmitters seeking to interact with that 
interest at the NBBO do not have the same ability to cancel their 
orders due to their regulatory obligation to attempt to access the 
protected quote.\89\ One commenter asserts that the IntelligentCross 
``price-sliding'' mechanism to avoid locking its own market can result 
in quotations that may be ``impossible to access'' for incoming 
orders.\90\ Another commenter states that the Proposal ``lacks basic 
information, such as whether the speed bump is symmetric or asymmetric 
and how it operates in practice.'' \91\ One commenter states that it 
has concerns about IntelligentCross creating a new protected NBB or NBO 
for orders that are pending a match and for which new, incoming orders 
will be ``very likely inaccessible.'' \92\ The commenter provides a 
hypothetical example to support its assertion where, after a number of 
events occur in the markets, the NBBO is made up solely of two 100 
share orders on IntelligentCross such that, if another market 
participant responded to the quote, the new participant would be 
sequentially added to the queue and would not trade.\93\ Another 
commenter requests more transparency on how the consolidated market 
data feeds would reflect the state of IntelligentCross' protected 
quotes.\94\
---------------------------------------------------------------------------

    \84\ See SIFMA Letter at 3-4. See also Citadel Letter II at 6 
(stating that ``[t]he displayed quotations on IntelligentCross are 
`maybe' quotations that do not provide market participants with 
execution certainty. As a result, it would frustrate the purposes of 
Rule 611 to provide trade-through protection to these manual 
quotations on IntelligentCross.''); Citadel Letter III at 5.
    \85\ See SIFMA Letter at 3-4; Citadel Letter at 4. One of these 
commenters discusses prior SRO proposals considered by the 
Commission that raised similar concerns related to asymmetrical 
``speed bumps'' in which one of the orders and/or messages on one 
side of the market are subject to a delay whereas others are not. 
See SIFMA Letter at 3. See also Citadel Letter II at 8 (stating that 
the IntelligentCross intentional delay resembles an asymmetric delay 
and, as a result, the Proposal warrants further scrutiny ``to 
determine whether any discrimination is unfair and, therefore, 
inconsistent with the Exchange Act''); Citadel Letter III at 4.
    \86\ See Citadel Letter III at 6.
    \87\ See id. at 6. This commenter also states that 
``geographical and technological latencies are applicable to all 
market participants and do not provide liquidity providers with a 
clear structural advantage--namely, the option to cancel a displayed 
quote after an incoming order reaches the IntelligentCross matching 
engine.'' Id. at 8.
    \88\ See Citadel Letter at 5. This commenter further states that 
IntelligentCross fails to consider that the execution experience on 
IntelligentCross may be far worse than advertised, and may explain 
why more orders are not routed to the venue. See Citadel Letter III 
at 7. See also IEX Letter at 6 (requesting more transparency on how 
often cancellations might occur if IntelligentCross were to maintain 
a protected quote); Citadel Letter III at 8 (stating that the 
statistics cited by IntelligentCross are only based on its current 
status as a non-protected quotation venue where market participants 
are not required to route to IntelligentCross and its unclear the 
impact that granting IntelligentCross protected quotation status 
would have on those figures).
    \89\ See SIFMA Letter at 3. This commenter states that areas to 
explore in addressing its concerns with the Proposal could include 
``instituting a delay regarding the ability to cancel a posted order 
that mirrors the delay for incoming orders seeking to interact with 
that posted order or removing the delay on incoming ISO/IOC orders 
attempting to access the ADF protected quote.'' Id. at 4, n.10.
    \90\ Citadel Letter III at 3.
    \91\ FIA PTG Letter at 2.
    \92\ See FIA PTG Letter II at 2; see also Citadel Letter II at 
5-6.
    \93\ See FIA PTG Letter II at 2. IntelligentCross responds that 
the specific example the commenter illustrates, while possible to 
occur, is nonetheless extremely unlikely, according to their most 
recent calculations based on observations on the IntelligentCross 
platform. Specifically, in June 2023, the daily average incidence of 
such a hypothetical was 158 times in the course of 45 million 
orders, i.e., 0.00035 percent of the time. See IntelligentCross 
Letter II at 7.
    \94\ See IEX Letter at 8; IEX Letter II at 5.
---------------------------------------------------------------------------

    In its response letters, IntelligentCross states that it disagrees 
with the characterizations made by commenters of the IntelligentCross 
matching process.\95\ Specifically, IntelligentCross states that its 
matching process is ``completely symmetric in nature and does not favor 
a particular side of the trade; there is no differential treatment of 
certain market participants.'' \96\ IntelligentCross states that both 
sides--the buyer and the seller--``can cancel or update their orders at 
any time prior to a match'' and ``must equally wait for the next 
scheduled match event to occur.'' \97\ It states that no information is 
provided to any market participant regarding the status (or existence) 
of the

[[Page 59963]]

matchable state or the match event.\98\ IntelligentCross also 
emphasizes that the regulatory obligations attendant to ``protected 
quotations'' under Regulation NMS do not provide a guarantee of an 
execution.\99\ Accordingly, IntelligentCross states that a market 
participant that routes an order to any market with the intention of 
matching against a displayed order may not ultimately receive an 
execution.\100\ Moreover, IntelligentCross disagrees with a commenter's 
statement that non-match events on IntelligentCross are ``material'' 
\101\ and states that there is no evidence to the effect that non-match 
rates would increase if market participants are required to route order 
flow to IntelligentCross.\102\ IntelligentCross states that ``it is 
just as likely that cancellations will decrease'' as ``the 
IntelligentCross order book will be in a matchable state more 
frequently.'' \103\
---------------------------------------------------------------------------

