Document ID: SEC-2018-0620-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Investors Exchange LLC
Posted Date: 2018-04-19T04:00Z

[Federal Register Volume 83, Number 76 (Thursday, April 19, 2018)]
[Notices]
[Pages 17467-17472]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-08155]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83048; File No. SR-IEX-2018-07]

Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 11.190(g) To Incrementally Optimize and Enhance the Effectiveness 
of the Quote Instability Calculation in Determining Whether a Crumbling 
Quote Exists

April 13, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on April 3, 2018, the Investors Exchange LLC (``IEX'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and 
II, below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) under the Act,\3\ 
and Rule 19b-4 thereunder,\4\ IEX is filing with the Commission a 
proposed rule change to amend Rule 11.190(g) to incrementally optimize 
and enhance the effectiveness of the quote instability calculation in 
determining whether a crumbling quote exists. The Exchange has 
designated this proposal as non-controversial and

[[Page 17468]]

provided the Commission with the notice required by Rule 19b-
4(f)(6)(iii) under the Act.\5\
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
    \5\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is available at the Exchange's 
website at www.iextrading.com, at the principal office of the Exchange, 
and at the Commission's Public Reference Room.

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

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

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

1. Purpose
Overview
    The purpose of the proposed rule change is to amend Rule 11.190(g) 
to incrementally optimize and enhance the effectiveness of the quote 
instability calculation in determining whether a crumbling quote 
exists. The Exchange utilizes real time relative quoting activity of 
certain Protected Quotations \6\ and a proprietary mathematical 
calculation (the ``quote instability calculation'') to assess the 
probability of an imminent change to the current Protected NBB to a 
lower price or Protected NBO to a higher price for a particular 
security (``quote instability factor''). When the quoting activity 
meets predefined criteria and the quote instability factor calculated 
is greater than the Exchange's defined quote instability threshold, the 
System treats the quote as unstable and the crumbling quote indicator 
(``CQI'') is on at that price level for two milliseconds. During all 
other times, the quote is considered stable, and the CQI is off. The 
System independently assesses the stability of the Protected NBB and 
Protected NBO for each security.
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    \6\ Pursuant to Rule 11.190(g), the Protected Quotations of the 
New York Stock Exchange, Nasdaq Stock Market, NYSE Arca, Nasdaq BX, 
Bats BZX Exchange, Bats BYX Exchange, Bats EDGX Exchange, and Bats 
EDGA Exchange.
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    When CQI is on, Discretionary Peg orders \7\ and primary peg orders 
\8\ do not exercise price discretion to meet the limit price of an 
active (i.e., taking) order. Specifically, as set forth in Rule 
11.190(b)(10), a Discretionary Peg order pegs to the less aggressive of 
the primary quote (i.e., NBB for buy orders and NBO for sell orders) or 
the order's limit price, if any, but, will exercise price discretion in 
order to meet the limit price of an active order up to the less 
aggressive of the Midpoint Price or the order's limit price, if any. 
However, a Discretionary Peg order will not exercise such price 
discretion when the CQI is on. Similarly, as set forth in Rule 
11.190(b)(8), a primary peg order pegs to a price that is the less 
aggressive of one (1) minimum price variant (``MPV'') less aggressive 
than the primary quote (i.e., one MPV below (above) the NBB (NBO) for 
buy (sell) orders) or the order's limit price, if any, but will 
exercise price discretion in order to meet the limit price of an active 
order up to the NBB (for buy orders) or down to the NBO (for sell 
orders), except when the CQI is on or if the order is resting at its 
limit price, if any.
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    \7\ See Rule 11.190(b)(10).
    \8\ See Rule 11.190(b)(8).
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    In addition, when the CQI is on buy (sell) orders that take 
liquidity at prices at or below (above) the NBO (NBB) are subject to 
the Crumbling Quote Remove Fee (``CQRF'') for executions that exceed 
the CQRF Threshold.
Discretionary Peg Order
    The manner in which Discretionary Peg orders operate is described 
in Rule 11.190(b)(10). Specifically, a Discretionary Peg order is a 
non-displayed, pegged order that upon entry into the System, the price 
of the order is automatically adjusted by the System to be equal to the 
less aggressive of the Midpoint Price or the order's limit price, if 
