Document ID: SEC-2023-1124-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Investors Exchange, LLC
Posted Date: 2023-10-04T04:00Z

[Federal Register Volume 88, Number 191 (Wednesday, October 4, 2023)]
[Notices]
[Pages 68709-68715]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-21955]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98625; File No. SR-IEX-2023-10]

Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend IEX 
Rules 11.190(b)(7) and 11.190(g)

September 28, 2023.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on September 27, 2023, the Investors Exchange LLC (``IEX'' 
or the ``Exchange'') filed with the Securities

[[Page 68710]]

and Exchange Commission (the ``Commission'') the proposed rule change 
as described in Items I, II and III below, which Items have been 
prepared by the Exchange. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 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 the 
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\ IEX is 
filing with the Commission a proposed rule change to amend IEX Rules 
11.190(b)(7) and 11.190(g) to modify the quote instability calculation 
used for Discretionary Limit orders. The Exchange has designated this 
proposal as non-controversial and provided the Commission with the 
notice required by Rule 19b-4(f)(6)(iii) under the Act.\6\
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
    \6\ 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 statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

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

1. Purpose
    The purpose of the proposed rule change is to amend IEX Rules 
11.190(b)(7) and 11.190(g) to change which proprietary mathematical 
calculation is used to make quote instability determinations for 
Discretionary Limit (``D-Limit'') \7\ orders (i.e., to assess the 
probability of an imminent change to the current Protected NBB to a 
lower price or a Protected NBO to a higher price for a particular 
security, also referred to as the ``crumbling quote indicator'' or 
``CQI'').\8\ Currently, IEX supports two versions of the CQI--Option 1 
Crumbling Quote \9\ (which is based on the CQI in effect when IEX began 
operating as a national securities exchange in 2016) (``CQI 1'') and 
Option 2 Crumbling Quote \10\ (which was recently adopted \11\) (``CQI 
2''). Users \12\ submitting the following types of pegged orders--
Discretionary Peg (``D-Peg'') \13\ orders, primary peg (``P-Peg'') \14\ 
orders, and Corporate Discretionary Peg (``C-Peg'') \15\ orders 
(collectively ``CQI-enhanced pegged orders'')--have the option of 
selecting either CQI 1 or CQI 2 to make quote instability 
determinations. CQI 1 is used to make quote instability determinations 
for D-Limit orders.
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    \7\ See IEX Rule 11.190(b)(7).
    \8\ A D-Limit order may be a displayed or non-displayed limit 
order that upon entry and when posting to the Order Book is priced 
to be equal to and ranked at the order's limit price, but will be 
adjusted to a less-aggressive price during periods of quote 
instability, as defined in IEX Rule 11.190(g).
    \9\ See IEX Rule 11.190(g)(1).
    \10\ See IEX Rule 11.190(g)(2).
    \11\ See Securities Exchange Act Release No. 96014 (October 11, 
2022), 87 FR 62903 (October 17, 2022) (``CQI 2 Proposal''); 
Securities Exchange Act Release No. 96416 (December 1, 2022), 87 FR 
75099 (December 7, 2022) (``CQI 2 Approval Order'') (SR-IEX-2022-
06).
    \12\ See IEX Rule 1.160(qq).
    \13\ See Rule 11.190(b)(10).
    \14\ See Rule 11.190(b)(8).
    \15\ See Rule 11.190(b)(16). Note that C-Peg orders can only be 
buy orders, so any discussion of D-Peg sell orders does not apply to 
C-Peg orders.
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    IEX proposes to utilize CQI 2, instead of CQI 1, to make quote 
instability determinations for D-Limit orders, based on its superior 
performance as described herein.
Background
    D-Limit orders are designed to protect liquidity providers from 
potential adverse selection by latency arbitrage trading strategies in 
a fair and nondiscriminatory manner.\16\ A D-Limit order may be a 
displayed or non-displayed limit order that upon entry and when posting 
to the Order Book \17\ is priced to be equal to and ranked at the 
order's limit price, but will be adjusted to a less-aggressive price 
during periods of quote instability, as defined in IEX Rule 
11.190(g).\18\
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    \16\ See Securities Exchange Act Release No. 87814 (December 20, 
2019), 84 FR 71997, 71998 (December 30, 2019) (SR-IEX-2019-15) (``D-
Limit Proposal''); see also Securities Exchange Act Release No. 
89686 (August 26, 2020), 85 FR 54438 (September 1, 2020) (SR-IEX-
2019-15) (``D-Limit Approval Order'').
    \17\ See IEX Rule 1.160(p).
    \18\ See IEX Rules 11.190(b)(7)(A) and (B) and 11.190(g)(1).
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    Specifically, if the System \19\ receives a D-Limit buy (sell) 
order during a period of quote instability (i.e., when a quote 
instability determination is in effect and the CQI is ``on''), and the 
D-Limit order has a limit price equal to or higher (lower) than the 
quote instability determination price level (``CQI Price''), the price 
of the order will be automatically adjusted by the System to one (1) 
MPV \20\ lower (higher) than the CQI Price (the ``effective limit 
price''). Similarly, when unexecuted shares of a D-Limit buy (sell) 
order are posted to the Order Book, if a quote instability 
determination is made and such shares are ranked and displayed (in the 
case of a displayed order) by the System at a price equal to or higher 
(lower) than the CQI Price, the price of the order will be 
automatically adjusted by the System to a price one MPV lower (higher) 
than the quote instability price level.\21\
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    \19\ See Rule 1.160(nn).
    \20\ See IEX Rule 11.210.
    \21\ See IEX Rule 11.190(b)(7)(C) and (D).
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    Once the price of a D-Limit order that has been posted to the Order 
Book is automatically adjusted by the System, the order will continue 
to be ranked and displayed (in the case of a displayed order) at the 
adjusted price, unless subject to another automatic adjustment, if the 
order is subject to the price sliding provisions of IEX Rule 11.190(h), 
or if the User elects that the order will be re-priced if resting at a 
price that is less aggressive than the NBB (for a buy order) or NBO 
(for a sell order) ten (10) milliseconds after the most recent quote 
instability determination pursuant to IEX Rule 11.190(b)(7)(E)(i). 
Otherwise, a D-Limit order operates in the same manner as either a 
displayed or non-displayed limit order, as applicable.\22\
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    \22\ See IEX Rule 11.190(b)(7).
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    Since the launch of the D-Limit order type in October 2020, IEX has 
regularly assessed its performance. This assessment substantiates that 
D-Limit orders experience enhanced protection (as compared to regular 
limit orders) from unfavorable executions at prices that the Exchange's 
probabilistic CQI model predicts are about to become ``stale.'' In the 
rule filing proposing to adopt the D-Limit order type, IEX noted that 
approximately 25% of displayed volume occurred when the CQI was on, in 
aggregate resulting in less favorable markouts \23\ for such executions 
than

