Document ID: SEC-2017-1271-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Investors Exchange, LLC
Posted Date: 2017-07-28T04:00Z

[Federal Register Volume 82, Number 144 (Friday, July 28, 2017)]
[Notices]
[Pages 35250-35254]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-15908]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81195; File No. SR-IEX-2017-11]

Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing of Amendment No. 3 and Order Granting Accelerated Approval of 
Proposed Rule Change, as Modified by Amendment No. 3, To Modify the 
Manner in Which the Exchange Opens Trading for Non-IEX-Listed 
Securities

July 24, 2017.

I. Introduction

    On April 13, 2017, Investors Exchange LLC (``IEX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to: (i) Amend IEX Rule 11.231 to modify the manner 
in which the Exchange opens trading for non-IEX-listed securities 
beginning at the start of Regular Market Hours; and (ii) amend IEX 
Rules 11.190 and 11.220 to specify the order types eligible to 
participate in the proposed opening process for non-IEX listed 
securities and priority of such orders. The proposed rule change was 
published for comment in the Federal Register on April 28, 2017.\3\ On 
May 19, 2017, IEX filed Amendment No. 1 to the proposal. On June 9, 
2017, IEX consented to an extension of time for the Commission to act 
on the proposal until July 5, 2017.\4\ On June 22, 2017, IEX filed 
Amendment No. 2 to the proposal, which superseded and replaced 
Amendment No. 1 in its entirety. On June 29, 2017, IEX filed Amendment 
No. 3 to the proposal, which superseded and replaced Amendment No. 2 in 
its entirety.\5\ Also on June 29, 2017, pursuant to Section 19(b)(2) of 
the Act,\6\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to approve or disapprove 
the proposed rule change.\7\ The Commission received no comments on the 
proposed rule change. The Commission is publishing this notice to 
solicit comment on Amendment No. 3 to the proposed rule change from 
interested persons, and is approving the proposed rule change, as 
modified by Amendment No. 3, on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 80514 (April 24, 
2017), 82 FR 19763 (``Notice'').
    \4\ See letter from Claudia Crowley, Chief Regulatory Officer, 
IEX, to Richard Holley, Assistant Director, Division of Trading and 
Markets, Commission, dated June 9, 2017.
    \5\ Amendment No. 3 revised the proposal to: (i) Provide 
additional clarity regarding the process for determining the opening 
match price; (ii) modify the definition of ``Cross Tie Breaker'' to 
account for the requirement under the National Market System Plan to 
Implement a Tick Size Pilot Program (``Tick Size Pilot'') that 
certain securities be traded in nickel increments; and (iii) correct 
certain typographical errors. Amendment No. 3 also revised the 
proposal to fix an error in the proposed rule text in Amendment No. 
2 and correct additional typographical errors. Amendment No. 3 is 
available at: https://www.sec.gov/comments/sr-iex-2017-11/iex201711-1831518-154558.pdf.
    \6\ 15 U.S.C. 78s(b)(2).
    \7\ See Securities Exchange Act Release No. 81052 (June 29, 
2017), 82 FR 31377 (July 6, 2017). The Commission designated July 
27, 2017 as the date by which the Commission shall approve or 
disapprove, or institute proceedings to determine whether to approve 
or disapprove, the proposed rule change.

---------------------------------------------------------------------------

[[Page 35251]]

II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 3

    IEX has proposed to amend IEX Rule (``Rule'') 11.231 to modify the 
manner in which the Exchange opens trading for non-IEX-listed 
securities beginning at the start of Regular Market Hours (the 
``Opening Process'').\8\ According to the Exchange, it will attempt to 
perform the Opening Process in each non-IEX-listed security pursuant to 
which eligible interest resting on the Exchange's Continuous Book in 
the Pre-Market Session or queued for the Regular Market Session will be 
matched, to the greatest extent possible, at a single price at the 
start of the Regular Market Session.\9\ The Exchange explained that the 
proposed Opening Process is designed to efficiently maximize the number 
of shares executed at a single price that is reflective of the broader 
market for the security.\10\
---------------------------------------------------------------------------