    \95\ See IntelligentCross Letter at 3; IntelligentCross Letter 
II at 3.
    \96\ See IntelligentCross Letter at 4. IntelligentCross further 
states that both the taker and maker ``are on equal footing for the 
next scheduled match while maintaining full control of their orders, 
and both sides of the trade must wait equally for the next scheduled 
match event to occur.'' IntelligentCross Letter II at 5.
    \97\ IntelligentCross Letter at 4.
    \98\ IntelligentCross Letter III at 4.
    \99\ IntelligentCross Letter at 4.
    \100\ Id. IntelligentCross also states that, in the case of 
ISOs, commenter ``concerns are misplaced as once the ISO is sent to 
a trading center displaying a protected quotation, a broker's 
obligations under the Rule 611 have been met.'' Id. at 5. 
IntelligentCross also states that ``[t]he fact that a market 
participant may not receive an execution when routing to a market is 
not unique to IntelligentCross and is not indicative of the absence 
of fair and efficient access.'' IntelligentCross Letter II at 4.
    \101\ See supra note 88.
    \102\ IntelligentCross Letter at 8.
    \103\ Id.
---------------------------------------------------------------------------

    IntelligentCross also disagrees with commenters \104\ that express 
concern regarding the ability for liquidity providers to cancel their 
order in IntelligentCross prior to a match event and believe it to be 
detrimental to the markets and investors.\105\ IntelligentCross' stated 
purpose is to provide a ``venue that optimizes price discovery, 
achieves maximum price stability after trades, and provides an 
opportunity for market participants to improve performance and achieve 
best execution by reducing market impact and adverse selection.'' \106\ 
IntelligentCross points to its own user experience on the platform, and 
data specifying that ``in January 2023, ASPEN Fee/Fee [book] improved 
the NBBO over 5.3 million times per day (for orders of round-lot size 
or larger on arrival).'' \107\ Additionally, IntelligentCross states 
that any ``trade-offs'' due to the manner of IntelligentCross' matching 
process ``certainly do not frustrate the purpose of Regulation NMS by 
impairing fair and efficient access to IntelligentCross' displayed 
quotations.'' \108\ IntelligentCross also states that in the scenario 
where the NBBO moves between the time an order is received and the next 
match event takes place, depending on the direction the NBBO moves, the 
liquidity taker may end up better off not executing at the old 
NBBO.\109\ Additionally, the ``price sliding mechanism'' raised by one 
commenter \110\ is designed to address Rule 610 requirements to 
establish, maintain, and enforce specific written rules that are 
generally aimed at limiting the display of quotations that lock or 
cross any protected quotations in an NMS stock.\111\ Moreover, 
IntelligentCross states that there is no basis for the assumption by a 
commenter \112\ that there is a significant risk of information leakage 
and quote fading due to an IntelligentCross protected quote.\113\
---------------------------------------------------------------------------

    \104\ See supra notes 84-87 and accompanying text.
    \105\ IntelligentCross Letter at 5.
    \106\ See id. at 1.
    \107\ Id.
    \108\ Id. at 6.
    \109\ See id. at n. 24. See also id. at 7 (stating that ``[t]he 
determination of fair and efficient access should not be about 
protecting the economic interests of one particular group of market 
participants or impeding innovation or the introduction of 
competition to protect the exchange status quo''); IntelligentCross 
Letter III at 4 (stating that ``[a] point that either has been 
misunderstood by commenters or effectively ignored in comments is 
that a market participant who sends an order to IntelligentCross 
does not know how much time remains before a match event may occur, 
and therefore how long they have--whether they are a maker or 
taker--to cancel or amend their order'').
    \110\ See supra note 90.
    \111\ See IntelligentCross Letter II at 10 (``In ASPEN, if a 
displayed Limit Order or Primary Peg Order would lock or cross 
displayed contra-side interest inside the ATS or the NBBO, such 
order will be displayed one minimum price variation less aggressive 
than the price of the displayed contra-side interest inside the ATS 
or as part of the NBBO and ranked at the price of displayed contra-
side interest inside the ATS or as part of the NBBO. In the event 
the displayed contra-side interest inside the ATS or the NBBO 
updates, such order's displayed price will be updated to the most 
aggressive price permissible without locking displayed contra-side 
interest inside the ATS or as part of the NBBO, up to the order's 
limit price, and such order's ranked price will be updated to the 
most aggressive price permissible without crossing displayed contra-
side interest inside the ATS or as part of the NBBO, up to the 
order's limit price.''). See also FINRA Rule 6240 (Prohibition from 
Locking or Crossing Quotations in NMS Stocks).
    \112\ See supra note 80 and accompanying text.
    \113\ See IntelligentCross Letter at 6. For the proposition that 
its system is designed to provide for best execution, 
IntelligentCross states that in the past year, it has grown from 70 
basis points of the market on average in January 2022 to 110 basis 
points during January 2023. See id. In addition, IntelligentCross 
reached its highest daily market share versus total consolidated 
volume on June 6, 2023 at 146 basis points and has averaged over 124 
basis points daily for the first six months of 2023. See 
IntelligentCross Letter II at 2. IntelligentCross also states that, 
for displayed orders in S&P 500 stocks, quotations in the ASPEN Fee/
Fee book were available strictly inside the NBB/NBO more than 12 
percent of the time, with an average improvement of over 2.5 basis 
points, and for displayed orders in Russell 3000 stocks and the top 
100 ETFs, bids and offers strictly inside the NBB/NBO were available 
over 9 percent of the time, with an average improvement of over 10 
basis points. See id.
---------------------------------------------------------------------------

    With respect to commenter concerns regarding ``speed'' in the 
markets related to the ability to cancel on IntelligentCross,\114\ 
IntelligentCross states that speed advantages already exist for faster 
market participants related to executions on all markets, including 
those currently with protected quotations such as exchanges.\115\ 
Accordingly, Intelligent states that ``it is unrealistic to claim that 
there is no speed advantage across all trading markets, including on 
continuous exchange markets.'' \116\
---------------------------------------------------------------------------