[[Page 68711]]

when CQI was off. This remains the case for displayed volume from 
regular limit orders that trade during periods of quote instability. 
The D-Limit order type was designed to solve for this issue and has 
been successful in this regard. Since its launch, less than 1% of 
displayed volume from D-Limit orders occurs when the CQI is on.\24\ As 
a result, users of displayed D-Limit orders experience substantially 
more favorable markouts than users of regular displayed limit orders, 
as shown in the chart below:
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    \23\ Markouts measure the direction and degree to which the 
market moved after an execution, and are often measured as the 
difference between the execution price and the midpoint of the NBBO 
at various time intervals after a trade. Markouts are typically used 
as a way to measure the ``quality'' of a trade. In particular, 
short-term markouts of several milliseconds after the time of 
execution, are often used to assess whether an order was subject to 
``adverse selection'' that can occur when a liquidity providing 
order is executed at a price that was about to become stale as a 
result of certain speed-based trading strategies.
    \24\ These executions occur when D-Limit buy (sell) orders are 
adjusted 1 MPV lower (higher) than the CQI Price but are still 
executed against an Intermarket Sweep Order (ISO), which accesses 
multiple price levels at a time, therefore accessing the D-Limit 
order at its new, more passive, price.
[GRAPHIC] [TIFF OMITTED] TN04OC23.018