    \8\ The Exchange also would retitle this rule as ``Regular 
Market Session Opening Process for Non-IEX-Listed Securities.'' The 
terms ``Regular Market Hours'' or ``Regular Market Session'' mean 
the time between 9:30 a.m. and 4:00 p.m. Eastern Time. See Rule 
1.160(gg). The terms ``Pre-Market Hours'' or ``Pre-Market Session'' 
mean the time between 8:00 a.m. and 9:30 a.m. Eastern Time. See Rule 
1.160(z). The terms ``Post-Market Hours'' or ``Post-Market Session'' 
mean the time between 4:00 p.m. and 5:00 p.m. Eastern Time. See Rule 
1.160(aa).
    \9\ See Notice, supra note 3, at 19764.
    \10\ See id.
---------------------------------------------------------------------------

    Currently, at the beginning of the Pre-Market Session, the Exchange 
begins accepting limit orders with certain time-in-force indicators 
that are immediately eligible for execution.\11\ Separately, the 
Exchange accepts during the Pre-Market Session limit orders that are 
only eligible for execution starting with the Regular Market Session, 
including orders with a time-in-force of DAY or Good `til Extended Day 
(``GTX'') and pegged orders with a time-in-force of DAY. The Exchange 
queues these orders in sequence until the start of the Regular Market 
Session.\12\ Currently, at the start of Regular Market Hours, the 
Exchange releases these queued orders in relative time priority, after 
which they are eligible for trading in the Regular Market Session, 
subject to User instructions and market conditions.\13\
---------------------------------------------------------------------------

    \11\ See Rules 11.190(c)(1) (Immediate-or-Cancel), 11.190(c)(2) 
(Fill or Kill), 11.190(c)(5) (System Session), and 11.190(c)(6) 
(Good `til Time); see also Notice, supra note 3, at 19763.
    \12\ See Rules 11.190(c)(3) and(4) and 11.231(a); see also 
Notice, supra note 3, at 19763.
    \13\ See Rule 11.231(c); see also Notice, supra note 3, at 
19763. The term ``User'' has the meaning set forth in Rule 
1.160(qq).
---------------------------------------------------------------------------

    Under proposed Rule 11.231(a), IEX would maintain a separate 
``Cross Book'' on which certain types of orders would queue prior to 
Regular Market Hours.\14\ Orders on the new Cross Book, together with 
orders resting on the Order Book during the Pre-Market Session (i.e., 
orders on the Continuous Book), would be eligible for execution in the 
new Opening Process.\15\ Collectively, the orders eligible for 
execution in the Opening Process would be ``Cross Eligible Orders.'' 
\16\ Orders on the Continuous Book and on the Cross Book would be 
ranked and maintained for the Opening Process pursuant to Rule 
11.220(a)(2), as described below.\17\
---------------------------------------------------------------------------

    \14\ See proposed Rule 11.231(a). Specifically, orders with a 
time-in-force of DAY and limit orders with a time-in-force of GTX 
would queue on the Cross Book and be eligible for execution in the 
proposed new Opening Process. See id.
    \15\ See id. The term ``Order Book'' has the meaning set forth 
in Rule 1.160(p).
    \16\ See id. Orders with a Minimum Quantity as defined in Rule 
11.190(b)(11) would not be eligible for execution in the Opening 
Process and therefore would not be Cross Eligible Orders. See id. 
The Exchange has proposed to amend Rule 11.190(b)(11)(F) to specify 
that Minimum Quantity orders are not eligible to participate in the 
Opening Process. See proposed Rule 11.190(b)(11)(F).
    \17\ See proposed Rule 11.231(a)(1). For additional detail 
concerning the price at which pegged orders and limit orders would 
be ranked and eligible for execution, see Notice, supra note 3, at 
19764.
---------------------------------------------------------------------------

    Currently, Users may only submit market orders during the Regular 
Market Session and the System rejects market orders submitted during 
the Pre-Market or Post-Market Sessions.\18\ By default, the System 
currently rejects market orders with a time-in-force of DAY.\19\ Under 
proposed Rule 11.190(a)(2)(E), the Exchange will allow non-routable DAY 
market orders submitted in the Pre-Market Session to queue for the 
Opening Process.\20\
---------------------------------------------------------------------------

