Document ID: SEC-2018-0383-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Investors Exchange LLC
Posted Date: 2018-03-07T05:00Z

[Federal Register Volume 83, Number 45 (Wednesday, March 7, 2018)]
[Notices]
[Pages 9781-9786]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-04559]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82799; File No. SR-IEX-2018-03]

Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Certain Auction Rules Governing the Pricing of Non-Displayed Orders 
Resting on the Continuous Book for the Opening and Closing Auctions

March 1, 2018.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on February 16, 2018, Investors Exchange LLC (``IEX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) under the Securities 
Exchange Act of 1934 (``Act''),\4\ and Rule 19b-4 thereunder,\5\ 
Investors Exchange LLC (``IEX'' or ``Exchange'') is filing with the 
Securities and Exchange Commission (``Commission'') a proposed rule 
change to amend Rules 11.350(a)(2) and 11.350(a)(30) to properly 
reflect the manner in which the Exchange will handle non-displayed 
orders resting on the Continuous Book \6\ within the Reference Price 
Range \7\ in crossed and one-sided markets \8\ in the Opening and 
Closing Auctions,\9\ and resolve a conflict with the Exchange's 
existing rules regarding the pricing of such orders. The Exchange has 
designated this rule change as ``non-controversial'' under Section 
19(b)(3)(A) of the Act \10\ and provided the Commission with the

[[Page 9782]]