    \114\ See supra notes 81-83 and accompanying text.
    \115\ See IntelligentCross Letter II at 6.
    \116\ Id.
---------------------------------------------------------------------------

    With respect to commenter concerns regarding ``predictability'' and 
the ability for market participants to ``replicate'' the matching 
process due to the randomization of the matching delay,\117\ 
IntelligentCross responds that the randomization of the matching 
process ``is what contributes to [the] matching process not 
discriminating in favor of a particular market participant or category 
of participants, and also makes any would-be manipulation of the 
matching process difficult by reducing the potential for `systematical 
gaming.' '' \118\
---------------------------------------------------------------------------

    \117\ See supra notes 78 and 80 and accompanying text.
    \118\ IntelligentCross Letter III at 4.
---------------------------------------------------------------------------

    In addressing commenter concerns regarding any difficulties for 
market participants to adapt to an IntelligentCross protected 
quote,\119\ IntelligentCross states it is already widely used by most 
major broker-dealer and electronic trading firms.\120\ IntelligentCross 
states that these firms and others ``make routing decisions every day 
in response to the numerous order types already in place by exchanges, 
as well as implement a plethora of routing strategies to interact with, 
and respond to, the displayed liquidity in the markets.'' \121\ 
IntelligentCross further states that ``brokers must currently consider 
and account for technological and geographic differences and latencies 
when routing.'' \122\ Additionally,

[[Page 59964]]

IntelligentCross points to the ``technological capabilities of order 
routers today'' and believes that a market participant ``should not 
have difficulties in configuring their routers to adopt to the 
IntelligentCross matching process.'' \123\ IntelligentCross states that 
market participants already use ``tools to manage order routing and 
repricing on the scale of hundreds of microseconds'' such as 
``mechanisms that adapt to the changing technology on trading venues,'' 
including adaptations that address delay periods.\124\ Accordingly, 
IntelligentCross believes that any market participants should be able 
to account for the IntelligentCross protected quote without significant 
or material changes to its technology and without adopting any change 
that would frustrate the purposes of Regulation NMS.\125\
---------------------------------------------------------------------------

    \119\ See supra notes 78-80 and accompanying text.
    \120\ See IntelligentCross Letter at 2, 7.
    \121\ IntelligentCross Letter at 7. IntelligentCross also states 
that randomizing the match frequency provides benefits to both sides 
of a trade by, for example, reducing the potential for ``gaming,'' 
which can impede the process for achieving best execution. See id. 
at n.28.
    \122\ Id. at 7. IntelligentCross states that the ``speed of a 
trader's software, telecommunication resources, geography, and the 
number of ports purchased from an exchange'' are all factors that 
``can affect outcomes as much as (if not more than) any actual delay 
mechanism.'' IntelligentCross Letter II at 6.
    \123\ IntelligentCross Letter at 7. For example, 
IntelligentCross states that its matching process ``does not prevent 
market participants'' from adopting ``staggering'' order routing 
strategies or employing ``tools that already exist to assist in the 
`predictable staging' of order sending activity across multiple 
venues.'' IntelligentCross Letter II at 5-6.
    \124\ See IntelligentCross Letter II at n.23.
    \125\ IntelligentCross Letter at 2, 7. IntelligentCross also 
states that none of the commenters identify ``any basis under 
current regulations or from a practical standpoint why they would 
not be able to adjust and account for the IntelligentCross matching 
process.'' Id. at 7-8.
---------------------------------------------------------------------------

    In response to questions regarding how IntelligentCross protected 
quotes would be reflected in consolidated market data feeds,\126\ 
IntelligentCross states that it will provide any quotes or quote 
updates to the ADF no later than when it is disseminated via the IQX 
Market Data Feed.\127\ In response to commenter questions regarding 
additional transparency of the matching process,\128\ IntelligentCross 
states that it publicly posts its Form ATS-N disclosures on EDGAR.\129\ 
IntelligentCross also states that in calculating its matching 
schedules, the firm uses an ``overnight optimization process'' that 
uses, among other things, historical performance measurements from 
prior days' matches, and each security has an individualized matching 
schedule.\130\ IntelligentCross further states that it has policies and 
procedures in place to oversee and to review the calculation and 
application of its matching schedules.\131\ In particular, 
IntelligentCross states that it performs reviews on a daily basis to 
ensure that its matching parameters are within the correct time 
bands,\132\ and, on a weekly basis, reviews performance of its systems 
``to ensure that it is accomplishing its objectives and to ensure that 
the matching process does not act in a discriminatory manner in favor 
of or against any participant or category of participants.'' \133\
---------------------------------------------------------------------------

    \126\ See supra note 94 and accompanying text.
    \127\ IntelligentCross Letter II at 7.
    \128\ See supra note 76 and accompanying text.
    \129\ IntelligentCross Letter II at 11 (additionally reiterating 
arguments made in the Proposal).
    \130\ Id. at 11 (``The match event intervals per security are 
adjusted overnight after enough data points have been accumulated to 
warrant an adjustment, and each match event interval is designed to 
achieve two objectives: (1) provide for as many matches as possible 
to maximize liquidity; and (2) keep the NBBO as stable as possible 
for a period of time after executions occur on the ATS''). 
IntelligentCross further states that one commenter misunderstands 
its use of ``machine learning/AI'' in the IntelligentCross matching 
process, and asserts that such technology is used solely for 
calculating the matching schedules using the overnight optimization 
process. See IntelligentCross Letter III at 2. IntelligentCross 
represents that ``no changes occur to the IntelligentCross matching 
process during the trading day due to `machine learning technology' 
or AI,'' and the IntelligentCross ``matching process is not reactive 
to changing market conditions like other exchange order types or 
matching processes, i.e., our trade matching process is not `driven 
by AI as characterized by the commenter.'' Id. See also supra note 
77 (describing commenter concern on the use of ``machine learning 
technology'' in the IntelligentCross matching process).
    \131\ See IntelligentCross Letter III at 4.
    \132\ IntelligentCross states that this review is to ensure 
``there are no anomalies outside a tolerance time band before those 
matching schedules are utilized during the trading day'' and ``a 
principal signs off that such review was performed.'' Id. at 4-5.
    \133\ Id. at 5.
---------------------------------------------------------------------------