    \18\ See Rule 11.190(a)(2)(E). The term ``System'' has the 
meaning set forth in Rule 1.160(nn).
    \19\ See Rule 11.190(a)(2)(E)(iii). The Exchange permits a User 
to elect for its market orders with a time-in-force of DAY to be 
accepted and eligible to trade or route during the Regular Market 
Session. Pursuant to this election, the System treats market orders 
marked DAY as having a time-in-force of IOC. See id.
    \20\ See proposed Rule 11.190(a)(2)(E). The Exchange explained 
that market orders with a time-in-force of DAY that are entered 
during the Pre-Market Session and are designated to route pursuant 
to Rule 11.230(c) would be rejected upon entry. See Notice, supra 
note 3, at 19764 n. 6. Additionally, the Exchange noted that orders 
with a time-in-force of IOC or FOK do not rest on the Order Book and 
therefore would be ineligible to participate in the Opening Process. 
See Notice, supra note 3, at 19764.
---------------------------------------------------------------------------

    Orders resting on the Order Book will be ranked and maintained for 
the Opening Process based on price-display-time priority.\21\ Once 
booked, a Cross Eligible Order would maintain its time priority until 
one of the following occur, at which time the order would receive a new 
timestamp: (i) It is incremented or re-priced, in the case of an order 
on the Cross Book; (ii) it is re-priced by the System in response to 
changes in the NBBO, in the case of a pegged order on the Cross Book; 
or (iii) it experiences an event specified in Rule 11.220(a)(1)(C), in 
the case of an order on the Continuous Book.\22\
---------------------------------------------------------------------------

    \21\ See proposed Rule 11.220(a)(2). Market orders would have 
precedence over limit orders. Cross Eligible Orders resting on the 
Continuous Book would be ranked by the price at which they are 
resting on the Continuous Book. Cross Eligible Orders resting on the 
Cross Book would be ranked by their limit price, if any, except for 
pegged orders, which would be ranked by their current booked price. 
See proposed Rule 11.220(a)(2)(A). Displayed orders and displayed 
portions of Cross Eligible Orders would have precedence over non-
displayed orders and non-displayed portions of Cross Eligible Orders 
at a given price. See proposed Rule 11.220(a)(2)(B).
    \22\ See proposed Rule 11.220(a)(2)(C). Pursuant to proposed 
Rule 11.231(a)(1)(ii) and (iii), respectively, when exercising price 
discretion, primary peg and discretionary peg orders would maintain 
time priority at their resting price, but would be prioritized 
behind any non-displayed interest at the Opening Match Price for the 
duration of the Opening Process. See proposed Rule 
11.220(a)(2)(C)(v). In addition, an order from which a Minimum 
Quantity instruction is removed, therefore causing the order to 
become a Cross Eligible Order, would also receive a new timestamp. 
See proposed Rule 11.220(a)(2)(C)(iii).
---------------------------------------------------------------------------

    Under proposed Rule 11.231(b), at the start of Regular Market 
Hours, the Exchange will perform the Opening Process in which it 
matches buy and sell Cross Eligible Orders that are executable at the 
single price determined by IEX (the ``Opening Match Price''), as 
described further below.\23\ First, market orders would execute at the 
Opening Match Price in time priority. Second, remaining Cross Eligible 
Orders priced more aggressively than the Opening Match Price would 
execute in price-display-time priority at the Opening Match Price. 
Finally, remaining Cross Eligible Orders priced equal to the Opening 
Match Price would execute in display-time priority at the Opening Match 
Price. This process, called the ``Opening Match,'' would continue until 
either there is no remaining volume or there is an imbalance of Cross 
Eligible Orders.\24\
---------------------------------------------------------------------------

    \23\ See proposed Rule 11.231(b).
    \24\ See proposed Rule 11.231(b)(1). AGID modifiers, as defined 
in Rule 11.190(e), would not be supported for executions in the 
Opening Match, but would be enforced on all unexecuted shares 
released to the Order Book following the Opening Match. See id.
---------------------------------------------------------------------------