notice required by Rule 19b-4(f)(6) thereunder.\11\
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CRF 240.19b-4.
    \6\ See Rule 11.350(a)(4).
    \7\ See Rule 11.350(a)(30).
    \8\ A crossed market refers to a scenario in which the protected 
national best bid (``Protected NBB'') is greater than the protected 
national best offer (``Protected NBO''). A one-sided market refers 
to a scenario in which there is only a Protected NBB or Protected 
NBO. See Rule 1.160(bb).
    \9\ See Rules 11.350(c) and (d), respectively.
    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4.
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    The text of the proposed rule change is available at the Exchange's 
website at www.iextrading.com, at the principal office of the Exchange, 
and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The purpose of this proposed rule change is to amend Rules 
11.350(a)(2) and 11.350(a)(30) to properly reflect the manner in which 
the Exchange will handle non-displayed orders resting on the Continuous 
Book within the Reference Price Range in crossed and one-sided markets 
in the Opening and Closing Auctions, and resolve a conflict with the 
Exchange's existing rules regarding the pricing of such orders.
    On August 4, 2017, the Commission approved a proposed rule change 
filed by the Exchange to adopt rules governing auctions in IEX-listed 
securities, including Opening and Closing Auction processes that 
establish IEX Official Opening and Closing Prices for each trading 
day.\12\ The Exchange intends to launch a listings program for 
corporate issuers in 2018. IEX Rule 11.350 is applicable to auctions in 
IEX-listed securities.
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    \12\ See Securities Exchange Act Release No. 81316 (August 4, 
2017), 82 FR 37474 (August 10, 2017). See also Rules 11.350(a)(12) 
and (10), respectively.
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IEX Opening Auction
    Pursuant to Rule 11.350(c)(1), Users may submit orders eligible for 
execution in the Opening Auction \13\ at the beginning of the Pre-
Market Session,\14\ which begins at 8:00 a.m.\15\ Any orders designated 
for the Opening Auction Book \16\ will be queued until 9:30 a.m. at 
which time they will be eligible to be executed in the Opening Auction. 
In addition to orders on the Opening Auction Book, limit orders on the 
Continuous Book with a time-in-force of SYS or GTT are eligible to 
execute in the Opening Auction (``Pre-market Continuous Book'').\17\ 
The Exchange does not place any restrictions on the entry of orders to 
the Pre-market Continuous Book to avoid unnecessary disruptions to 
continuous trading.
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    \13\ See Rule 11.350(c).
    \14\ See Rule 1.160(z).
    \15\ All times are in Eastern Time.
    \16\ Pursuant to Rule 11.350(a)(1)(A), orders on the Opening 
Auction Book would include MOO orders, LOO orders, market orders 
with a time-in-force of DAY, and limit orders with a time-in-force 
of DAY or GTX. See Rules 11.350(a)(25), 11.350(a)(21), 
11.190(a)(2)(E)(iii), and 11.190(a)(1)(E)(iii) and (v), 
respectively.
    \17\ See Rule 11.190(a)(1)(E)(iv) and (vi).
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    Pursuant to proposed Rule 11.350(c)(2), beginning at the Opening 
Auction Lock-in Time \18\ and updated every one second thereafter, the 
Exchange will disseminate IEX Auction Information \19\ via electronic 
means. The Exchange will attempt to conduct an Opening Auction for all 
IEX-listed securities at the start of Regular Market Hours \20\ (i.e., 
9:30 a.m.) in accordance with the clearing price determination process 
set forth in Rule 11.350(c)(2)(B). All orders eligible for execution in 
the Opening Auction (i.e., orders on the Opening Auction Book and 
orders on the Pre-Market Continuous Book that are not Auction 
Ineligible Orders \21\) are Auction Eligible Orders.\22\ Auction 
Eligible Orders will be ranked and maintained in accordance with IEX 