Overview of CQI Models
    As noted above, IEX supports two versions of the CQI. Currently, D-
Limit orders utilize the CQI 1 version of the CQI for making quote 
instability determinations. In determining whether a crumbling quote 
exists, CQI 1 utilizes real time relative quoting activity of eight 
exchanges' Protected Quotations \25\ and a proprietary mathematical 
calculation (the ``quote instability calculation'') to assess the 
probability of an imminent change to the current Protected NBB \26\ to 
a lower price or Protected NBO \27\ to a higher price for a particular 
security (``quote instability factor'') during the Regular Market 
Session.\28\ When the quoting activity meets the predefined objective 
conditions specified in IEX Rule 11.190(g)(1) and the quote instability 
factor calculated is greater than the Exchange's defined threshold 
(``quote instability threshold''), the System treats the NBB or NBO as 
not stable (``quote instability'' or a ``crumbling quote''), which 
turns the CQI on at that CQI Price. During all other times, the quote 
is considered stable (``quote stability'') and the CQI is off. The 
System independently assesses the stability of the Protected NBB and 
Protected NBO for each security.\29\
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    \25\ Each exchange's Protected Quotation is its best displayed 
bid or offer. See Rule 1.160(bb). Current Rule 11.190(g) uses the 
following eight exchanges' Protected Quotations: New York Stock 
Exchange LLC (``XNYS''), the Nasdaq Stock Market LLC (``XNGS''), 
NYSE Arca, Inc. (``ARCX''), Nasdaq BX, Inc. (``XBOS''), Cboe BYX 
Exchange, Inc. (``BATY''), Cboe Bats BZX Exchange, Inc. (``BATS''), 
Cboe EDGA Exchange, Inc. (``EDGA''), and Cboe EDGX Exchange, Inc. 
(``EDGX'').
    \26\ See Rule 1.160(cc).
    \27\ See Rule 1.160(cc).
    \28\ See IEX Rule 1.160(gg). Quote instability assessments are 
only made by the Exchange System during the Regular Market Session 
because the order types that utilize the assessment, such as D-
Limit, are only eligible to trade during the Regular Market Session.
    \29\ The quote stability variables, fixed coefficients and 
formula were developed by the Exchange based on extensive research, 
analysis and validation to identify when there is a heightened 
probability of an imminent quote change to the NBB or NBO.
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    When CQI 1 is on, it remains in effect at the CQI Price for two 
milliseconds, unless a new determination is made before the CQI turns 
off. Only one determination may be in effect at any given time for a 
particular security (i.e., the System will only treat one side of the 
Protected NBBO as unstable in a particular security at any given time 
and the CQI can only be on at one price level).\30\ A new determination 
may be made after at least 200 microseconds have elapsed since the 
preceding determination, or a price change on either side of the best 
displayed bid or offer of the eight exchanges used for the current 
quote instability calculation occurs, whichever is first. If a new 
determination is made, the original determination is no longer in 
effect. A new determination can be on either side of the best displayed 
bid or offer of the eight exchanges used for the current quote 
instability calculation and at the same or different price level as the 
original determination.
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    \30\ See IEX Rule 11.190(g)(1).
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    CQI 2 was adopted in 2022 \31\ as an alternative for CQI-enhanced 
pegged orders, and is designed to incrementally increase the coverage 
\32\ of the quote instability calculation in predicting whether a 
particular quote is unstable by adjusting the logic underlying the 
quote instability calculation and introducing enhanced functionality 
designed to increase the number of crumbling quotes identified, while 
maintaining the quote instability calculation's accuracy rate \33\ in

[[Page 68712]]