    Proposed Rule 11.231(c) details the Exchange's process for 
determining the Opening Match Price, and will take into consideration 
the current pricing at away markets.\25\ The Opening Match

[[Page 35252]]

would be ``collared'' in that it generally will have to occur within 
specified upper and lower threshold prices, known as the ``Cross Price 
Constraint,'' which will generally be set at the Away Protected NBB and 
Away Protected NBO.\26\ If, at the time of the Opening Process, there 
is a crossed market in a particular security and the upper threshold 
price of the Cross Price Constraint is below the lower threshold price, 
no Opening Match would occur for that security, orders eligible to post 
on the Order Book would price slide in accordance with the price 
sliding process in IEX Rule 11.190(h), and the security would open for 
trading on the Exchange in accordance with prevailing market session 
rules.\27\
---------------------------------------------------------------------------

    \25\ ``Away Protected NBB'' and ``Away Protected NBO'' would be 
defined as the national best bid or offer, respectively, that is a 
Protected Quotation and not a quotation of the Exchange. See 
proposed Rule 11.231(c)(1)(i). ``Away Protected Bid'' and ``Away 
Protected Offer'' would be defined as a Protected Bid or Protected 
Offer, respectively, that is not a quotation of the Exchange. See 
proposed Rule 11.231(c)(1)(ii). ``Protected Bid,'' ``Protected 
Offer,'' and ``Protected Quotation'' have the meaning set forth in 
Rule 1.160(bb).
    \26\ Specifically, the upper threshold price of the Cross Price 
Constraint would be equal to the Away Protected NBO, except that if 
an Away Protected Bid is crossing an Away Protected Offer, the upper 
threshold price would be equal to the greater of five cents ($0.05) 
or one half of a percent (0.5%) higher than the lowest Away 
Protected Offer. Similarly, the lower threshold price of the Cross 
Price Constraint would be equal to the Away Protected NBB, except if 
an Away Protected Bid is crossing an Away Protected Offer, the lower 
threshold price would be equal to the greater of five cents ($0.05) 
or one half of a percent (0.5%) lower than the highest Away 
Protected Bid. See proposed Rule 11.231(c)(1)(iii)(A) and (B).
    \27\ See proposed Rule 11.231(c)(1)(iii).
---------------------------------------------------------------------------

    As described further below, in certain circumstances when needed to 
help determine the Opening Match Price, the Exchange will consider the 
price of the most current Order Collar Reference Price pursuant to Rule 
11.190(f),\28\ rounded to the nearest minimum price variant (``MPV'') 
or Midpoint Price \29\ at the start of the Opening Process, whichever 
is closer (the ``Cross Tie Breaker'').\30\ The Exchange explained that 
it included the rounding approach for the Cross Tie Breaker to avoid a 
potential inconsistency with the Tick Size Pilot if a Cross Tie Breaker 
in a non-nickel increment were to set the Opening Match Price for a 
pilot security required to be traded in nickel increments.\31\
---------------------------------------------------------------------------

    \28\ The ``Order Collar Reference Price'' is equal to the most 
current of: (i) The consolidated last sale price disseminated during 
the Regular Market Session on the trade date; (ii) the last trade 
price disseminated outside of the Regular Market Session (Form T) by 
the SIP, which other than for the Form T designation would have been 
considered a valid last sale price; or (iii) if no such price 
exists, the prior day's official closing price from the listing 
exchange. See Rule 11.190(f)(1)(A).
    \29\ ``Midpoint Price'' is defined as the midpoint of the NBBO. 
See Rule 1.160(t).
    \30\ See proposed Rule 11.231(c)(1)(iv); see also Amendment No. 
3, supra note 5, at 27. In its proposal, the Exchange explained that 
if there have been no Pre-Market Session trades that qualify to 
update the Order Collar Reference Price and no previous official 
closing price is available for the security, in the interest of 
maintaining a fair and orderly market, the Exchange will prevent 
trading in the security, pursuant to Rule 11.190(f)(1)(B), by 
rejecting orders beginning at the start of the Pre-Market Session 
and will not conduct an Opening Match. See Notice, supra note 3, at 
19765 n. 7. The Exchange further explained that trading would begin 
upon receipt of the first Order Collar Reference Price for the 
security. See id.
    \31\ See Amendment No. 3, supra note 5, at 9-11. According to 
the Exchange, it proposed to apply this rounding logic to all non-
IEX-listed securities, and not solely to the Tick Size Pilot 
securities required to trade in nickel increments, to maintain 
continuity in how the Exchange handles securities during the Opening 
Process and avoid introducing technical complexities into the 
System. See Amendment No. 3, supra note 5, at 11. The Exchange 
explained that non-pilot securities priced above $1.00 would be 
rounded to the nearest Midpoint Price or one-penny MPV, whichever is 
closer. See id.
---------------------------------------------------------------------------