auction priority, pursuant to Rule 11.350(b). Moreover, pursuant to 
Rule 11.350(a)(2), non-displayed buy (sell) orders on the Pre-Market 
Continuous Book with a resting price (as defined in Rule 
11.350(b)(1)(A)(i)) within the Reference Price Range will be priced at 
the Protected NBB (NBO) for the purpose of determining the clearing 
price,\23\ but will be ranked and eligible for execution in the Opening 
Auction match at the order's resting price.\24\ Thus, non-displayed 
orders will influence the Opening Auction clearing price if such price 
is at or outside the Reference Price Range, but not if the clearing 
price is within the Reference Price Range.
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    \18\ See Rule 11.350(a)(22).
    \19\ See Rule 11.350(a)(9).
    \20\ See Rule 1.160(gg).
    \21\ See Rule 11.350(a)(3).
    \22\ See Rule 11.350(a)(2).
    \23\ Note, non-displayed buy (sell) orders on the Continuous 
Book with a resting price (as defined in Rule 11.350(b)(1)(A)(i)) 
within the Reference Price Range will be priced at the Protected NBB 
(NBO) for the purpose of determining the clearing price and the 
Indicative Clearing Price disseminated in IEX Auction Information as 
set forth in Rule 11.350(a)(9)(E).
    \24\ The Exchange notes that in the case of an IPO, Halt, or 
Volatility Auction, there is no continuous trading and therefore no 
Continuous Book. Accordingly, there would be no non-displayed 
interest on the Continuous Book to which this functionality would 
apply.
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IEX Closing Auction
    Similar to the Opening Auction, pursuant to Rule 11.350(d)(1), the 
Exchange allows Users to submit orders eligible for execution in the 
Closing Auction \25\ at the beginning of the Pre-Market Session, which 
begins at 8:00 a.m. Any orders designated for the Closing Auction Book 
\26\ are queued until 4:00 p.m. (or such earlier time as the Regular 
Market Session \27\ ends on days that IEX is subject to an early 
closing) at which time they will be eligible to be executed in the 
Closing Auction. In addition to orders on the Closing Auction Book, all 
limit and pegged orders resting on the Continuous Book with a time-in-
force of DAY, GTX, GTT, or SYS are eligible for execution in the 
Closing Auction, (``Regular-Market Continuous Book'').\28\ Similar to 
the Opening Auction, the Exchange does not place any restrictions on 
the entry of orders to the Regular-Market Continuous Book to avoid 
unnecessary disruptions to continuous trading.
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    \25\ See Rule 11.350(d).
    \26\ Pursuant to Rule 11.350(a)(1)(B), orders on the Closing 
Auction Book would include MOC orders and LOC orders. See Rules 
11.350(a)(24), and 11.350(a)(20).
    \27\ See Rule 1.160(gg).
    \28\ The following types of orders are not eligible for 
execution in the Closing Auction: market orders (except MOC orders) 
and orders with a time-in-force of IOC or FOK, because Market orders 
entered during the Regular Market Session and orders marked IOC or 
FOK do not rest on the Continuous Book, and therefore are not 
eligible for the Closing Auction.
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    Pursuant to Rule 11.350(d)(2)(A), beginning at the Closing Auction 
Lock-in Time \29\ and updated every one second thereafter, the Exchange 
will disseminate IEX Auction Information via electronic means. The 
Exchange will attempt to conduct a Closing Auction for all IEX-listed 
securities at 4:00 p.m., or such earlier time as the Regular Market 
Session ends on days that IEX is subject to an early closing, in 
accordance with the clearing price determination process set forth in 
Rule 11.350(d)(2)(B). All orders eligible for execution in the Closing 
Auction (i.e., orders on the Closing Auction Book and orders on the 
Regular-Market Continuous Book) are Auction Eligible Orders. Auction 
Eligible Orders will be ranked in accordance with IEX Auction Priority 
set forth in Rule 11.350(b). Moreover, pursuant to Rule 11.350(a)(2),

