Document ID: SEC-2017-1350-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Investors Exchange, LLC
Posted Date: 2017-08-10T04:00Z

[Federal Register Volume 82, Number 153 (Thursday, August 10, 2017)]
[Notices]
[Pages 37474-37479]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16830]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81316; File No. SR-IEX-2017-10]

Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing of Amendment No. 2 and Order Granting Accelerated Approval of 
Proposed Rule Change, as Modified by Amendment No. 2, Relating to 
Auctions in IEX-Listed Securities, Dissemination of Auction-Related 
Market Data, and Trading Halts and Pauses

August 4, 2017.

I. Introduction

    On April 20, 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 adopt rules governing auctions in IEX-listed 
securities, provide for the dissemination of auction-related market 
data, and establish rules relating to trading halts and pauses. The 
proposed rule change was published for comment in the Federal Register 
on May 9, 2017.\3\ The Commission received one comment regarding the 
proposal.\4\ IEX responded to the comment on June 5, 2017.\5\ On June 
22, 2017, pursuant to Section 19(b)(2) of the Act,\6\ the Commission 
extended the time for Commission action on the proposal until August 7, 
2017.\7\ IEX filed Amendment No. 1 to the proposal on July 10, 2017. On 
July 19, 2017, IEX filed Amendment No 2 to the proposal, which 
superseded and replaced Amendment No. 1 in its entirety.\8\ The 
Commission is publishing this notice to solicit comment on Amendment 
No. 2 to the proposed rule change from interested persons and is 
approving the proposed rule change, as modified by Amendment No. 2, on 
an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 80583 (May 3, 2017), 
82 FR 21634 (May 9, 2017) (``Notice'').
    \4\ See letter from Joan C. Conley, Senior Vice President and 
Corporate Secretary, Nasdaq, to Brent J. Fields, Secretary, 
Commission, dated May 30, 2017 (``Nasdaq Letter'').
    \5\ See letter from Sophia Lee, General Counsel, IEX, to Brent 
J. Fields, Secretary, Commission, dated June 5, 2017 (``IEX 
Response'').
    \6\ 15 U.S.C. 78s(b)(2).
    \7\ See Securities Exchange Act Release No. 80998 (June 22, 
2017), 82 FR 29355 (June 28, 2017).
    \8\ As discussed more fully below, Amendment No. 2 revises the 
proposal to: (1) Clarify the process for determining the auction 
match price; (2) modify certain definitions used to determine the 
auction match price 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; (3) modify the process for affecting incremental 
extensions of the period for accepting orders after a Limit Up-Limit 
Down (``LULD'') trading pause; and (4) make other conforming and 
clarifying changes. To promote transparency of its proposed 
amendment, when IEX filed Amendment No. 2 with the Commission, it 
also submitted Amendment No. 2 as a comment letter to the file, 
which the Commission posted on its Web site and placed in the public 
comment file for SR-IEX-2017-10 (available at https://www.sec.gov/comments/sr-iex-2017-10/iex201710-1865053-156219.pdf). The Exchange 
also posted a copy of its Amendment No. 2 on its Web site (available 
at https://iextrading.com/docs/rule-filings/SR-IEX-2017-10-Amendment-2.pdf) when it filed Amendment No. 2 with the Commission.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 2

A. Overview

    The Commission recently granted IEX's Form 1 application for 
registration

[[Page 37475]]