    The other concerns related to the IntelligentCross matching process 
and the qualification of its displayed quotes as a protected quotation, 
have been adequately addressed in the response letters by 
IntelligentCross and FINRA, as well as in the Proposal, such that the 
Proposal is consistent with the requirements of the Exchange Act and 
the rules and regulations applicable to a national securities 
association. Specifically, with respect to requests for more 
transparency and detail on access to its displayed quotations and the 
differential treatment of market participants,\134\ IntelligentCross 
has provided more detail, demonstrating that its matching process is 
symmetric in nature and does not favor a particular side of the 
trade.\135\ Match schedules are defined by minimum/maximum time bands 
for each security (between 150 and 900 microseconds) based on an 
overnight optimization process that uses historical performance 
measurements from prior days' matches. The time of the actual match 
event is randomized within the match event band throughout the course 
of the trading day. As described by IntelligentCross, the delayed 
matching process is calibrated to reduce market impact and adverse 
selection for market participants, thereby fostering increased access 
to displayed liquidity through the ADF and more competition among 
markets to the benefit of all market participants. Both sides--the 
buyer and the seller--can cancel their orders at any time prior to a 
match and must wait equally for the next scheduled match event to occur 
in price-time priority, thus not resembling an asymmetric delay as 
supposed by certain commenters.\136\ The IntelligentCross matching 
process provides both sides a fair opportunity to manage their orders, 
as both sides are blind to the length of the delay once an order is 
accepted by the system or where the order sits in the delay mechanism 
(e.g., whether there are 5 microseconds or 500 microseconds remaining 
before a match event takes place), and neither side knows when 
submitting their order which direction the market may move if there are 
changes in the NBBO that occur during the delay. Accordingly, depending 
on the side of the market the NBBO moves, the buyer or seller may be as 
equally likely to attempt to cancel their orders prior to a match event 
as there is not a systematized delay on one side of a trade, and thus 
the matching process does not impose unfairly discriminatory terms 
against efficient access to displayed quotations.
---------------------------------------------------------------------------

    \134\ See supra note 84.
    \135\ See supra note 75 (describing commenter's request to 
consider impact of the intentional delay on fill rates and execution 
quality on IntelligentCross).
    \136\ See supra note 87 and accompanying text.
---------------------------------------------------------------------------

    With respect to more information on ``fill rates and execution 
quality'' on IntelligentCross in assessing protected quotation status 
to the market, IntelligentCross provided additional data highlighting 
execution quality metrics for the first six months of 2023.\137\
---------------------------------------------------------------------------

    \137\ See IntelligentCross Letter at 2; IntelligentCross Letter 
II at 2. See also supra note 113 (describing execution quality 
statistics for the first six months of 2023).
---------------------------------------------------------------------------

    The Commission also agrees with IntelligentCross that the 
regulatory obligations associated with protected quotations under 
Regulation NMS do not provide a guarantee of an execution, which 
commenters appear to suppose when highlighting non-match events or 
cancellation rates.\138\ While market participants accessing the 
IntelligentCross protected quotation would be subject to 
IntelligentCross' delayed, randomized matching process, the Commission 
believes, as stated above, that the length of

[[Page 59965]]

IntelligentCross' specific delay or its randomized nature would not 
frustrate the purposes of Regulation NMS by impairing fair and 
efficient access to IntelligentCross' displayed quotations. 
Furthermore, as described above, the information provided in the 
Proposal, the response letters by IntelligentCross and FINRA, and the 
availability of further information on IntelligentCross' publicly 
posted Form ATS-N and website, have addressed transparency concerns 
surrounding the IntelligentCross matching process such that the 
information will promote fair and efficient access to its quotations.
---------------------------------------------------------------------------

    \138\ See infra notes 169 and 171 and accompanying text.
---------------------------------------------------------------------------

    The Commission is also unpersuaded by comments regarding the 
difficulties for market participants to adapt to an IntelligentCross 
protected quote.\139\ With respect to ISOs,\140\ the Commission 
believes that market participants can satisfy their obligations under 
Regulation NMS by simply routing ISOs to IntelligentCross' protected 
quotations, as necessary. While some commenters state that the 
IntelligentCross matching mechanism could pose challenges for market 
participants to deploy certain order routing strategies or lead to 
information leakage,\141\ IntelligentCross is already widely used by 
most major broker-dealer and electronic trading firms,\142\ which no 
other commenter disputed, and the commenters did not present evidence 
that the current considerations that market participants face when 
interacting with IntelligentCross' liquidity and displayed liquidity in 
other markets would be appreciably affected by the Proposal.
---------------------------------------------------------------------------

