Document ID: SEC-2016-1750-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Investors Exchange, LLC
Posted Date: 2016-10-03T04:00Z

[Federal Register Volume 81, Number 191 (Monday, October 3, 2016)]
[Notices]
[Pages 68081-68083]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-23748]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78945; File No. SR-IEX-2016-15]

Self-Regulatory Organizations: Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Related to 
Optional Risk Management Controls

September 27, 2016.
    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 22, 2016, 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\ 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 Rule 11.380 to provide that the Aggregate Risk Controls 
(``ARC'') mechanism is available to any IEX Member as well as to 
clearing firms for their broker correspondent IEX Member firms, and to 
specify the manner in which Members shall contact IEX to arrange to 
utilize the ARC mechanism. The Exchange has designated this rule change 
as non-controversial under Section 19(b)(3)(A) of the Act \6\ and 
provided the Commission with the notice required by Rule 19b-
4(f)(6)(iii) thereunder.\7\
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 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 
Web site 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Rule 11.380, entitled Risk Management, describes the optional ARC 
mechanism that is designed to assist IEX clearing firms \8\ in their 
risk management efforts. IEX does not charge a fee for use of ARC. As 
described in the rule, ARC can be configured to provide trading limits 
based on the gross notional exposure for matched and routed trades for 
a clearing firm's broker correspondent across MPIDs, by MPID, by FIX 
session or in combination, per clearing firm relationship. As specified 
in the rule, ARCs are elected, and the upper value of any limits is set 
by the clearing firm of a Member. Once the gross notional exposure, as 
elected and configured, has exceeded the pre-determined limit, IEX will 
reject new orders and cancel all open orders for the applicable MPID(s) 
and/or FIX session specified. As specified in paragraph (a)(3)(A) of 
Rule 11.380, gross notional exposure is calculated as the absolute sum 
of the notional value of all buy and sell trades (i.e., equal to the 
value of executed buys plus the absolute value of executed long sells 
plus the absolute value of executed short sells). There is no netting 
of buys and sales in the same symbol or across symbols. Gross notional 
exposure resets for each new trading day.
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    \8\ As described in Rule 11.250(a), a clearing firm is an IEX 
Member that is a member of a registered clearing agency. Pursuant to 
IEX Rule 2.160(c)(4) an IEX Member must be a member of a registered 
clearing agency or clear transactions executed on the Exchange 
through another Member that is a member of a registered clearing 
agency.
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    IEX proposes to revise the rule to provide that ARC is optionally 
available to any Member as well as to clearing firms for their broker 
correspondent IEX Member firms. This change will serve to clarify that 
ARC may be used by a clearing firm Member for its own trading on IEX as 
well as for its correspondent firm customers that are IEX Members. 
Because a Member that is self-clearing technically has a ``clearing 
firm relationship'' with itself, the Exchange believes that the rule 
already provides that ARC may be used by a clearing firm Member for its 
own trading on IEX. In addition, IEX proposes to amend Rule 11.380 to 
provide that ARC is available to any Member. Thus, as proposed, ARC may 
be elected by a Member for its own trading on IEX (whether or not such 
Member is self-clearing) as well as by a clearing firm Member for its

[[Page 68082]]