predicting the direction and timing of the next price change in the NBB 
or NBO, as applicable.
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    \31\ See supra note 11. The Commission received no comments on 
IEX's proposed rule change to adopt CQI 2.
    \32\ ``Coverage'' means the percentage of all ``adverse'' NBBO 
changes per symbol (lower for bids, higher for offers) that were 
predicted by the CQI (meaning the CQI was ``on'' at the time of the 
adverse NBBO change).
    \33\ ``Accuracy rate'' means the percentage of time that the CQI 
accurately predicted the direction of the next price change (even if 
it was more than two milliseconds after the quote instability 
determination).
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    As described above, CQI 1 utilizes a logistic regression model with 
multiple coefficients and variables that must exceed a pre-defined 
threshold in order for the System to treat the quote as unstable. CQI 
2, by contrast, utilizes a quote instability calculation in which nine 
separate rules--each with specific conditions based on either the 
price, size, or price and size of the Signal Exchanges'\34\ Protected 
Quotations--can trigger a quote instability determination for either 
the NBB or the NBO of a particular security.\35\ Specifically, CQI 2 
expands the sources and types of market data used, utilizes a more 
plain English rules-based approach, modifies the minimum time period 
between quote instability determinations, and includes activation 
thresholds to enable real-time accuracy assessment of each rule with 
the effect of deactivating a rule that is not meeting specified 
metrics.\36\ In addition, CQI-enhanced pegged orders are restricted 
from exercising price discretion when the CQI is on, regardless of 
whether the current NBB or NBO (as applicable) is the same as the CQI 
Price.
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    \34\ For CQI 2, the Signal Exchanges include the eight exchanges 
used in CQI 1, with the addition of MIAX PEARL, LLC (``EPRL''), MEMX 
LLC (``MEMX''), and Nasdaq PHLX LLC (``XPHL'').
    \35\ See supra note 11.
    \36\ See supra note 11.
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    The CQI 2 quote instability rules include four categories of 
Protected Quotation changes (each comprised of one or more rules) as 
follows:
     Disappearing bids (or offers)--This category includes four 
rules that focus on whether one or more of the Signal Exchanges is no 
longer disseminating a bid or offer at the Signal Best Bid \37\ or 
Signal Best Offer \38\ as applicable; \39\
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    \37\ ``Signal Best Bid'' means the highest Protected Bid of the 
Signal Exchanges. See proposed IEX Rule 11.190(g)(2)(B)(i).
    \38\ ``Signal Best Offer'' means the lowest Protected Offer of 
the Signal Exchanges. See proposed IEX Rule 11.190(g)(2)(B)(v).
    \39\ The disappearing bid/offers rules are closely related to 
the Option 1 Crumbling Quote approach to the quote instability 
calculation, in that both approaches share the Delta quote 
instability variable, which is heavily weighted in the current quote 
instability calculation. See the Option 2 Crumbling Quote Proposal, 
supra note 11.
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     Recent changes in quote size--This category includes two 
rules that focus on whether there is an imbalance in the size of bids 
and offers at the Signal Best Bid or Signal Best Offer;
     Locked or crossed market--This category includes one rule 
that focuses on situations where the Signal Best Bid and Signal Best 
Offer are locked or crossed; and
     Quotation Changes--This category includes two rules that 
focus on changes to the Signal Best Bid or Signal Best Offer.
    On a security-by-security basis, if the specified conditions of any 
of the quote instability rules are met, then the rule is deemed to be 
True for that security. A rule must also be active (in addition to 
True) before it can trigger a quote instability determination. When one 
or more quote instability rules is deemed to be True and any of such 
rules are active, the System will trigger a quote instability 
determination and treat the quote as unstable. This approach is 
designed to enable broader coverage while controlling for overall 
accuracy of the quote instability determinations by providing a 
mechanism to turn off a particular rule when market conditions are such 
that it is relatively less accurate in predicting a crumbling quote. 
Based upon market data analysis, IEX believes that utilizing activation 
thresholds is a useful innovation because it enables the use of rules 
that can be highly predictive in certain market conditions but not in 
others.
    CQI 2 also differs from CQI 1 with respect to three different time 
and direction constraints, which are designed to provide a more dynamic 
methodology for quote instability determinations, thereby incrementally 
increasing the coverage of the formula in predicting a crumbling quote 
by expanding the scope of the model to additional situations where the 
Exchange's probabilistic model predicts that the NBB or NBO is in the 
process of moving to a less aggressive price and is about to become 
stale.
    First, for CQI 2, the quote instability calculation can turn on 
concurrently on both sides of the market (i.e., the NBB and NBO) and 
always remains on for the full two millisecond period each time it 
turns on. In CQI 1, the quote instability calculation independently 
assesses the stability of the Protected NBB and Protected NBO for each 
security, but it can only turn on for one side of the market for each 
security at a time. Second, when CQI 2 turns on, it is not constrained 
to a specific price level, as compared to CQI 1 which turns on at a 
specific CQI Price. Thus, if the NBB or NBO (as applicable) changes 
during the time CQI 1 is on, CQI-enhanced pegged orders (that have 
elected CQI 1) are not constrained from exercising discretion since the 
CQI Price is no longer equal to the current NBB or NBO (as 
applicable).\40\ In contrast, for CQI-enhanced pegged orders (that have 
elected CQI 2), the CQI continues to turn on at a specific price (the 
quote instability determination price level), but CQI-enhanced pegged 
orders are constrained from exercising discretion past their resting 
price when the CQI is on for the same side of the market as such orders 
regardless of whether the price at which it turned on is currently 
equal to the NBB or NBO (as applicable). Third, for CQI 2, the System 
can make a new quote instability determination 250 microseconds after a 
prior determination, rather than 200 microseconds for CQI 1.
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    \40\ See IEX Rules 11.190(b)(8)(K)(i) and (ii), (b)(10)(K)(i) 
and (ii), (b)(16)(K).
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    IEX introduced CQI 2 into its System on March 31, 2023 (i.e., it 
began generating quote instability determinations for informational and 
planning purposes) and it became available for CQI-enhanced pegged 
orders on May 16, 2023.\41\ Consistent with the Exchange's market data 
analysis prior to proposing CQI 2, data analysis for April through July 
of 2023 substantiates that CQI 2 provides incrementally more protection 
(i.e., increased coverage and accuracy) than CQI 1 while still being 
``on'' for only several seconds a day per symbol, as set forth in the 
chart below:
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    \41\ See IEX Trading Alert # 2023-008, available at https://iextrading.com/alerts/#/215.