as a national securities exchange.\9\ IEX's Form 1 application 
contained provisions, including standards for initial and continued 
listing on IEX, that would allow IEX to act as a primary listing 
exchange. In connection with its plans to become a primary listing 
exchange, IEX proposes to adopt new rules to govern auctions in IEX-
listed securities and to amend certain related rule provisions 
concerning the same. In addition, IEX proposes to amend certain of its 
rules governing trading halts and the operation of certain aspects of 
LULD trading pauses.
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    \9\ See Securities Exchange Act Release No. 78101 (June 17, 
2016), 81 FR 41142 (June 23, 2016) (File No. 10-222) (``Form 1 
Order'').
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    Specifically, the proposal will allow IEX to conduct the following 
auctions for IEX-listed securities: (1) An opening auction (``Opening 
Auction''); (2) a closing auction (``Closing Auction''); (3) an auction 
for an initial public offering (``IPO'') or the launch of a new issue 
(``IPO Auction''); (4) an auction following a trading halt in a 
security (``Halt Auction''); and (5) an auction to re-open a security 
after such security is subject to a LULD trading pause (``Volatility 
Auction'') (collectively, the ``IEX Auctions''). The IEX Auctions will 
utilize a double auction process that is designed to maximize the 
number of shares executed at a single price (the ``Auction Clearing 
Price'').\10\ The proposal also provides for the dissemination of 
auction-related market data, establishes rules (in addition to 
Volatility Auctions) relating to LULD trading pauses, and authorizes 
IEX to halt trading in securities listed or traded on IEX under certain 
circumstances when IEX deems it necessary to protect investors and the 
public interest.
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    \10\ See Notice, supra note 3, 82 FR at 21634. The proposed 
rules establish a series of steps that IEX will follow to arrive to 
arrive at a single Auction Clearing Price. See proposed IEX Rules 
11.350(c)(2)(B), 11.350(d)(2)(B), 11.350(e)(2)(C), 11.350(f)(2)(E), 
and 11.350(f)(3)(B)(ii). IEX states that its clearing price 
determination process is similar to the clearing price determination 
process used by The NASDAQ Stock Market LLC (``Nasdaq''). See 
Notice, supra note 3, 82 FR at 21644.
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1. Auction Process
    IEX will offer the following new order types specific to the IEX 
Auctions: Market-on-Open (``MOO''); Limit-on-Open (``LOO''); Market-on-
Close (``MOC''); and Limit-on-Close (``LOC'').\11\ To determine the 
Auction Clearing Price, IEX Auctions will consider orders that queue 
prior to the auction match (the ``Auction Book'') and orders resting on 
the Exchange's order book that are not on the Auction Book and are 
available for continuous trading (the ``Continuous Book'') 
(collectively, the ``Order Book'').\12\ Orders resting on the Order 
Book will be ranked and maintained based on price-display-time 
priority.\13\
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    \11\ See proposed IEX Rules 11.350(a)(20), 11.350(a)(21), 
11.350(a)(24), and 11.350(a)(25). MOO and LOO orders will be 
available for Opening Auctions, IPO Auctions, and, in certain 
circumstances, Halt Auctions, while MOC and LOC orders will be 
available for Closing Auctions and, in certain circumstances, 
Volatility Auctions. See proposed IEX Rules 11.350(a)(20), 
11.350(a)(21), 11.350(a)(24), and 11.350(a)(25).
    \12\ See proposed IEX Rules 11.350(a)(1) and 11.350(a)(4). The 
proposal amends IEX Rule 11.190(a)(2)(E) to allow market orders with 
a time-in-force of DAY to be entered in the Pre-Market, thereby 
permitting such orders to queue in IEX's System for participation in 
the Opening Auction or in a Halt Auction. See Notice, supra note 3, 
82 FR at 21636.
    \13\ See proposed IEX Rule 11.350(b)(1). IEX represents that its 
proposed auction priority is substantially similar to the auction 
priority utilized by Nasdaq and Bats BZX Exchange, Inc. (``Bats''). 
See Notice, supra note 3, 82 FR at 21641.
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2. IEX Auction Information
    For each IEX Auction beginning at a specified time, IEX will 
disseminate, and update every one second thereafter, the current status 
of price, size, order imbalance, auction collar, and other relevant 
auction-related information (``IEX Auction Information'').\14\ IEX will 
add IEX Auction Information to its Top of Book Quote and Last Sale feed 
(``TOPS'') and IEX Depth of Book and Last Sale feed (``DEEP''), and to 
the IEX Data Platform, which is available on IEX's public Web site.\15\ 
IEX Auction Information will be available to IEX data recipients, and 
on IEX's public Web site, free of charge.\16\
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    \14\ See proposed IEX Rule 11.350(a)(9). See also Notice, supra 
note 3, 82 FR at 21657.
    \15\ See proposed IEX Rule 11.330(a)(1)-(3). See also Notice, 
supra note 3, 82 FR at 21657.
    \16\ See Notice, supra note 3, 82 FR at 21657 and 21667. IEX 
data recipients include IEX Members and non-Members that have 
entered into an agreement with IEX that permits them to receive IEX 
data. See Notice, supra note 3, 82 FR at 21657 n.92.
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B. Opening Auctions