any. When unexecuted shares of such order are posted to the Order Book, 
the price of the order is automatically adjusted by the System to be 
equal to and ranked at the less aggressive of the primary quote or the 
order's limit price and is automatically adjusted by the System in 
response to changes in the NBB (NBO) for buy (sell) orders up (down) to 
the order's limit price, if any. In order to meet the limit price of 
active orders on the Order Book, a Discretionary Peg order will 
exercise the least amount of price discretion necessary from the 
Discretionary Peg order's resting price to its discretionary price 
(defined as the less aggressive of the Midpoint Price or the 
Discretionary Peg order's limit price, if any), except during periods 
of quote instability (i.e., when a crumbling quote exists) as defined 
in paragraph Rule 11.190(g).
Primary Peg Orders
    The manner in which primary peg orders operate is described in 
Rules 11.190(a)(3) and 11.190(b)(8). Specifically, a primary peg order 
is a non-displayed, pegged order that upon entry and when posting to 
the Order Book the price of the order is automatically adjusted by the 
System to be equal to and ranked at the less aggressive of one (1) MPV 
less aggressive than the primary quote (i.e., the NBB for buy orders 
and the NBO for sell orders) or the order's limit price, if any. While 
resting on the Order Book, the order is automatically adjusted by the 
System in response to changes in the NBB (NBO) for buy (sell) orders up 
(down) to the order's limit price, if any. In order to meet the limit 
price of active orders on the Order Book a primary peg order will 
exercise price discretion to its discretionary [sic] (defined as the 
primary quote), except during periods of quote instability as defined 
in paragraph 11.190(g).
CQRF
    The CQRF is designed to incentivize resting liquidity, including 
displayed liquidity, on IEX, and is applicable to orders that remove 
resting liquidity when the CQI is on if such orders constitute at least 
5% of the Member's volume executed on IEX and at least 1,000,000 
shares, on a monthly basis, measured on a per market participant 
identifier (``MPID'') basis. Thus, orders that exceed the 5% and 
1,000,000 share thresholds are assessed a fee of $0.0030 per each 
incremental share executed (or 0.3% of the total dollar value of the 
transaction for securities priced below $1.00) that exceeds the 
threshold.
Crumbling Quote Calculation
    In determining whether a crumbling quote exists, the Exchange 
utilizes real time relative quoting activity of certain Protected 
Quotations and a proprietary mathematical calculation (the ``quote 
instability calculation'') to assess the probability of an imminent 
change to the current Protected NBB to a lower price or Protected NBO 
to a higher price for a particular security (``quote instability 
factor''). When the quoting activity meets predefined criteria and the 
quote instability factor calculated is greater than the Exchange's 
defined threshold (``quote instability threshold''), the System treats 
the quote as not stable (``quote instability'' or a ``crumbling 
quote''). During all other times, the quote is considered stable

[[Page 17469]]

(``quote stability''). The System independently assesses the stability 
of the Protected NBB and Protected NBO for each security.
    When the System determines that a quote, either the Protected NBB 
or the Protected NBO, is unstable, the determination remains in effect 
at that price level for two (2) milliseconds. The System will only 
treat one side of the Protected NBBO as unstable in a particular 
security at any given time.\9\ By not permitting resting Discretionary 
Peg orders and primary peg orders to exercise price discretion during 
periods of quote instability, the Exchange is designed to protect such 
orders from unfavorable executions when its probabilistic model 
identifies that the market appears to be moving adversely to them. 
Similarly, the CQRF is designed to protect liquidity providing orders 
by disincentivizing trading strategies that target resting liquidity 
during periods of quote instability seeking to trade at prices that are 
about to become stale.
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    \9\ See, Rule 11.190(g).
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    Quote stability or instability (also referred to as a crumbling 
quote) is an assessment that the Exchange System makes on a real-time 
basis, based on a pre-determined, objective set of conditions specified 
in Rule 11.190(g)(1). Specifically, quote instability, or the presence 
of a crumbling quote, is determined by the System when:
    (A) the quote instability factor result from the quote stability 
calculation is greater than the defined quote instability threshold.
    (i) Quote Instability Factor. The Exchange's proprietary quote 
stability calculation used to determine the current quote instability 
factor is defined by the following formula that utilizes the quote 
stability coefficients and quote stability variables defined below:

1/(1 + e [supcaret] -(C0 + C1 * N + C2 
* F + C3 * NC + C4 * FC + C5 * EPos + 
C6 * ENeg + C7 * EPosPrev + C8 * 
ENegPrev + C9 * Delta))

(a) Quote Stability Coefficients. The Exchange utilizes the values 
below for the quote stability coefficients.

(1) C0 = -1.2867
(2) C1 = -0.7030
(3) C2 = 0.0143
(4) C3 = -0.2170
(5) C4 = 0.1526
(6) C5 = -0.4771
(7) C6 = 0.8703
(8) C7 = 0.1830
(9) C8 = 0.5122
(10) C9 = 0.4645

(b) Quote Stability Variables. The Exchange utilizes the quote 
stability variables defined below to calculate the current quote 
instability factor.

(1) N = the number of Protected Quotations on the near side of the 
market, i.e. Protected NBB for buy orders and Protected NBO for sell 
orders.
(2) F = the number of Protected Quotations on the far side of the 
market, i.e. Protected NBO for buy orders and Protected NBB for sell 
orders.
(3) NC = the number of Protected Quotations on the near side of the 
market minus the maximum number of Protected Quotations on the near 
side at any point since one (1) millisecond ago or the most recent 
PBBO change, whichever happened more recently.
(4) FC = the number of Protected Quotations on the far side of the 
market minus the minimum number of Protected Quotations on the far 
side at any point since one (1) millisecond ago or the most recent 
PBBO change, whichever happened more recently.
(5) EPos = a Boolean indicator that equals 1 if the most recent 
quotation update was a quotation of a protected market joining the 
near side of the market at the same price.
(6) ENeg = a Boolean indicator that equals 1 if the most recent 
quotation update was a quotation of a protected market moving away 
from the near side of market that was previously at the same price.
(7) EPosPrev = a Boolean indicator that equals 1 if the second most 
recent quotation update was a quotation of a protected market 
joining the near side of the market at the same price AND the second 
most recent quotation update occurred since one (1) millisecond ago 
or the most recent PBBO change, whichever happened more recently.
(8) ENegPrev = a Boolean indicator that equals 1 if the second most 
recent quotation update was a quotation of a protected market moving 
away from the near side of market that was previously at the same 
price AND the second most recent quotation update occurred since one 
(1) millisecond ago or the most recent PBBO change, whichever 
happened more recently.
(9) Delta = the number of these three (3) venues that moved away 
from the near side of the market on the same side of the market and 
were at the same price at any point since one (1) millisecond ago or 
the most recent PBBO change, whichever happened more recently: XNGS, 
EDGX, BATS.