    \139\ See supra notes 78-80 and accompanying text.
    \140\ See supra note 80.
    \141\ See id.
    \142\ See IntelligentCross Letter at 2 (in January 2023, 
IntelligentCross' daily market share was 110 basis points, and was 
consistently third in total shares traded by ATSs of NMS Tier 1 and 
Tier 2 stocks in FINRA ATS weekly statistics, averaging $5.9 billion 
notional traded per day).
---------------------------------------------------------------------------

b. Compliance With Rule 610 of Regulation NMS and Ongoing Obligations
    As discussed above, FINRA believes that IntelligentCross' proposed 
level and cost of access to quotations on the ASPEN Fee/Fee book is 
substantially equivalent to the level and cost of access to quotations 
displayed by an SRO trading facility, both in absolute and relative 
terms.\143\ Two commenters raise questions regarding the regulatory 
process in connection with proposed changes to IntelligentCross' 
operations and fees associated with displaying protected quotations on 
the ADF.\144\ One commenter states that there is currently no 
regulatory process for ongoing operational changes at non-exchange 
venues with protected quotes and intentional access delays.\145\ This 
commenter states that without the exchange notice and comment process 
in connection with changes to operations, it seeks additional 
information on the regulatory process for managing such changes at 
IntelligentCross and the ADF.\146\ One commenter states that even if 
IntelligentCross agrees to a method of review for material changes as 
an ADF participant, IntelligentCross does not offer suggestions about 
how rule filing and review process would work or suggest any 
alternatives.\147\ This commenter also states that FINRA has made no 
representation in the record to indicate it would be willing to 
undertake a rule filing obligation with respect to material changes by 
IntelligentCross as an ADF participant.\148\
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    \143\ See Notice, supra note 3, at 79404, n.37.
    \144\ See Healthy Markets Letter at 2; FIA PTG Letter at 2; FIA 
PTG Letter II at 2. See also IEX Letter at 3 (stating that it is 
important for there to be a ``clear expectation that material 
changes to methods affecting quote display and access'' be subject 
to appropriate review, for example, by requiring material changes to 
be filed by FINRA through the SEC rule filing process); IEX Letter 
II at 6.
    \145\ See FIA PTG Letter at 2; FIA PTG Letter II at 2-3.
    \146\ See FIA PTG Letter at 2; FIA PTG Letter II at 2-3.
    \147\ See IEX Letter II at 6.
    \148\ See id. at 6.
---------------------------------------------------------------------------

    One commenter states that if the Commission chooses to permit any 
trading center to disseminate quotations using the ADF, it must 
condition approval with limitations that are consistent with 
limitations imposed upon other trading venues (i.e., exchanges) whose 
quotations have protected quotation status.\149\ In particular, this 
commenter states that approval of the Proposal should be conditioned 
upon IntelligentCross: (1) continuing to not charge for market data or 
connectivity; (2) having fees and rebates (if adopted) that are at or 
below those charged by exchanges; (3) notifying the Commission and 
FINRA of all changes related to the ASPEN Fee/Fee book; and (4) 
describing how any such changes are consistent with the ASPEN Fee/Fee 
book quotations continuing to be included as a protected quotation is 
consistent with the Exchange Act and protection of investors.\150\ This 
commenter also states that both the Commission and FINRA should detail 
how they would ``gather, review, analyze, and publish for public 
consideration'' any changes to IntelligentCross' policies and 
procedures related to the Proposal, as well as describe how they would 
intervene to block or disallow any concerning changes in 
IntelligentCross' policies and procedures related to the ADF.\151\ 
Overarching this commenter's concerns with the Proposal are that any 
changes to the ASPEN Fee/Fee book rules and operations should be 
treated the same for regulatory purposes as if they were changes made 
by an exchange, including that they are put out for notice and public 
comment, and subject to Commission disapproval.\152\
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    \149\ See Healthy Markets Letter at 2. This commenter states 
that if the Commission approves the Proposal, ``it would be 
difficult, if not impossible, for the Commission to practically 
constrain IntelligentCross' fees and potential limitations for 
accessing the newly protected quotations.'' Id. at 9. See also 
Healthy Markets Letter II.
    \150\ See Healthy Markets Letter at 2. This commenter also 
states that if the Commission approves the Proposal, it should 
expressly condition the approval on IntelligentCross being compliant 
with Regulation SCI like other trading centers with protected 
quotations. See id. at 8, n.29. IntelligentCross states that it 
became Regulation SCI compliant as of August 1, 2023. See 
IntelligentCross Letter III at 5.
    \151\ See Healthy Markets Letter at 2.
    \152\ See id. at 17. See also IEX Letter at 10; IEX Letter II at 
6 (stating that ``approval of the Proposal would result in a double 
standard in treatment of exchanges compared to ATSs that have 
protected quotes'').
---------------------------------------------------------------------------

    In its response letters, IntelligentCross points to its current 
regulatory responsibilities associated with being a registered broker-
dealer and an ATS, as well as the Regulation NMS obligations attached 
to being an ADF participant.\153\ FINRA also states that its rules set 
forth requirements applicable to an ADF participant and require that 
such participants meet the requisite standards on an ongoing 
basis.\154\ IntelligentCross states its belief that the level and cost 
of access to its quotations complies with Rule 610 as it is 
substantially equivalent to the level and cost of access to quotations 
displayed by SRO trading facilities and will not impose burdens on 
market participants.\155\ Additionally, IntelligentCross states that it 
does not impose unfairly discriminatory terms that would prevent or 
inhibit any person from accessing its quotations through a subscriber 
of the trading

[[Page 59966]]

center.\156\ Specifically, IntelligentCross represents that ``it does 
not tier or discriminate among subscribers'' and any registered US 
broker-dealer in good standing of an SRO may become a subscriber of 
IntelligentCross.\157\
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    \153\ See IntelligentCross Letter at 11; IntelligentCross Letter 
II at 8-9.
    \154\ See FINRA Letter II at 3-4.
    \155\ See IntelligentCross Letter II at 8-9 (discussing level 
and cost of access to IntelligentCross). IntelligentCross states 
that FINRA provides a pre-approved (non-exclusive) list of ADF 
connectivity providers to help market participants seeking to access 
quotations posted through the ADF, and ADF participants must be 
accessible through at least two of the connectivity providers. Id. 
at 8.
    \156\ See id. at 9 (discussing fair access to its market by 
subscribers). IntelligentCross highlights obligations under FINRA 
Rules 6240 (Prohibition from Locking or Crossing Quotations in NMS 
Stocks), 6250 (Quote and Order Access Requirements), and 6260 
(Review of Direct or Indirect Access Complaints) regarding ADF 
access requirements. See id.
    \157\ See id. at 9-10 (also stating that IntelligentCross 
creates and maintains records of all decisions granting or denying 
access, that IntelligentCross considers a subscriber's regulatory 
history in examining a subscriber's application, and that, when the 
ASPEN Fee/Fee book displays orders through the ADF, non-subscribers 
would access IntelligentCross).
---------------------------------------------------------------------------