    Proposed Rule 11.231(c)(2) provides the Exchange's process for 
determining the Opening Match Price when both an Away Protected Bid and 
Away Protected Offer exist for the subject security (i.e., a two-sided 
market).\32\ In general, the Opening Match will occur at the price that 
maximizes the number of shares of Cross Eligible Orders to be 
executed.\33\ If multiple prices are possible, resulting in a cross 
price range, IEX's rule provides a series of steps it would follow to 
determine the Opening Match Price.\34\
---------------------------------------------------------------------------

    \32\ See proposed Rule 11.231(c)(2).
    \33\ See proposed Rule 11.231(c)(2)(i).
    \34\ See proposed Rule 11.231(c)(2)(ii)-(iv); see also Amendment 
No. 3, supra note 5, at 27. For examples of the process for 
determining the Opening Match Price in a two-sided market, see 
Examples 1 through 4 on pages 15 to 17 of Amendment No. 3, supra 
note 5. For additional examples of the process for determining the 
Opening Match Price in a two-sided market when there are non-
displayed orders on the Cross Book, see Example 1 on pages 17-18 of 
Amendment No. 3, supra note 5, and Examples 2 through 4 in the 
Notice, supra note 3, at 19766-67. For examples of how the Exchange 
would round the Cross Tie Breaker in a two-sided market, see 
Examples 3 and 6 on pages 13 and 14, respectively, of Amendment No. 
3, supra note 5.
---------------------------------------------------------------------------

    Alternatively, proposed Rule 11.231(c)(3) provides the Exchange's 
process for determining the Opening Match Price if there is a lack of 
an Away Protected Bid, Away Protected Offer, or both, for the subject 
security at the time of the Opening Process (i.e., a one-sided or zero-
sided market).\35\ In such cases, the Opening Match generally will 
occur at the price of the Cross Tie Breaker, subject to the Cross Price 
Constraint.\36\
---------------------------------------------------------------------------

    \35\ See proposed Rule 11.231(c)(3).
    \36\ See proposed Rule 11.231(c)(3)(i)-(ii). In its proposal, 
the Exchange noted that in a one-sided market where there is no Away 
Protected NBB or no Away Protected NBO, the Cross Tie Breaker would 
be compared to the available threshold price of the Cross Price 
Constraint (i.e., the Opening Match Price would be at or above the 
lower threshold price, or at or below the upper threshold price of 
the Cross Price Constraint, as applicable). However, in a zero-sided 
market, the Opening Match Price would be the Cross Tie Breaker. See 
Notice, supra note 3, at 19767 n. 9. For examples of the process for 
determining the Opening Match Price in a one-sided or zero-sided 
market, see Examples 1 through 3 on pages 18 to 19 of Amendment No. 
3, supra note 5. For examples of how the Exchange would round the 
Cross Tie Breaker in a one-sided or zero-sided market, see Examples 
1, 2, 4, and 5 on pages 12 to 14 of Amendment No. 3, supra note 5.
---------------------------------------------------------------------------

    After the Opening Process, all remaining unexecuted interest would 
be released to the Order Book for continuous trading or cancelled in 
accordance with the terms of the order.\37\ Routable orders that are 
released to the Order Book would be routed in accordance with IEX Rule 
11.230(c)(3), subject to the orders' instructions.\38\
---------------------------------------------------------------------------