[[Page 9783]]

non-displayed buy (sell) orders on the Regular-Market Continuous Book 
with a resting price (as defined in Rule 11.350(b)(1)(A)(i)) within the 
Reference Price Range will be priced at the Protected NBB (NBO) for the 
purpose of determining the clearing price,\30\ but will be ranked and 
eligible for execution in the Closing Auction match at the order's 
resting price. Thus, as with the Opening Auction, non-displayed orders 
resting on the Regular-Market Continuous Book will influence the 
Closing Auction clearing price if such price is at or outside the 
Reference Price Range, but not if the clearing price is within the 
Reference Price Range.
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    \29\ See Rule 11.350(a)(22).
    \30\ Note, non-displayed buy (sell) orders on the Continuous 
Book with a resting price (as defined in proposed Rule 
11.350(b)(1)(A)(i)) within the Reference Price Range will be priced 
at the Protected NBB (NBO) for the purpose of determining the 
clearing price and the Indicative Clearing Price disseminated in IEX 
Auction Information as set forth in Rule 11.350(a)(9)(E).
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    As described in the rule filing proposing rules governing auctions 
in IEX-listed securities,\31\ the Exchange's handling of non-displayed 
interest on the Continuous Book resting within the Reference Price 
Range in the Opening and Closing Auction is designed to protect the 
anonymity of resting non-displayed interest on the Continuous Book 
during the dissemination of IEX Auction Information. Specifically, the 
Exchange believes that without such treatment, information leakage 
would occur if the Indicative Clearing Price is closer to the midpoint 
of the NBBO than the Reference Price \32\ that is disseminated via IEX 
Auction Information. This would indicate that there is non-displayed 
interest resting on the Continuous Book for at least the size of the 
imbalance and priced at least as aggressively as the Reference Price.
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    \31\ See Securities Exchange Act Release No. 80583 (May 3, 
2017), 82 FR 21634 (May 9, 2017). See also supra note 12.
    \32\ See Rule 11.350(a)(9)(A).
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Reference Price Range
    For the Opening or Closing Auction, the Reference Price Range is 
defined in Rule 11.350(a)(30) as the prices between and including the 
Protected NBB and Protected NBO, if the Protected NBBO is valid. The 
Protected NBBO is valid when there is both a Protected NBB and 
Protected NBO in the security (i.e., the market is not one-sided or 
zero-sided), the Protected NBBO is not crossed, and the midpoint of the 
Protected NBBO is less than or equal to the Maximum Percentage \33\ 
away from both the Protected NBB and Protected NBO. The Maximum 
Percentage values set forth in Rule 11.350(a)(26) are as follows:
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    \33\ See Rule 11.350(a)(26).
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     5% if the Protected Midpoint Price \34\ is less than or 
equal to $25.00;
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    \34\ Id.
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     2.5% if the Protected Midpoint Price is greater than 
$25.00 but less than or equal to $50.00; or
     1.5% if the Protected Midpoint Price is greater than 
$50.00.
    In the event that the Protected NBBO is not valid, the Reference 
Price Range will be equal to the IEX best bid and offer (``IEX BBO''), 
if the IEX BBO is valid. The IEX BBO is valid where there is both an 
IEX best bid and IEX best offer in the security (i.e., the IEX BBO is 
not one-sided or zero-sided), and the midpoint of the IEX BBO is less 
than or equal to the Maximum Percentage away from both the IEX best bid 
and the IEX best offer. Where the IEX BBO is not valid, the Reference 
Price Range is set to the higher (lower) price of the Final 
Consolidated Last Sale Eligible Trade,\35\ or the Protected NBB (NBO), 
if not crossed, or the IEX best bid (offer).
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    \35\ See Rule 11.350(a)(6), which defines the Final Consolidated 
Last Sale Eligible Trade as the last trade prior to the end of 
Regular Market Hours, or where applicable, prior to trading in the 
security being halted or paused, that is last sale eligible and 
reported to the Consolidated Tape, rounded to the nearest MPV or 