    IntelligentCross also states that, while an ATS is not subject to 
the same regulatory requirements as exchanges, it also does not share 
the same benefits as exchanges.\158\ However, IntelligentCross states 
that it does not object to notifying the Commission and FINRA in 
advance if changes are made to the level and cost of access to the 
ASPEN Fee/Fee book impacting the display of IntelligentCross' protected 
quotations on the ADF, or the operation of the ASPEN Fee/Fee book 
impacting the provision of the protected quote.\159\ IntelligentCross 
also states that it does not object to an ``appropriately structured 
process'' to engage the Commission in evaluating and commenting on such 
changes.\160\ Further, IntelligentCross acknowledges that it may be 
subject to other regulatory obligations in the future depending on 
changes to its platform or its volume.\161\ But IntelligentCross 
disagrees with the commenter's recommendation to condition 
IntelligentCross' approval on ``continuing to not charge for market 
data or connectivity'' \162\ given that it believes such a requirement 
would not be consistent with the limitations imposed on exchanges and 
the ``substantially equivalent'' basis under Rule 610.\163\
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    \158\ See IntelligentCross Letter at 11.
    \159\ See id. IntelligentCross also states that it would not 
object to describing how such changes are consistent with the ASPEN 
Fee/Fee book quotations continuing to be included as protected 
quotations, consistent with the Exchange Act. See id. In addition, 
IntelligentCross states that material changes to its policies and 
procedures governing access to IntelligentCross, including a change 
to its fees, will be submitted to the Commission under Form ATS-N. 
See IntelligentCross Letter II at 11.
    \160\ See IntelligentCross Letter at 11.
    \161\ See Notice, supra note 3, at 79402, n.19. See also 
IntelligentCross Letter at 11, n. 41.
    \162\ See supra note 145 and accompanying text.
    \163\ See IntelligentCross Letter at 11-12. IntelligentCross 
also states that it currently does not charge for market data and 
connectivity. See id. at 12.
---------------------------------------------------------------------------

    FINRA, as the SRO responsible for enforcing compliance by ADF 
participants with the requirements of the Exchange Act, must act as the 
``gatekeeper'' for the ADF, and, as such, is required to closely 
evaluate the extent to which ADF participants, including 
IntelligentCross and any future ADF participants, meet the access 
standards of Rule 610.\164\ As part of this process, the Commission 
stated in the NMS Adopting Release that NASD (now FINRA) would be 
required to submit a proposed rule change under Section 19(b) of the 
Exchange Act in order to add a new ADF participant.\165\ If an ADF 
participant is not complying with the access standards under Rule 610, 
FINRA has the responsibility to stop publishing the participant's 
quotations until the participant comes into compliance.\166\ The 
Commission believes that a reasonable and appropriate method for FINRA 
to satisfy its ongoing responsibility for ensuring that an ADF 
participant is complying with Rule 610 is to submit material changes 
that affect access, including the level and cost of access, to 
quotations displayed by the ADF participant as proposed rule changes 
under Section 19(b) of the Exchange Act that would be subject to notice 
and comment.
---------------------------------------------------------------------------

    \164\ See NMS Adopting Release at 37549.
    \165\ See id.
    \166\ See id.
---------------------------------------------------------------------------

    The fees and the policies and procedures governing access to 
protected quotations displayed on the ADF by IntelligentCross as 
described above would provide market participants with fair and 
efficient access and are not unfairly discriminatory such that they 
would prevent a market participant from obtaining efficient access to 
such quotations. All members in good standing of an SRO are eligible to 
become IntelligentCross subscribers, and both subscribers and non-
subscribers may access IntelligentCross liquidity. IntelligentCross 
offers both subscribers and non-subscribers multiple options to access 
its liquidity. In addition, IntelligentCross has policies and 
procedures that require it to respond to orders by non-subscribers as 
promptly as it responds to orders by subscribers and allow for non-
subscribers to be able to automatically execute against quotations 
displayed by the system. IntelligentCross does not assess charges that 
may be assessed by exchanges, such as membership fees, trading rights 
fees, risk gateway fees, and other miscellaneous fees. 
IntelligentCross' proposed level and cost of access to quotations on 
the ASPEN Fee/Fee book is substantially equivalent to the level and 
cost of access to quotations displayed by an SRO trading facility, both 
in absolute terms and relative to its trading volume.\167\ Both sides--
the buyer and the seller--can cancel or update their orders at any time 
prior to a match and both must equally wait for the next scheduled 
match event to occur. In addition, the Commission does not believe that 
the level of cancellation during the delay imposes unfairly 
discriminatory terms that prevent or inhibit any person from obtaining 
efficient access to such quotations as it has been shown that non-match 
events occur in a minority of cases, and market participants receive an 
execution the majority of the time.\168\ IntelligentCross has policies 
and procedures in place to oversee and review the calculation and 
application of its matching schedules to help ensure the matching 
process does not act in a discriminatory manner in favor of or against 
any market participants.\169\ Furthermore, the Commission believes that 
the cancellation rate alone does not demonstrate that IntelligentCross 
imposes unfairly discriminatory terms given that the ability of any 
market participant to successfully execute against any particular 
displayed quote is subject to a number of factors and is not guaranteed 
on any market, as at any time any market participant can be seeking to 
execute against an order that is being repriced, changed, cancelled, or 
executed by a different market participant.\170\
---------------------------------------------------------------------------