    \37\ See proposed Rule 11.231(b)(2). Cross Eligible Orders may 
remain unexecuted, in whole or in part, due to an imbalance of Cross 
Eligible Orders during the Opening Process. See id. Unexecuted Cross 
Eligible Orders that are priced at or outside of the Cross Price 
Constraint (i.e., buy orders at or above the Cross Price Constraint 
or sell orders at or below the Cross Price Constraint) would price 
slide pursuant to IEX Rule 11.190(h). See id.
    \38\ See id.
---------------------------------------------------------------------------

    If a disruption occurs that prevents the execution of the Opening 
Process described above, IEX will apply the contingency procedures 
established in proposed Rule 11.231(d). Specifically, IEX would 
publicly announce that no Opening Process will occur, all orders on the 
Order Book would be cancelled, and IEX would open the security for 
trading without an Opening Match.\39\
---------------------------------------------------------------------------

    \39\ See proposed Rule 11.231(d). In its proposal, the Exchange 
noted that it would disseminate a System Status Alert, which would 
automatically send an email alert, twitter update, and text message 
to announce that no Opening Process would occur and publish such 
information on IEX's Web site. See Notice, supra note 3, at 19767 n. 
12.
---------------------------------------------------------------------------

    If a security is subject to a halt, suspension, or pause in trading 
during the Pre-Market Session, the Exchange would not accept orders in 
the security, including for queuing in the Cross Book and participation 
in the Opening Process.\40\ Orders submitted during the halt would be 
rejected, while orders resting on the Order Book would remain unless 
cancelled by the User, but would be unavailable for trading during the 
halt.\41\ If the halt, suspension, or pause remained in effect at the 
start of Regular Market Hours, the Opening Process would not start at 
the normally scheduled time, but would be conducted once the security 
resumes trading.\42\
---------------------------------------------------------------------------

    \40\ See proposed Rule 11.231(e).
    \41\ See id.
    \42\ See id.
---------------------------------------------------------------------------

    Under proposed Rule 11.231(f), pursuant to Rule 611(b)(3) of 
Regulation NMS and section VI(D)(6) of the Tick

[[Page 35253]]

Size Pilot, orders executed in the Opening Process would constitute a 
single-priced opening transaction by the Exchange and would be allowed 
to trade-through or trade-at the price of any other Trading Center's 
Manual or Protected Quotations.\43\
---------------------------------------------------------------------------

    \43\ See proposed Rule 11.231(f).
---------------------------------------------------------------------------

    Finally, the Exchange has proposed to make a minor conforming 
change to the language used to reference LULD Price Bands in Rule 
11.190(a)(2).\44\
---------------------------------------------------------------------------

    \44\ See proposed Rule 11.190(a)(2).
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 3, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\45\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\46\ which requires, among other things, 
that the rules of a national securities exchange be 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.
---------------------------------------------------------------------------

    \45\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \46\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange has stated that its proposed Opening Process for non-
IEX-listed securities is designed to match at a single price all 
eligible buy and sell orders that are resting on the Exchange's order 
book and available for continuous trading during the Pre-Market 
Session, as well as orders that have been queued until Regular Market 
Hours.\47\ According to the Exchange, the proposed Opening Process will 
provide for orderly and timely openings.\48\
---------------------------------------------------------------------------

    \47\ See Notice, supra note 3, at 19764.
    \48\ See Notice, supra note 3, at 19767.
---------------------------------------------------------------------------

    The Commission believes that the proposed Opening Process is 
designed to open Regular Market Hours trading on the Exchange in non-
IEX-listed securities in a fair and orderly manner, which is consistent 
with the protection of investors and the public interest. Currently, 
the Exchange does not conduct an opening process for non-listed-IEX 
securities that is designed to match marketable buy and sell interest 
at a single price; rather, at the beginning of Regular Market Hours, 
the Exchange handles orders that have been queued during the Pre-Market 
Session by releasing them, according to their relative time priority, 
into continuous trading as incoming orders.\49\ To the extent the 
Exchange's proposal helps facilitate an orderly transition to regular 
trading in a fair and transparent manner, the Commission believes that 
it is consistent with the Act.
---------------------------------------------------------------------------

    \49\ See Notice, supra note 3, at 19763.
---------------------------------------------------------------------------