------------------------------------------------------------------------
             Metric                      CQI 1               CQI 2
------------------------------------------------------------------------
Average time on \a\ (average of   1.9 seconds.......  3.1 seconds.
 all symbols).
Average time on (volume           18.0 seconds......  32.1 seconds.
 weighted).
Coverage (volume weighted) \b\..  46.9%.............  63.2%.
Accuracy Rate (volume weighted)   78%...............  80%.
 \c\.
% of the Day CQI is ``On''        0.077%............  0.137%.
 (volume-weighted).
% of the day D-Limit is           99.923%...........  99.863%.
 available at specified limit
 price.
------------------------------------------------------------------------
\a\ ``Time on'' means the average time the CQI is on during a day per
  symbol.

[[Page 68713]]

 
\b\ See supra note 29.
\c\ ``Accuracy'' means the percent of time that following the CQI being
  ``on'' the NBB or NBO (as applicable) moves in the predicted direction
  on the next price change.

Proposal
    Based on its assessment (as described above) that CQI 2 provides 
incrementally greater coverage and accuracy in predicting a crumbling 
quote than CQI 1, IEX proposes to amend IEX Rules 11.190(b)(7) and 
11.190(g)(2) to provide that quote instability determinations for D-
Limit orders will utilize CQI 2. Thus, as proposed, if a D-Limit order 
is resting at a price at or more aggressive than the price of a 
crumbling quote determination price level in effect, it will be 
adjusted to a price one MPV less aggressive than such crumbling quote 
determination price level. Similarly, an incoming D-Limit order priced 
at or more aggressive than the price of a crumbling quote determination 
price level in effect will be adjusted to a price one MPV less 
aggressive than the crumbling quote determination price level. Note 
that, as distinct from CQI-enhanced pegged orders, a D-Limit order 
would only be subject to a price adjustment if it is priced at or more 
aggressive than the crumbling quote determination price level in 
effect, while CQI-enhanced pegged orders subject to CQI 2 are 
restricted from exercising price discretion past their resting price 
when the CQI is on for the same side of the market as such orders 
regardless of whether the price at which it turned on is currently 
equal to the NBB or NBO (as applicable). IEX believes that the 
difference in approach is appropriate because once the price of a D-
Limit order is adjusted it remains at that price indefinitely, unless 
the Member entering the order elected to have the order re-priced after 
ten (10) milliseconds if the order is resting at a price less 
aggressive than the NBB or NBO (as applicable) pursuant to IEX Rule 
11.190(b)(7)(E)(i) or if subject to another automatic price adjustment. 
In contrast, CQI-enhanced pegged orders are only restricted from 
exercising price discretion for up to two (2) milliseconds. Thus, IEX 
believes that D-Limit orders should only be price adjusted relative to 
the price that was actually the subject of a crumbling quote 
determination.
    IEX believes that using CQI 2 will incrementally enhance the 
existing protection provided by D-Limit orders by providing greater 
coverage (i.e., identifying more potentially crumbling quotes) with 
comparable accuracy. IEX estimated the impact of CQI 1 and CQI 2 on 
standard limit order executions by simulating the markouts had the 
orders been subject to the protection of CQI 1 or CQI 2. Assessment of 
these executions is designed to simulate differences in adverse 
selection protection from CQI 1 and CQI 2. As shown in the chart below, 
both CQI 1 and CQI 2 result in improved markouts over executions 
without CQI protection, but CQI 2 would have provided incrementally 
enhanced protection compared to CQI 1 (as measured by markouts) because 
it is better at identifying situations when adverse selection is most 
likely:
[GRAPHIC] [TIFF OMITTED] TN04OC23.019