    \167\ See NMS Adopting Release at 35749, n.449.
    \168\ IntelligentCross states that in January 2023, 3.9 percent 
of potential matches on the ASPEN Fee/Fee book did not complete 
because a displayed order was cancelled, and 4.5 percent of 
potential matches did not complete because the NBBO changed and at 
least one of the sides became non-marketable. See IntelligentCross 
Letter at 8, n.30.
    \169\ See supra note 133 and accompanying text.
    \170\ See Securities Exchange Act Release No. 89686 (August 26, 
2020), 85 FR 54438, 54445 (September 1, 2020) (Order Approving a 
Proposed Rule Change to Add a New Discretionary Limit Order Type 
Called D Limit).
---------------------------------------------------------------------------

    Further, as discussed above, in the event that IntelligentCross 
intends to make a material change to the policies and procedures 
governing access to IntelligentCross, including a change to its fees, 
it has represented that it will submit the changes made to FINRA, and 
acknowledges that FINRA will post on its website an amended description 
of IntelligentCross' policies, procedures, and fees governing 
access.\171\ In response to comments on the lack of a notice and 
comment process in connection with the potential for future material 
changes to the operations and

[[Page 59967]]

fees of IntelligentCross as an ADF participant,\172\ FINRA has 
represented to the Commission that it will file such material changes 
as a proposed rule change with the Commission under Section 19(b) of 
the Exchange Act.\173\ Under this process, the Commission would review 
the proposed rule change and consider any public comments received. In 
addition, changes to the operations of IntelligentCross, as well as its 
disclosures on its public Form ATS-N, are subject to the requirements 
of Rule 304 of Regulation ATS. Accordingly, the Commission believes 
that commenter concerns regarding the regulatory process for proposed 
changes to IntelligentCross' operations and fees associated with 
displaying protected quotations on the ADF have been adequately 
addressed by IntelligentCross and FINRA.\174\ FINRA's ongoing 
obligation to ensure compliance by IntelligentCross as an ADF 
participant with its Regulation NMS obligations, FINRA's commitment to 
file proposed rule changes relating IntelligentCross' operations, and 
IntelligentCross' regulatory responsibilities as an ATS, appropriately 
ensures transparency and ongoing assessment of consistency with the 
Exchange Act.
---------------------------------------------------------------------------

    \171\ See supra note 52.
    \172\ See supra notes 145-147.
    \173\ See FINRA Letter II at 4.
    \174\ See supra notes 150-152 and accompanying text.
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    Finally, in response to one commenter's recommendation that 
approval of the Proposal be conditioned on IntelligentCross 
``continuing to not charge for market data or connectivity,'' \175\ 
such a condition is inconsistent with the limitations imposed on an ADF 
participant under Rule 610 which requires a level and cost of access 
that is substantially equivalent to the level and cost of access to 
quotations displayed by SRO trading facilities.\176\
---------------------------------------------------------------------------

    \175\ See supra note 151.
    \176\ See supra note 151 and accompanying text.
---------------------------------------------------------------------------

2. Implementation Period

    FINRA states that the ``effective date'' of the Proposal would be 
the date of the Commission's approval.\177\
---------------------------------------------------------------------------

    \177\ See Notice, supra note 3, at 790404.
---------------------------------------------------------------------------

    Two commenters suggest that the proposed implementation period for 
the Proposal is too short given the connectivity arrangements that the 
industry would need time to establish.\178\ One commenter suggests an 
implementation period of no less than 120 days following the date of 
Commission approval.\179\ Another commenter recommends an 
implementation period of no less than 90 days following the date of 
Commission approval.\180\ In one of its response letters, 
IntelligentCross states that it has been working with industry 
participants to ensure that they have all the information necessary to 
prepare for the IntelligentCross protected quote.\181\ IntelligentCross 
also states that most major broker-dealers and electronic trading firms 
are already connected to, and trading within, IntelligentCross.\182\ 
Moreover, IntelligentCross believes that a reasonable implementation 
timeframe would be to require that industry participants begin treating 
IntelligentCross' quotes as a protected quotation no later than 90 days 
after the date of the Commission's approval order.\183\ One commenter 
states that the 90-day implementation period proposed by 
IntelligentCross is in line with previous Commission guidance on 
treating new exchange quotes as protected.\184\
---------------------------------------------------------------------------

    \178\ See FIA PTG Letter at 2; FIA PTG Letter II at 3; SIFMA 
Letter at 4.
    \179\ See FIA PTG Letter at 2.
    \180\ See SIFMA Letter at 4-5.
    \181\ See IntelligentCross Letter at 10.
    \182\ See id.
    \183\ See id.
    \184\ See FIA PTG Letter II at 3 (citing to Securities Exchange 
Act Release Nos. 58375 (August 18, 2008), 73 FR 49498, 49505 (August 
21, 2008) (approval of the BATS Exchange), 61698 (March 12, 2010), 
75 FR 13151, 13163 (March 28, 2010) (approval of the EDGA and EDGX 
exchanges) and 78101 (June 17, 2016), 81 FR 41141 (approval of the 
Investors' Exchange)).
---------------------------------------------------------------------------