Midpoint Price calculated by the System, whichever is closer. If no 
such transaction was executed in accordance with the preceding 
sentence, then the Final Consolidated Last Sale Eligible Trade will 
be the previous official closing price.
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Proposed Changes
    During development and testing of the functionality for Opening and 
Closing Auctions the Exchange identified that in crossed markets, Rule 
11.350(a)(2) does not properly reflect the Exchange's planned handling 
of non-displayed orders resting on the Continuous Book within the 
Reference Price Range, and conflicts with the Exchange's existing rules 
regarding the pricing of orders. Specifically, Rule 11.350(a)(2) states 
in relevant part that non-displayed buy (sell) orders on the Continuous 
Book will be priced to the Protected NBB (NBO) for the purposes of 
determining the clearing price. However, as discussed above, the 
Reference Price Range is generally--but not always--equal to the 
Protected NBBO.\36\ Therefore, when the Reference Price Range does not 
equal the Protected NBBO, pricing non-displayed buy (sell) orders to 
the Protected NBB (NBO) may result in such orders being priced beyond a 
User's defined limit price, or the Midpoint Price Constraint as set 
forth in Exchange Rule 11.190(h)(2) and 11.190(h)(3)(D)(i).
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    \36\ For example, when the Protected NBBO is crossed, the 
Reference Price Range would be equal to the IEX BBO (assuming it was 
valid). In addition, when the Protected NBBO is one-sided (and 
therefore the IEX BBO is also necessarily one-sided), the Reference 
Price Range would be equal to the higher (lower) of the Final 
Consolidated Last Sale Eligible Trade, or the Protected NBB (NBO).
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    For example, if the Protected NBBO is $10.15 x $10.09 (crossed), 
and the IEX BBO is $10.05 x $10.10, the Reference Price Range would be 
equal to the IEX BBO. However, pursuant to current Rule 11.350(a)(2), 
non-displayed orders to buy resting at their limit price on the 
Continuous Book between $10.05 and $10.09 would be priced to the 
Protected NBB of $10.15 for purposes of determining the clearing price, 
which is more aggressive than their User defined limit prices, as well 
as the Midpoint Price Constraint of $10.09 (pursuant to Rule 
11.190(h)(3)(D)(i)).
    Thus, the Exchange proposes to amend Rule 11.350(a)(2) to clarify 
that for Opening and Closing Auctions, non-displayed buy (sell) orders 
on the Continuous Book with a resting price within the Reference Price 
Range will be priced at the lower (upper) threshold of the Reference 
Price Range. As a result, when the Reference Price Range does not equal 
the Protected NBBO (e.g., when the Protected NBBO is crossed), non-
displayed buy (sell) orders on the Continuous Book with a resting price 
within the Reference Price Range will be adjusted to less aggressive 
prices, consistent with the User defined limit price, if any, as well 
as the Midpoint Price Constraint.\37\
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    \37\ Modifying the example above under the proposed Rule, if the 
Protected NBBO is $10.15 x $10.09 (crossed), and the IEX BBO is 
$10.05 x $10.10, the Reference Price Range would be equal to the IEX 
BBO. Pursuant to proposed Rule 11.350(a)(2), non-displayed orders to 
buy resting at their limit price on the Continuous Book between 
$10.05 and $10.09 would be priced to the IEX best bid of $10.05 for 
purposes of determining the clearing price, which is consistent with 
User defined limit prices, as well as the Midpoint Price Constraint 
of $10.09 (pursuant to Rule 11.190(h)(3)(D)(i)).
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    In addition to the clarification above, the Exchange further 
identified that Rule 11.350(a)(2) does not explicitly reflect the 
Exchange's handling of non-displayed orders resting on the Continuous 
Book within the Reference Price Range in one-sided markets. 
Specifically, as described above, Rule 11.350(a)(2) states in relevant 
part that non-displayed buy (sell) orders resting on the Continuous 
Book within the Reference Price Range will be priced to the Protected 
NBB (NBO) for the purposes of determining the clearing price. However, 
when there is no valid Protected NBBO or IEX BBO, and thus the 
Reference Price Range is a single price (e.g., when the Reference Price 
Range is equal to the Final Consolidated