Specific Rule Changes
    Accordingly, IEX proposes to amend IEX Rules 11.190(b)(7)(A) and 
(B) to reference to IEX Rule 11.190(g)(2) (which describes CQI 2) 
rather than Rule 11.190(g)(1) (which describes CQI 1) to thereby 
specify and describe that quote instability determinations for D-Limit 
orders will be made by CQI 2.
    Additionally, IEX proposes to amend the first sentence of Rule 
l1.190(g)(2) to add the words ``at that price level'' after the word 
``effect'' and before the word ``for'' to specify that a CQI 2 
determination is at a particular price level. This change is necessary 
so that the price of a D-Limit will only be adjusted if at or more 
aggressive than the CQI 2 quote instability determination price level, 
as is currently the case with CQI 1 and as discussed above.

[[Page 68714]]

    Finally, IEX proposes to make a clarifying amendment to the last 
sentence of the second paragraph of IEX Rule 11.190(g) to add the words 
``paragraph (g)(1) of'' after the second word of the sentence to better 
clarify that the limitations on the referenced terms specified therein 
are applicable only to paragraph (g)(1) of IEX Rule 11.190 rather than 
to the entire rule wherein such references are as defined in IEX Rule 
1.160; and
Implementation
    The Exchange will announce the implementation date of the proposed 
rule change by Trading Alert at least ten business days in advance of 
such implementation date and within ninety (90) days of effectiveness 
of this rule filing.
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with 
Section 6(b) \42\ of the Act in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\43\ in particular, in that it is designed 
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. Specifically, and as discussed in the Purpose section, 
the proposal is designed to enhance the existing protections provided 
by D-Limit orders by using the SEC approved CQI 2 to make quote 
instability determinations, which is designed to incrementally increase 
the coverage of the quote instability calculation in predicting whether 
a particular quote is unstable while maintaining the quote instability 
calculation's accuracy rate in predicting the direction and timing of 
the next price change in the NBB or NBO, as applicable. Because D-Limit 
orders are subject to a price adjustment to one MPV less aggressive 
than the CQI Price if priced at or more aggressive than the CQI Price 
when the Exchange's probabilistic model identifies that such price 
appears to be stale, increasing the coverage of the quote instability 
calculation is designed to provide additional protection to D-Limit 
orders from adverse selection associated with latency arbitrage during 
those times. Moreover, IEX's market data analysis, as described in the 
Purpose section evidences that, as with CQI 1, CQI 2 is ``on'' for only 
a small portion of the trading day while providing robust protection.
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    \42\ 15 U.S.C. 78f.
    \43\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change may result in 
more and larger sized displayed and non-displayed D-Limit orders being 
entered on IEX as a result of the improved coverage and continued 
accuracy of CQI 2. To the extent more orders are entered, the increased 
liquidity would benefit all IEX members and their customers.
    Furthermore, the Exchange notes that all Members are eligible to 
use D-Limit orders, and therefore all Members are eligible to benefit 
from the proposed enhanced D-Limit's protections against adverse 
selection. Thus, the Exchange believes that application of the rule 
change is equitable and not unfairly discriminatory.
    Additionally, the Exchange notes that CQI 2 is a fixed formula 
specified transparently in IEX's rules, that was previously approved by 
the SEC.\44\ The Exchange is not proposing to add any new 
functionality, but merely to utilize an SEC approved quote instability 
calculation for D-Limit orders that is designed to increase its 
coverage in predicting a crumbling quote. Thus, IEX does not believe 
that the proposal raises any new or novel issues that have not already 
been considered by the Commission, in that IEX's rule filings to adopt 
both the D-Limit order type and CQI 2 were previously approved by the 
Commission.
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    \44\ See supra note 11.
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    The Exchange believes it is consistent with the Act to add the 
words ``paragraph (g)(1) of'' after the second word of the sentence to 
better clarify that the limitations on the referenced terms specified 
therein are applicable only to paragraph (g)(1) of IEX Rule 11.190 
rather than to the entire rule wherein such references are as defined 
in IEX Rule 1.160. This proposed change is designed to avoid any 
potential confusion as to the applicability of the referenced terms.
    Finally, the Exchange believes it is consistent with the Act to 
amend the first sentence of Rule l11.190(g)(2) to add the words ``at 
that price level'' after the word ``effect'' and before the word 
``for'' to specify that an CQI 2 determination is at a particular price 
level. As discussed in the Purpose section, with the proposed use of 
CQI 2 to make quote instability determinations for D-Limit orders, it 
is necessary to specify that each such determination will be at a 
particular price.