    Following the issuance of this order and IntelligentCross having 
met the conditions to begin operating as an ADF participant, market 
participants will be required to have reasonably designed policies and 
procedures to treat IntelligentCross' best bid and best offer as a 
protected quotation.\185\ At the same time, to meet their regulatory 
responsibilities under Rule 611(a) of Regulation NMS, market 
participants must have sufficient notice of new protected quotations, 
as well as all necessary information (such as final technical 
specifications).\186\ Given that the Commission understands 
IntelligentCross is already widely used by most major broker-dealer and 
electronic trading firms,\187\ and has engaged in market participant 
outreach regarding its status as an ADF participant,\188\ the 
Commission believes that an implementation period of no less than 90 
days following the date of Commission approval is a sufficient 
timeframe for market participants to establish connectivity to the 
IntelligentCross protected quotation in order to meet their obligations 
under Rule 611. Accordingly, the Commission believes that it would be a 
reasonable policy and procedure under Rule 611(a) to require that 
industry participants to begin treating IntelligentCross' best bid and 
best offer as a protected quotation within 90 days after the date of 
this order, or such later date as IntelligentCross begins operation as 
a new ADF participant.
---------------------------------------------------------------------------

    \185\ See 17 CFR 242.611(a).
    \186\ See Securities Exchange Act Release No. 53829 (May 18, 
2006), 71 FR 30038, 30041 (May 24, 2006) (File No. S7-10-04) 
(extending the compliance dates for Rule 610 and Rule 611 of 
Regulation NMS under the Exchange Act).
    \187\ See supra note 120.
    \188\ See supra note 182.
---------------------------------------------------------------------------

3. ADF Technological Infrastructure

    One commenter states that the Commission and FINRA should consider 
whether to ``wind down'' the ADF due to concerns regarding the latency 
and technological infrastructure of the ADF.\189\ Specifically, this 
commenter states that the Proposal does not provide any details of the 
ADF's systems capabilities and questions whether the ``intake, 
processing, and dissemination systems [are] up to 2023 speed and 
capacity standards.'' \190\ This commenter also expresses concern 
regarding the speed at which the ADF disseminates quotation data 
compared to the speed at which IntelligentCross' proprietary quotation 
feed is disseminated to market participants.\191\ This commenter states 
that it is unclear the extent to which ``FINRA has attempted to upgrade 
the system'' to address the latency gap.\192\ One commenter requests 
more transparency regarding any latency tests conducted by FINRA with 
IntelligentCross to determine the latency related to transmission from 
IntelligentCross to the ADF and the time for the ADF to process and 
publish updates to the SIPs.\193\
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    \189\ See Healthy Markets Letter at 14-17.
    \190\ See id. at 14. This commenter asserts that it is ``not 
aware of any public details regarding the details of [the ADF's] 
operations, including systems specifications and latencies.'' Id.
    \191\ See id. at 7.
    \192\ See id. at 8.
    \193\ See IEX Letter at 8. This commenter also raises general 
questions regarding latency and the use of consolidated data or 
proprietary data for receiving IntelligentCross quotes. See id. at 
9. IntelligentCross states that it has committed to providing quote 
updates to the ADF no later than when they are disseminated via its 
proprietary data feed. See IntelligentCross Letter II at 7.
---------------------------------------------------------------------------

    In its response letter, FINRA states that it has made technological 
updates to the ADF infrastructure that make it ``well-equipped to 
support use of the ADF by multiple market participants for

[[Page 59968]]

quoting and trading purposes.'' \194\ FINRA also states that its recent 
technological updates to the ADF have significantly reduced the ADF's 
processing latency times as compared to when the ADF was last 
operational in 2015.\195\ FINRA also represents that it continues to 
conduct capacity requirement testing with IntelligentCross and ``aim[s] 
to address any potential areas identified for further improvement prior 
to IntelligentCross becoming an ADF [p]articipant and sending quotes to 
the ADF (subject to SEC approval).'' \196\ Additionally, based on the 
results of FINRA's ADF testing with IntelligentCross, FINRA states that 
ADF latency is generally in line with exchange latency to dissemination 
by the SIPs.\197\ FINRA also states that it expects the ADF latency in 
production to be lower than in the ADF test environment.\198\ 
Accordingly, FINRA believes that any processing latency for the ADF 
would generally be in line with exchange processing latencies once 
IntelligentCross begins quoting on the ADF.\199\
---------------------------------------------------------------------------

    \194\ See FINRA Letter at 3. FINRA states that in 2021 it began 
a multi-year effort to update the technological infrastructure for 
several of its facilities, relevant data vendor feeds, and related 
reference data. See id. The ADF's trade reporting and quoting 
functionality were migrated onto a new platform in November 2021 and 
March 2022, respectively. See id.
    \195\ See id. FINRA states that the ADF supports increments of 
nanoseconds for both its quoting and reporting functions. See id.
    \196\ Id.
    \197\ See FINRA Letter II at 6. FINRA states that the ADF 
latency tests conducted by FINRA with IntelligentCross were 
conducted as stress tests that included processing volumes and 
sustained messages rates well in excess of those likely to be 
experienced in production. See id. See FINRA Letter II at 5-6 for 
additional detailed description of FINRA's ADF latency tests.
    \198\ See id.
    \199\ See id.
---------------------------------------------------------------------------

    The Commission believes that FINRA has demonstrated that, with the 
recent technological updates to address latency in the ADF's system 
capabilities,\200\ along with recent tests to the ADF application with 
IntelligentCross, the ADF technology infrastructure will be consistent 
with current speed and capacity standards for processing and 
disseminating IntelligentCross' quotations. Moreover, FINRA and 
IntelligentCross have represented that they will continue to conduct 
testing and explore technological enhancements to further reduce ADF 
latency, thus ensuring that the ADF technology infrastructure continues 
to be consistent with current processing latencies.\201\
---------------------------------------------------------------------------

    \200\ See supra notes 195 and 196.
    \201\ See Notice, supra note 3, at 79404; FINRA Letter II at 6.
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\202\ that the proposed rule change (SR-FINRA-2022-032) is 
approved.
---------------------------------------------------------------------------

    \202\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\203\
---------------------------------------------------------------------------

    \203\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-18677 Filed 8-29-23; 8:45 am]
BILLING CODE 8011-01-P