[[Page 9784]]

Last Sale Eligible Trade), the Exchange's rules do not explicitly 
identify that non-displayed buy (sell) orders on the Continuous Book 
resting with a price above (below) the Reference Price Range will be 
priced equal to the Reference Price Range for purposes of determining 
the clearing price.
    As discussed above, the treatment of non-displayed interest on the 
Continuous Book resting within the Reference Price Range is generally 
designed to protect the anonymity of resting non-displayed interest on 
the Continuous Book during the dissemination of IEX Auction 
Information. Accordingly, the Exchange's proposed handling of non-
displayed interest on the Continuous Book when the Reference Price 
Range is a single price (i.e., when in a one-sided market the Reference 
Price Range is equal to either the Final Consolidated Last Sale 
Eligible Trade, Protected NBB, Protected NBO, IEX best bid, or IEX best 
offer) is designed with the same goal of avoiding unnecessary 
information leakage.
    For example, if the Final Consolidated Last Sale Eligible Trade is 
$10.20, the Protected NBBO is $10.15 x $10.09 (crossed), and the IEX 
BBO is $10.05 x $10.50 (beyond the Maximum Percentage), both the 
Protected NBBO and IEX BBO would be invalid. Thus, pursuant to Rule 
11.350(a)(30), the Reference Price Range would be equal to the Final 
Consolidated Last Sale Eligible Trade of $10.20, which is higher than 
the IEX best bid, ($10.05) and lower than the IEX best offer 
($10.50).\38\ Assuming IEX has non-displayed sell orders resting at a 
price more aggressive than the Reference Price Range between $10.15 and 
$10.19, such orders would be priced to $10.20 for purposes of 
determining the clearing price. Pricing such sell orders more passively 
to $10.20 for purposes of determining the clearing price would prevent 
such interest from pushing the Indicative Clearing Price \39\ lower 
than the Reference Price, while the Auction Book Clearing Price \40\ 
remains above the Reference Price. Ordinarily, one would expect the 
Reference Price to be more aggressive than both the Indicative Clearing 
Price and the Auction Book Clearing Price. However, in this example, 
because the Indicative Clearing Price is more aggressive than both the 
Reference Price and the Auction Book Clearing Price, IEX Auction 
Information would have signaled the presence, size, and side of the 
non-displayed orders resting on the Continuous Book between $10.15 and 
$10.19. However, because current Rule 11.350(a)(2) only addresses 
orders resting within the Reference Price Range, and the Reference 
Price Range in the example above is a single price, Rule 11.350(a)(2) 
does not specify how non-displayed buy (sell) orders on the Continuous 
Book resting with a price above (below) the Reference Price Range will 
be priced. Accordingly, the Exchange proposes to clarify that such 
order will be priced equal to the Reference Price Range for the purpose 
of determining the clearing price.
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    \38\ Note, the Exchange evaluates the Final Last Sale Eligible 
Trade against the IEX BBO (even though it is beyond the Maximum 
Percentage) because the Protected NBBO is crossed, and therefore 
does not accurately reflect the market for the security.
    \39\ See Rule 11.350(a)(9)(E).
    \40\ See Rule 11.350(a)(9)(F).
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    Furthermore, the Exchange is proposing to make a change to the 
language in Rule 11.350(a)(30)(C) in order to more clearly describe the 
method of calculating the Reference Price Range when both the Protected 
NBBO and IEX BBO are not valid. The fundamental purpose of existing 
Rule 11.350(a)(30)(C) is to constrain the Reference Price Range to 
prices that reflect the broader market for the security. With regard to 
the pricing of non-displayed buy (sell) orders resting on the 
Continuous Book, the upper (lower) threshold of the Reference Price 
Range is utilized as a passive benchmark to which such buy (sell) 
orders will be effectively pegged for purposes of determining the 
clearing price, in order to avoid information leakage as discussed 
above. Thus, as described above, the Reference Price Range is generally 
the Protected NBBO, or alternatively the IEX BBO, when such prices are 
valid. However, in the event both the Protected NBBO and IEX BBO are 
not valid, the Exchange determines what price--between the Final 
Consolidated Last Sale Eligible Trade, and the available Protected NBB 
and/or NBO, or IEX best bid and/or offer--best reflects the market for 
the security.
    Current Rule 11.350(a)(30), however, pre-supposes that when 
evaluating subsection (C), the market is necessarily one-sided, and 
thus does not account for when the market is two-sided (i.e., when 
there is both a Protected NBB and Protected NBO, and/or both an IEX 
best bid and best offer, neither of which are valid). Accordingly, the 
Exchange is proposing to amend Rule 11.350(a)(30)(C) to more clearly 
describe the method of determining the Reference Price Range when 
neither the Protected NBBO nor IEX BBO are valid and the market is one-
sided. Additionally, the Exchange proposes to re-letter current sub-
paragraph (D) of Rule 11.350(a)(30) as new sub-paragraph (E), and 
insert a new sub-paragraph (D) to clearly describe the method of 
determining the Reference Price Range when neither the Protected NBBO 
nor IEX BBO are valid and the market is two-sided.
    Specifically, proposed Rule 11.350(a)(30)(C) clarifies that if 
there is neither a Valid Protected NBBO nor a Valid IEX BBO, and the 
market is one-sided, the Reference Price Range is equal to the price of 
the Final Consolidated Last Sale Eligible Trade, unless such price is:
     Lower than the Protected NBB, in which case the Reference 
Price Range shall be the price of the Protected NBB; or
     Higher than the Protected NBO, in which case the Reference 
Price Range shall be equal to the price of the Protected NBO.
    Moreover, proposed Rule 11.350(a)(30)(D) clarifies that if there is 
neither a Valid Protected NBBO nor a Valid IEX BBO and the market is 
two-sided, the Reference Price Range is equal to the price of the Final 
Consolidated Last Sale Eligible Trade, unless:
     The Protected NBBO is not crossed and the price of the 
Final Consolidated Last Sale Eligible Trade is either:
    [cir] Lower than the Protected NBB, in which case the Reference 
Price Range shall be equal to the price of the Protected NBB; or
    [cir] Higher than the Protected NBO, in which case the Reference 
Price Range shall be equal to the price of the Protected NBO.
     The Protected NBBO is crossed and the price of the Final 
Consolidated Last Sale Eligible Trade is either:
    [cir] Lower than the IEX best bid, in which case the Reference 
Price Range shall be equal to the price of the IEX best bid; or
     Higher than the IEX best offer, in which case the 
Reference Price Range shall be equal to the price of the IEX best 
offer.
    The Exchange believes the proposed modifications to Rule 
11.350(a)(30) are designed to avoid any potential confusion regarding 
the Exchange's determination of the Reference Price Range, and 
therefore further clarifies the Exchange's handling of non-displayed 
interest resting on the Continuous Book within the Reference Price 
Range pursuant to Rule 11.350(a)(2).
    Lastly, as announced in IEX Trading Alerts #2017-015 and #2017-046, 
the Exchange intends to become a primary listing exchange and support 
its first