    The Commission also believes that the proposed rule change is 
consistent with the Act because it is designed to open Regular Market 
Hours trading in each non-IEX-listed security by matching as much 
interest as it can at a price determined through an objective process 
set forth in its proposed rule. The Commission notes that, under 
proposed Rule 11.231(c)(2), the Exchange would attempt to set the 
Opening Match Price in a two-sided market at the price where the 
maximum number of shares of Cross Eligible Orders would be executed, 
taking into account the prices and relative volume balance of eligible 
buy and sell orders resting on the Exchange in the particular 
security.\50\ In the event that a single Opening Match Price cannot be 
established in a two-sided market based on the eligible interest 
resting on the Exchange, or in the event that there is a one-sided or 
zero-sided market, the Exchange would rely on the Cross Tie Breaker 
price to determine the Opening Match Price.\51\ The Commission believes 
that these aspects of the proposed Opening Process are consistent with 
Section 6(b)(5) of the Act in that they are designed to promote just 
and equitable principles of trade and protect investors.
---------------------------------------------------------------------------

    \50\ See proposed Rule 11.231(c)(2)(i) and (ii); see also 
Amendment No. 3.
    \51\ See proposed Rules 11.231(c)(2)(iii) and 11.231(c)(3); see 
also Amendment No. 3.
---------------------------------------------------------------------------

    Further, the Commission notes that, based on the Exchange's 
proposed definition of Cross Tie Breaker,\52\ which incorporates the 
Exchange's current definition of Order Collar Reference Price,\53\ the 
Exchange effectively would rely on the most recent last sale price to 
determine the Opening Match Price when a single Opening Match Price 
cannot be determined based on the Cross Eligible Orders resting on the 
Exchange in a two-sided market, or when there is a one-sided or zero-
sided market. The Commission also notes that the Cross Tie Breaker 
price (i.e., the most recent last sale price) would be rounded as 
proposed for certain non-IEX listed securities subject to the Tick Size 
Pilot in order to ensure that the Opening Match occurs at a price that 
is permissible under the pilot, as well as for other non-pilot non-IEX-
listed securities in order to maintain continuity and reduce complexity 
in the Exchange's handling of securities during the Opening 
Process.\54\ The Commission believes that relying on the most recent 
last sale price in these circumstances, and rounding that price as 
necessary, is consistent with the Act, including Section 6(b)(5) of the 
Act.
---------------------------------------------------------------------------

    \52\ See proposed Rule 11.231(c)(1)(iv); see also Amendment No. 
3.
    \53\ See Rule 11.190(f).
    \54\ See Amendment No. 3.
---------------------------------------------------------------------------

    The Commission also notes that the Exchange has proposed to apply a 
Cross Price Constraint to prevent the Opening Match from occurring at a 
price that would be outside the Away Protected NBB and/or NBO, as 
applicable. The Commission believes that this collar feature of the 
proposed Opening Process is reasonably designed to ensure that the 
Opening Match occurs at a price that is within the broad market price 
for the security, and therefore should help to protect investors and 
remove impediments to and perfect the mechanism of a national market 
system, consistent with Section 6(b)(5) of the Act.
    In addition, the Commission believes that the Exchange's proposed 
order handling during the Opening Process is consistent with the Act. 
The Commission notes that the Exchange's proposed priority hierarchy 
for the ranking and execution of opening-cross-eligible orders is 
consistent with the Exchange's order execution priority hierarchy 
during continuous trading.\55\ Further, the Exchange has proposed to 
handle unexecuted opening-cross-eligible orders consistent with their 
terms, subject to the price sliding provisions of Rule 11.190(h) as 
appropriate.\56\ The Commission believes that these aspects of the 
proposal provide continuity with the Exchange's order handling 
practices and should reduce the potential for investor confusion when 
the Exchange transitions to continuous trading.
---------------------------------------------------------------------------

    \55\ See proposed Rules 11.220(a)(2), 11.231(a)(1), and 
11.231(b)(1); see also Notice, supra note 3, at 19768.
    \56\ See proposed Rule 11.231(b)(2).
---------------------------------------------------------------------------

    The Commission also notes that the Exchange believes that allowing 
non-routable DAY market orders to be submitted and queue for the 
Opening Process will provide members with greater flexibility.\57\ The 
Commission