    (ii) Quote Instability Threshold. The Exchange utilizes a quote 
instability threshold of 0.39 for securities whose current spread is 
less than or equal to $0.01; 0.45 for securities for which the current 
spread (i.e., the Protected Best Offer minus Protected Best Bid) is 
greater than $0.01 and less than or equal to $0.02; 0.51 for securities 
for which the current spread is greater than $0.02 and less than or 
equal to $0.03; and 0.39 for securities for which the current spread is 
greater than $0.03.
    Rule 11.190(g)(1)(D)(iii) provides that the Exchange reserves the 
right to modify the quote instability coefficients or quote instability 
threshold at any time, subject to a filing of a proposed rule change 
with the SEC. The Exchange is proposing such changes in this rule 
filing.
Changes To Quote Instability Coefficients and Quote Instability 
Threshold
    IEX conducted an analysis of the effectiveness of the existing 
factors in predicting whether a crumbling quote would occur, by 
reviewing market data from randomly selected days in the period from 
October 2016 through October 2017. These results were then validated by 
testing different randomly selected dates from the same time period. 
Based on this analysis, the Exchange has determined that further 
optimization of the methodology and existing factors would 
incrementally increase the accuracy of the formula in predicting 
whether a crumbling quote will occur. The following describes the 
proposed changes:
    1. Rule 11.190(g)(1) provides in part that when the System 
determines that a quote, either the Protected NBB or the Protected NBO 
is unstable, the determination remains in effect at that price level 
for two (2) milliseconds. The Exchange proposes to revise the time 
limitation on how long each determination remains in effect, and 
reorganize certain existing rule text for clarity. As proposed, when 
the System determines that either the Protected NBB or the Protected 
NBO in a particular security is unstable, the determination remains in 
effect at that price level for two (2) milliseconds, unless a new 
determination is made before the end of the two (2) millisecond period. 
Only one determination may be in effect at any given time for a 
particular security. A new determination may be made after at least 200 
microseconds has elapsed since a preceding determination, or a price 
change on either side of the Protected NBBO occurs, whichever is first. 
If a new determination is made, the original determination is no longer 
in effect. A new determination can be at either the Protected NBB or 
the Protected NBO and at the same or different price level as the 
original determination.\10\ Based

[[Page 17470]]