[[Page 9785]]

IEX-listed security in 2018.\41\ In addition, as part of the listings 
initiative, the Exchange is providing a series of industry wide weekend 
tests for the Exchange and its Members to exercise the various 
technology changes required to support IEX Auctions and listings 
functionality.\42\ Accordingly, the Exchange is proposing to clarify 
its handling of non-displayed orders resting on the Continuous Book 
within the Reference Price Range in advance of the industry wide 
testing period in order to avoid potential confusion, and allow Members 
and other market participants time to develop, test, and deploy any 
necessary changes to support such handling.
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    \41\ See IEX Trading Alert #2017-015 (Listings Specifications, 
Testing Opportunities, and Timelines), May 31, 2017. See also IEX 
Trading Alert #2017-046 (IEX Listings Timeline Update), originally 
published on Monday, October 30, 2017, and re-published on Tuesday, 
October 31, 2017.
    \42\ See, e.g., IEX Trading Alert #2017-028 (First Listings 
Functionality Industry Test on Saturday, August 26), August 17, 
2017; IEX Trading Alert #2017-037 (Second Listings Functionality 
Industry Test on Saturday, September 9), September 7, 2017; IEX 
Trading Alert #2017-039 (Third Listings Functionality Industry Test 
on Saturday, September 23), September 18, 2017; IEX Trading Alert 
#2017-040 (Rescheduled 4th Listing Functionality Industry Test), 
September 29, 2017; IEX Trading Alert #2017-046 (IEX Listings 
Timeline Update), originally published on Monday, October 30, 2017, 
and re-published on Tuesday, October 31, 2017; and IEX Trading Alert 
#2017-047 (Fourth Listings Functionality Industry Test on Saturday, 
November 4), October 31, 2017.
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2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6(b) \43\ of the Act in general, and furthers the 
objectives of Section 6(b)(5) of the Act \44\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.
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    \43\ 15 U.S.C. 78f.
    \44\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule changes regarding the 
handling of non-displayed orders resting on the Continuous Book within 
the Reference Price Range, as well as non-displayed buy (sell) orders 
on the Continuous Book resting with a price above (below) the Reference 
Price Range in one-sided markets, are consistent with the protection of 
investors and the public interest in that they do not substantially 
alter the substantive functionality governing the pricing of such 
orders for the Opening and Closing Auction. Specifically, as discussed 
above, the proposed rules are designed to achieve the Exchange's 
existing objective of preserving the anonymity of non-displayed orders 
resting on the Continuous Book, and resolve an inconsistency between 
the handling of such orders and the Exchanges existing rules regarding 
pricing constraints (i.e., any User defined limit price, and the 
Midpoint Price Constraint).
    Furthermore, the Exchange believes the proposed rule changes are 
consistent with the protection of investors and the public interest in 
that they are designed to avoid any potential confusion regarding the 
Exchange's handling of orders for Opening and Closing Auctions as IEX 
continues industry-wide testing to exercise the technology changes 
being made by the Exchange and its Members to support IEX as a primary 
listing exchange. Additionally, the Exchange believes the proposed 
change to rule 11.350(a)(30)(C) to more clearly describe the method of 
calculating the Reference Price Range is consistent with the Act and 
the protection of investors and the public interest, because as 
described above, it is designed to make IEX's rules more complete, and 
descriptive of the System's functionality to avoid any potential 
confusion among Members and market participants regarding such 
functionality. Furthermore, the Exchange believes that by enhancing the 
clarity regarding the method of deriving the Reference Price Range, the 
proposed rule change compliments the rule changes regarding the pricing 
of non-displayed orders resting on the Continuous Book within the 
Reference Price Range.