[[Page 35254]]

believes that allowing non-routable DAY market orders to queue for the 
Opening Process may accommodate market participants that use DAY market 
orders on other exchanges and therein may help promote the orderly 
submission of those orders to the Exchange in advance of the Regular 
Market Session.
---------------------------------------------------------------------------

    \57\ See proposed Rules 11.190(a)(2)(E) and 11.231(a); see also 
Notice, supra note 3, at 19769. The Commission notes that market 
orders currently may only be submitted to the Exchange in the 
Regular Market Session, and are rejected if submitted during the 
Pre-Market (or Post-Market) Session. See Notice, supra note 3, at 
19763.
---------------------------------------------------------------------------

    Further, the Commission believes that the components of the 
proposal that are designed to address what would occur if a disruption 
prevents the execution of the opening process,\58\ and what would occur 
if a security is subject to a halt, suspension, or pause in trading 
during the Pre-Market Session,\59\ set forth procedures that are 
reasonably designed to protect investors and the public interest, and 
remove impediments to and perfect the mechanism of a national market 
system, consistent with Section 6(b)(5) of the Act.\60\
---------------------------------------------------------------------------

    \58\ See proposed Rule 11.231(d).
    \59\ See proposed Rule 11.231(e).
    \60\ The Commission believes that the other components of the 
proposal, including proposed Rule 11.231(f) and the minor conforming 
change to the language used to reference LULD Price Bands in Rule 
11.190(a)(2), are consistent with the Act.
---------------------------------------------------------------------------

    Finally, the Commission notes that another national securities 
exchange conducts an opening process for non-listed securities,\61\ and 
the Commission received no comments on the Exchange's proposed rule 
change.
---------------------------------------------------------------------------

    \61\ See, e.g., BZX Rule 11.24. The Commission notes that the 
BZX opening process for non-listed securities is largely similar to 
what the Exchange has proposed, but differs in that it is designed 
to match eligible orders at the midpoint of the NBBO whereas the 
Exchange's proposed Opening Match, while bound by the Away Protected 
NBBO, could occur at a price other than the midpoint of the Away 
Protected NBBO.
---------------------------------------------------------------------------

IV. Solicitation of Comments on Amendment No. 3

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 3 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-2017-11 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-IEX-2017-11. 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 such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; 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-2017-11, and should be 
submitted on or before August 18, 2017.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 3

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 3, prior to the thirtieth day 
after the date of publication of the notice of Amendment No. 3 in the 
Federal Register. The Commission believes that the proposed changes to 
the description of the process for determining the Opening Match Price 
that were included in Amendment No. 3 add clarity to the price 
determination process without materially changing the proposal from 
what the Exchange originally filed. Additionally, the Commission 
believes that the proposed addition of a rounding process for the Cross 
Tie Breaker to prevent certain Tick Size Pilot securities from trading 
in an impermissible increment eliminates a potential conflict between 
the Tick Size Pilot and the Opening Process. Moreover, the Commission 
believes that applying the rounding process to all non-IEX-listed 
securities will allow for consistent handling of securities in the 
Opening Process and avoid introducing unnecessary technical 
complexities. The Commission does not believe that any of the changes 
proposed in Amendment No. 3 introduce novel concepts, but rather add 
detail to better reflect in the proposed rule text how the proposed 
Opening Process would work for non-IEX-listed securities, and also 
reconciles the proposed Opening Process with the tick-size requirements 
of the Tick Size Pilot. Accordingly, for the reasons noted above, the 
Commission finds good cause for approving the proposed rule change, as 
modified by Amendment No. 3, on an accelerated basis, pursuant to 
Section 19(b)(2) of the Act.\62\
---------------------------------------------------------------------------

    \62\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\63\ that the proposed rule change (SR-IEX-2017-11), as modified by 
Amendment No. 3 thereto, be, and hereby is, approved on an accelerated 
basis.
---------------------------------------------------------------------------

    \63\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\64\
---------------------------------------------------------------------------

    \64\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-15908 Filed 7-27-17; 8:45 am]
BILLING CODE 8011-01-P