upon our analysis of market data, as described above, the Exchange 
believes that changes to the time limitation would provide for a more 
dynamic methodology for quote instability determinations thereby 
incrementally increasing the accuracy of the formula in predicting a 
crumbling quote by expanding the scope of the model to additional 
situations where a crumbling quote exists at a different price point, 
or again at the same price point within two (2) milliseconds. For 
example, suppose that the NBBO is currently $10.03 by $10.04 in a 
particular security, and the System determines that the NBB is 
unstable. This determination goes into effect, with an expiration time 
set two (2) milliseconds in the future. Now suppose that one (1) 
millisecond later, the NBB falls to $10.02 and the System determines 
that this new NBB is unstable. As proposed once the System makes a new 
determination that the NBB of $10.02 is unstable, even though the prior 
determination at $10.03 has not expired, the new determination will 
overwrite the old determination, and its expiration time will be set to 
two (2) milliseconds in the future from the time of this determination.
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    \10\ The Exchange also proposes a nonsubstantive change to the 
text of subparagraph (g)(1) of Rule 11.190 to remove the sentence 
stating that ``[t]he System will only treat one side of the 
Protected NBBO as unstable in a particular security at any give 
time.'' which is redundant of proposed new text that provides that 
``[o]nly one determination may be in effect at any given time for a 
particular security.''. [sic]
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    2. The Exchange proposes to revise five of the quote stability 
variables currently specified in subparagraph (1)(A)(i)(b) of Rule 
11.190(g). Specifically, the Exchange proposes to revise variables NC, 
EPosPrev, ENegPrev and Delta to be calculated over a time window 
looking back from the time of calculation to one (1) millisecond ago or 
the most recent PBBO change on the near side (rather than on either 
side), whichever happened more recently. Based on our analysis of 
market data, as described above, the Exchange identified that for each 
variable, considering the maximum change over the time window defined 
in this manner is a more accurate indicator of a crumbling quote than 
the current approach. Similarly, the Exchange proposes to revise 
variable FC to be calculated over a time window looking back from the 
time of calculation to one (1) millisecond ago or the most recent PBBO 
change on the far side (rather than on either side), whichever happened 
more recently. Based on our analysis of market data, as described 
above, the Exchange identified that for this variable, considering the 
maximum change over the time window described in this manner is a more 
accurate indicator of a crumbling quote than the current approach.
    3. The Quote Stability Coefficients specified in subparagraph 
(1)(A)(i)(a) of Rule 11.190(g) are proposed to be modified to take into 
account the recent market data analysis, as well as the changes to the 
quote stability variables as described above. The Exchange believes 
that the modifications, as proposed, will increase the accuracy of the 
quote instability calculation.
    4. The Exchange proposes to modify and re-optimize the Quote 
Instability Threshold specified in subparagraph (1)(A)(ii) of Rule 
11.190(g) based on the recent market data analysis and the changes to 
the quote stability variables. Specifically, the threshold size would 
continue to vary based on the spread of the Protected NBBO,\11\ but the 
values would be revised. Based on its data analysis, as described 
above, the Exchange believes that the revised values, as proposed, will 
increase the accuracy of the quote instability calculation.
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    \11\ The spread is defined in proposed paragraph (1)(D)(ii) as 
the Protected Best Offer minus Protected Best Bid.
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    5. Finally, the Exchange proposes to conform terminology within 
Rule 11.190(g) by replacing the use of the term ``quote stability'' in 
two instances--within subparagraph (1)(A) and subparagraph (1)(A)(i) of 
11.190(g)--with ``quote instability'' for clarity and consistency. The 
Exchange notes that in context, both instances mean ``quote 
instability'' so no substantive change is proposed in this respect.
    The Exchange will announce the implementation date of the proposed 
rule change by Trading Alert at least five business days in advance of 
such implementation date and within 90 days of effectiveness of this 
proposed rule change.
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with 
Section 6(b) \12\ of the Act in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\13\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest. Specifically, and as 
discussed above, the proposal is designed to optimize and enhance the 
effectiveness of the quote instability calculation in determining 
whether a crumbling quote exists. As discussed in the Purpose section, 
each of the proposed changes are based on the Exchange's analysis of 
market data, which supports that the proposed changes would increase 
the accuracy of the Exchange's quote instability calculation.
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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed changes are designed to 
protect investors and the public interest by incrementally enhancing 
the accuracy of the Exchange's quote instability calculation in 
determining whether a crumbling quote exists, thereby increasing the 
Exchange's protection of Discretionary Peg orders, primary peg orders 
and other liquidity providing orders. Specifically, the Exchange 
believes that the proposed rule change will enhance the extent to which 
Discretionary Peg orders and primary peg orders will be protected from 
unfavorable executions by increasing the instances in which such orders 
will be prevented from exercising price discretion during periods of 
quote instability when the Exchange's probabilistic model identifies 
that the market appears to be moving adversely to them. Similarly, the 
Exchange believes that the proposed rule change will incrementally 
enhance the extent to which liquidity providing orders will be 
protected from liquidity taking orders targeting them at prices that 
are likely to move adversely from the perspective of the liquidity 
providing order.
    The Exchange also believes that application of the proposed rule 
change to the CQRF is equitable and not unfairly discriminatory, 
because it will continue to be narrowly tailored to disincentivize all 
Members from deploying trading strategies designed to chase short-term 
price momentum during periods when the CQI is on and thus potentially 
adversely impact liquidity providing orders. Further, although the 
incremental enhancements to the accuracy of the crumbling quote formula 
may result in a corresponding increase in executions that remove 
resting liquidity when the CQI is on, the Exchange believes that 
Members are able to adjust their trading on IEX to reduce or eliminate 
the imposition of fees pursuant to the CQRF. Moreover, based on its 
review of market data during February 2018, the Exchange estimates that 
while approximately 10% more trades would be impacted by the proposed 
rule change, only one additional Member would potentially be subject to 
the CQRF. However, a review of this Member's trading activity since

[[Page 17471]]

the January 2018 implementation of the CQRF indicates that the Member 
has been able to adjust its trading on IEX to reduce and then eliminate 
its liability for the CQRF. Thus, the Exchange believes that 
application of the rule change with respect to the CQRF is equitable 
and not unfairly discriminatory.
    The Exchange further believes that the conforming changes to 
terminology are consistent with the Act because they are designed to 
provide enhanced clarity within Rule 11.190(g) and thereby avoid any 
potential confusion on the part of market participants.
    Finally, the Exchange notes that, as proposed, the new quote 
instability calculation will continue to be a fixed formula specified 
transparently in IEX's rules. The Exchange is not proposing to add any 
new functionality, but merely to revise the fixed formula based on 
market data analysis designed to increase the accuracy of the formula 
in predicting a crumbling quote, and as contemplated by the rule.