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

    IEX does not believe that the proposed rule changes will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that the 
proposed correction does not impact inter-market competition in any 
respect since it is designed to achieve the Exchange's existing design 
objective of preserving the anonymity of non-displayed orders resting 
on the Continuous Book, and resolve an inconsistency between the 
handling of such orders and the Exchanges [sic] existing rules 
regarding pricing constraints (i.e., any User defined limit price, and 
the Midpoint Price Constraint), without substantially altering the 
substantive functionality governing the pricing of such orders for the 
Opening and Closing Auction. Thus, the Exchange believes there are no 
new inter-market competitive burdens imposed as a result of the 
proposed rule changes.
    In addition, the Exchange does not believe that the proposed 
changes will have any impact on intra-market competition. Specifically, 
as discussed above, the proposed rule changes do not substantively 
alter the functionality governing the Opening and Closing Auctions, and 
instead are designed to achieve the Exchange's existing design 
objective of preserving the anonymity of non-displayed orders resting 
on the Continuous Book, and resolve an inconsistency between the 
handling of such orders and the Exchanges [sic] existing rules 
regarding pricing constraints (i.e., any User defined limit price, and 
the Midpoint Price Constraint). Furthermore, the Exchange believes the 
proposed rule changes are designed to make IEX's rules more complete, 
and descriptive of the System's functionality to avoid any potential 
confusion among Members and market participants regarding such 
functionality, to the benefit of all market participants. Lastly, the 
Exchange notes that the proposed changes will apply to all Members on a 
fair and equal basis. Accordingly, the Exchange believes there are no 
new intra-market competitive burdens imposed as a result of the 
proposed rule changes.

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

    Written comments were neither solicited nor received.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \45\ and Rule 19b-4(f)(6) thereunder.\46\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.\47\
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    \45\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \46\ 17 CFR 240.19b-4(f)(6).
    \47\ In addition, Rule 19b-4(f)(6)(iii) requires a self-
regulatory organization to give the Commission written notice of its 
intent to file the proposed rule change at least five business days 
prior to the date of filing of the proposed rule change, or such 
shorter time as designated by the Commission. The Exchange has 
satisfied this requirement.

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[[Page 9786]]

    A proposed rule change filed under Rule 19b-4(f)(6) \48\ normally 
does not become operative for 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\49\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. In its filing with the 
Commission, IEX has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. As noted above, IEX states that the proposed changes do not 
substantially alter the functionality governing the pricing of non-
displayed orders in the Opening and Closing Auctions and are designed 
to achieve IEX's objective of preserving the anonymity of non-displayed 
orders resting on the Continuous Book. In addition, IEX notes that the 
proposed changes also resolve an inconsistency between the handling of 
non-displayed orders and the Exchange's existing pricing constraints. 
IEX states that the waiver of the operative delay will allow IEX to 
implement the proposed changes while the Exchange continues industry-
wide testing of the technology changes that IEX and its Members are 
making to support the Exchange as a listings market. IEX notes that the 
proposed clarifications regarding the handling of non-displayed orders 
will provide Members and other market participants with time to 
develop, test, and deploy any changes necessary to support the handling 
of non-displayed orders. The Commission believes that waiver of the 30-
day operative delay is consistent with the protection of investors and 
the public interest because the proposed changes to the operation of 
the Opening and Closing Auctions, and in particular the treatment of 
non-displayed orders resting on the Continuous Book in a manner that 
preserves the anonymity of those orders, are consistent with the 
Commission's prior approval of IEX's auctions rules and do not raise 
new or novel regulatory issues.\50\ In addition, waiver of the 
operative delay will provide IEX and its Members with time to 
incorporate the revised functionality into their testing as they 
continue to prepare for IEX's functioning as a listings market, which, 
among other things, will require IEX to conduct Opening and Closing 
Auctions of IEX-listed securities. Therefore, the Commission designates 
the proposed rule change operative upon filing.\51\
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    \48\ 17 CFR 240.19b-4(f)(6).
    \49\ 17 CFR 240.19b-4(f)(6)(iii).
    \50\ See supra note 12.
    \51\ For purposes only of waiving the operative delay, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \52\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \52\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-IEX-2018-03 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-IEX-2018-03. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-IEX-2018-03, and should be submitted on 
or before March 28, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\53\
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    \53\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-04559 Filed 3-6-18; 8:45 am]
 BILLING CODE P