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. To the contrary, as discussed 
in the Statutory Basis section, the proposal is designed to enhance 
IEX's competitiveness by incentivizing the entry of increased 
liquidity.
    With regard to intra-market competition, the proposed changes to 
the quote instability calculation will apply equally to all Members on 
a fair, impartial and nondiscriminatory basis without imposing any new 
burdens on the Members. The Commission has already approved the 
Exchange's D-Limit order type and CQI 2.\45\ As discussed in the 
Purpose and Statutory Basis sections, the proposed rule change is 
designed to merely utilize an SEC approved enhanced quote instability 
calculation; therefore, no new burdens are being proposed.
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    \45\ See supra notes 11 and 16.
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    With regard to inter-market competition, other exchanges are free 
to adopt similar quote instability calculations. In this regard, the 
Exchange notes that that NYSE American LLC has adopted a rule copying 
an earlier iteration of the Exchange's Discretionary Peg Order type and 
quote instability calculation.\46\
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    \46\ See NYSE American LLC Rule 7.31E(h)(3)(D).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

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

    The Exchange has designated this rule filing as non-controversial 
under Section 19(b)(3)(A) \47\ of the Act and Rule 19b-4(f)(6) \48\ 
thereunder. 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.
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    \47\ 15 U.S.C. 78s(b)(3)(A).
    \48\ 17 CFR 240.19b-4(f)(6).
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    The Exchange believes that the proposed rule change meets the 
criteria

[[Page 68715]]

of subparagraph (f)(6) of Rule 19b-4 \49\ because it would not 
significantly affect the protection of investors or the public 
interest. Rather, the proposed rule change is designed to benefit 
investors and the public interest by enhancing the existing protections 
provided by D-Limit orders by using the SEC approved CQI 2 to make 
quote instability determinations, as discussed in the Purpose and 
Statutory Basis sections.
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    \49\ 17 CFR 240.19b-4(f)(6).
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    IEX notes (as discussed in the Statutory Basis section) that the D-
Limit order type and CQI 2 were each approved by the Commission, and 
this proposed rule change merely combines these two aspects of IEX's 
rules. Consistent with ``Commission Guidance and Amendment to the Rule 
Relating to Organization and Program Management Concerning Proposed 
Rule Changes by Self-Regulatory Organizations,'' \50\ each policy issue 
raised by this proposed rule change has been previously considered by 
the Commission when IEX's D-Limit order type and CQI 2 were approved 
pursuant to Section 19(b)(2) of the Act, and the proposed rule change 
resolves each such policy issue in a manner consistent with such prior 
approvals. Accordingly, the Exchange believes that the proposed rule 
change is noncontroversial and satisfies the requirements of Rule 19b-
4(f)(6).\51\
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    \50\ See Securities Exchange Act Release No. 58092 (July 3, 
2008), 73 FR 40144, 40147 (July 11, 2008).
    \51\ 17 CFR 240.19b-4(f)(6).
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    Furthermore, 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.
    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.
    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-IEX-2023-10 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-2023-10. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-IEX-2023-10 and should be 
submitted on or before October 25, 2023.

    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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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-21955 Filed 10-3-23; 8:45 am]
BILLING CODE 8011-01-P