correspondent firm customers that are IEX Members.\9\ In addition, IEX 
proposes to add new text to provide that ARC limits may be increased or 
decreased on an intra-day basis by a Member or the clearing firm of a 
Member, as applicable. Further, IEX proposes to make several 
nonsubstantive changes to subparagraphs (a)(2) and (3) of the rule text 
to simplify and streamline such provisions, including replacing GNE as 
a defined term within the rule text with references simply to ``gross 
notional exposure'' throughout. Finally, IEX proposes to add new 
paragraph (b) to Rule 11.380 to provide that Members shall contact IEX 
Market Operations to arrange to utilize the ARC mechanism. Accordingly, 
IEX proposes to make the following revisions to the rule:
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    \9\ In the case of a Member that is subject to ARC limits set by 
its clearing firm, the Member will be advised of such limits by IEX. 
In the event a Member that is subject to ARC limits set by its 
clearing firm also elects to set ARC limits for its own trading, the 
Exchange will apply both such limits with a lower limit(s) being 
applicable.
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    1. References in paragraph (a) to the term ``Clearing Firms'' will 
be replaced with ``Members''.
    2. Paragraph (a)(1) will be revised to state that ARCs are elected 
by a Member or the clearing firm of a Member.
    3. Paragraphs (a)(2) and (3) will be revised to combine the 
provisions, replace the defined term GNE with references to ``gross 
notional exposure'' throughout, and state that gross notional exposure 
accumulates the notional values for a Member or a clearing firm's 
broker correspondent.
    4. New paragraph (b) will be added to specify that Members shall 
contact IEX Market Operations at marketops@iextrading.com to arrange to 
utilize ARC.
    IEX believes that making ARC available to all Members as an 
optional service will enhance the risk management tools available to 
IEX Members. The Exchange notes, however, that use of ARC by a Member 
does not automatically constitute compliance with IEX rules or SEC 
rules, nor does it replace Member-managed risk management solutions. 
The Exchange does not propose to require Members to use ARC, and 
Members may use any other appropriate risk-management tool or service 
instead of, or in combination with, ARC. The Exchange will not provide 
preferential treatment to Members using ARC, nor will the use of ARC 
impact a Member's use of IEX other than when it results in orders being 
rejected or cancelled pursuant to ARC. In addition, IEX will continue 
to provide ARC to Members without charge.
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Sections 6(b) \10\ of the Act in general, and furthers 
the objectives of Section 6(b)(5) \11\ of the Act, 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, by clarifying and enhancing the risk management 
protections available to Exchange members. The Exchange believes that 
the proposed rule change supports these objectives because it is 
designed to enable all IEX Members to manage and limit their own 
trading exposure on IEX, in addition to enabling clearing firms to 
monitor their correspondent firm customer and their own trading 
exposure, including by intra-day increases or decreases in the limits.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(5).
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    Further, the Exchange believes that the proposed rule change is 
consistent with the protection of investors and the public interest 
because it provides a mechanism to enable IEX Members to manage their 
risk by preventing trading that is erroneous or exceeds a Member's 
financial resources, and thereby contributing to the stability of the 
equities markets.
    The Exchange also believes that the aspects of the proposed rule 
change that clarify that ARC is available to clearing firms for their 
own trading on IEX is consistent with the protection of investors and 
the public interest because it will eliminate any confusion in this 
regard among IEX Members.
    In addition, the Exchange believes that the nonsubstantive changes 
to subparagraphs (a)(2) and (3) of the rule text to simplify and 
streamline such provisions are consistent with the protection of 
investors and the public interest because such changes will enhance the 
readability of the relevant rule provisions.
    Finally, the Exchange believes that adding rule text to specify how 
IEX Members shall contact IEX Market Operations to arrange to utilize 
the ARC mechanism will provide greater clarity and eliminate any 
confusion in this regard.
    The Exchange notes that most other exchanges offer risk management 
tools to their members, with functionality similar to ARC.\12\
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    \12\ See, for example, Nasdaq Stock Market LLC Rules 6100-6120; 
Securities Exchange Act Release No. 68330 (November 30, 2012), 77 FR 
72894 (December 6, 2012) (File No. SR-BATS-2012-045 concerning Bats 
BZX Exchange, Inc. (formerly BATS Exchange, Inc.) Risk Management 
Tool).
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    In addition, the Exchange believes that the proposal is consistent 
with just and equitable principles of trade because ARC is available to 
all IEX Members without charge.

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

    IEX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The proposal is designed to 
clarify and expand the availability of the optional ARC risk management 
mechanism as described in the Purpose section. The Exchange is not 
proposing to charge any fee for use of ARC, which as proposed, is 
available to all Members without charge. The Exchange does not believe 
the proposed rule change will impose any intermarket burden on 
competition because other exchanges offer similar functionality.\13\ 
The Exchange also does not believe that the proposal will impose an 
intramarket burden on competition because it is available to all 
Members and provides a mechanism to enable IEX Members to manage their 
risk by preventing trading that is erroneous or exceeds a Member's 
financial resources, thereby contributing to the stability of the 
equities markets. Accordingly, this proposal will have no impact on 
competition.
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    \13\ See, supra note 12.
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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) \14\ of the Act and Rule 19b-4(f)(6) \15\ 
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 if consistent

[[Page 68083]]

with the protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6) thereunder.\16\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 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) \17\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\18\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay to make ARC risk 
management protections immediately available to all Members. While IEX 
has proposed certain clarifying changes to Rule 11.380 that do not 
materially alter the scope of the rule, the primary material change 
extends the rule beyond clearing brokers and makes the ARC optionally 
available to any Member. IEX has represented above that, if an IEX 
Member elects to use the ARC, IEX will inform that Member if its 
clearing firm also set ARC limits for the Member, in which case IEX 
would apply the lower limit. The Commission believes that extending the 
ARC functionality to all Members will provide them with an additional 
tool that can be used as part of a Member's approach to risk 
management, which may promote the maintenance of fair and orderly 
markets. For this reason, the Commission believes that waiver of the 
operative delay is consistent with the protection of investors and the 
public interest. Accordingly, the Commission hereby waives the 
operative delay and designates the proposed rule change operative upon 
filing.\19\
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ 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 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) \20\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \20\ 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 rule-comments@sec.gov. Please include 
File Number SR-IEX-2016-15 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-2016-15. 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 Web site (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 Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-IEX-2016-15 and should be 
submitted on or before October 24, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-23748 Filed 9-30-16; 8:45 am]
 BILLING CODE 8011-01-P