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

    IEX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. With regard to intra-market 
competition, the proposed change will apply equally to all IEX Members. 
The Commission has already considered the Exchange's Discretionary Peg 
order type in connection with its grant of IEX's application for 
registration as a national securities exchange under Sections 6 and 19 
of the Act \14\ and approved the Exchange's primary peg order type.\15\ 
The Commission has also considered the CQRF,\16\ and the Exchange does 
not believe that the incremental increase in the number of executions 
that remove resting liquidity when the CQI is on as a result of the 
proposed enhancements to the accuracy of the quote instability 
calculation specified in Rule 11.190(g) will create a burden on 
competition with respect to application to the CQRF. As discussed in 
the Statutory Basis section, the proposed rule change will apply 
equally to all Members, and the Exchange believes that Members who may 
be subject to potential increased fees will be able to adjust their 
trading on IEX to reduce or eliminate any additional fees pursuant to 
the CQRF.
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    \14\ See Securities Exchange Act Release 78101 (June 17, 2016), 
81 FR 41142 (June 23, 2016) (File No. 10-222).
    \15\ See Securities Exchange Act Release No. 80223 (March 13, 
2017), 82 FR 14240 (March 17, 2017).
    \16\ See Securities Exchange Act Release No. 81484 (August 25, 
2017), 82 FR 41446 (August 31, 2017).
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    The Exchange also believes that the proposed rule change will not 
result in any burden on inter-market competition that is not necessary 
or appropriate in furtherance of the purposes of the Act. In this 
regard, the Exchange notes that NYSE American LLC has adopted a rule 
copying an earlier iteration of the Exchange's Discretionary Peg Order 
and quote stability calculation.\17\
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    \17\ See NYSE American Rule 7.31E(h)(3)(D).
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    As discussed in the Purpose and Statutory Basis sections, the 
proposed rule change is designed to merely enhance the accuracy of the 
quote instability calculation; therefore, no new burdens are being 
proposed.

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

    Written comments were neither solicited nor received.

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

    Because the foregoing 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)(iii) of the Act \18\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
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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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of the filing. However, 
Rule 19b-4(f)(6)(iii) \20\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. In its filing, IEX requests that the 
Commission waive the 30-day operative delay. IEX represented that the 
proposed rule change would optimize the methodology by which the 
Exchange determines whether a crumbling quote exists. Specifically, IEX 
stated that its proposed changes to the quote stability variables, the 
quote stability coefficients, and the quote instability threshold were 
based on a recent market data analysis and would increase the accuracy 
of the quote instability calculation. IEX similarly believed that its 
proposed changes to the current time limitation would provide a more 
dynamic and expansive methodology that would increase the accuracy of 
quote instability determinations.\21\ IEX further indicated that the 
proposed changes to the quote instability calculation would enhance the 
Exchange's ability to protect Discretionary Peg orders, primary peg 
orders, and other liquidity providing orders from unfavorable 
executions, because such changes would better prevent such orders from 
exercising price discretion during periods when the market appears to 
be moving adversely to them.
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    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ The Exchange also proposed several non-substantive changes 
to Rule 11.190(g) that were designed to increase the clarity and 
consistency of the rule.
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    The Commission believes that a partial waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest as it will allow IEX to optimize the functionality of 
its quote instability calculation in order to allow the crumbling quote 
functionality to better meet its intended purpose to protect certain 
liquidity-providing orders. At the same time, a partial operative delay 
will afford the public time to review and comment upon the proposed 
changes before they become operative. Accordingly, the Commission 
waives the 30-day operative delay and designates that the proposed rule 
change will become operative on April 24, 2018.\22\
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    \22\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

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.

[[Page 17472]]

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-2018-07 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-2018-07. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-IEX-2018-07, and should be submitted on 
or before May 10, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12) and (59).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-08155 Filed 4-18-18; 8:45 am]
 BILLING CODE 8011-01-P