    On each trading day, IEX will attempt to conduct an Opening Auction 
for all IEX-listed securities.\17\ IEX Users may submit orders to IEX 
at the beginning of the Pre-Market Session for participation in the 
Opening Auction, and orders designated for the Opening Auction Book 
will be queued until the Opening Auction match.\18\ Between the Opening 
Auction Lock-in Time (two minutes prior to the Opening Auction match, 
i.e., 9:28 a.m.) \19\ and the Opening Auction match, Auction Eligible 
Orders on the Opening Auction Book may not be canceled or modified 
(i.e., they are ``locked in'').\20\ Between the Opening Auction Lock-in 
Time and the Opening Auction match, IEX will reject Hyper-aggressive 
Auction Orders upon entry.\21\ IEX represents that the rejection of 
Hyper-aggressive Auction Orders after the Lock-in Time is designed to 
minimize the increase of imbalances or large price swings resulting 
from aggressively priced orders in the Auction Book during the last 
minutes leading into the auction.\22\ IEX will accept LOO orders and 
limit orders with a time-in-force of DAY or GTX that are not Hyper-
aggressive Orders until the Opening Auction Lock-out Time (i.e., 10 
seconds prior to the Opening Auction match),\23\ which will allow Users 
to continue to submit auction orders and offset auction imbalances via 
orders specifically designated for the Auction Book in the minutes 
leading up to the auction match.\24\ Incoming orders to the Opening 
Auction Book that are received between the Opening Auction Lock-out 
Time (i.e., 10 seconds prior to the Opening Auction match) and the 
Opening Auction match will be rejected upon receipt.\25\ IEX will begin 
to disseminate IEX Auction Information associated with the Opening 
Auction starting at the Opening Auction Lock-in Time, and will update 
it every one second thereafter.\26\ Before IEX will

[[Page 37476]]

perform the opening match in an IEX-listed security, the Opening 
Auction price must be at or within the Opening/Closing Auction 
Collar.\27\ IEX will apply Opening Auction Contingency Procedures if a 
disruption occurs that prevents the execution of the Opening 
Auction.\28\ These procedures are designed to ensure the orderly and 
timely opening of IEX-listed securities.\29\
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    \17\ See proposed IEX Rule 11.350(c)(2).
    \18\ See proposed IEX Rule 11.350(c)(1)(A). IEX Rule 1.160(z) 
defines ``Pre-Market Session'' as the time between 8:00 a.m. and 
9:30 a.m. Eastern Time.
    \19\ See proposed IEX Rule 11.350(a)(22).
    \20\ See proposed IEX Rules 11.350(a)(22) and 11.350(c)(1)(B).
    \21\ See proposed IEX Rules 11.350(a)(22) and 11.350(c)(1)(B). 
For the Opening Auction, Hyper-aggressive Auction Orders are MOO 
orders and market orders with a TIF of DAY, as well as LOO orders 
and limit orders with a TIF of DAY or GTX to buy (sell) priced above 
(below) the latest upper (lower) threshold of the Opening/Closing 
Auction Collar calculated by the System. See proposed IEX Rules 
11.350(a)(8)(A) and 11.350(a)(27) (defining ``Opening/Closing 
Auction Collar'').
    \22\ See Notice, supra note 3, 82 FR at 21666.
    \23\ See proposed IEX Rule 11.350(a)(23).
    \24\ See Notice, supra note 3, 82 FR at 21648. See also proposed 
IEX Rules 11.350(a)(1)(A) and 11.350(c)(1)(B). IEX states that 
allowing Users to offset imbalances on the Auction Book after the 
Lock-in Time is designed to promote stability and equilibrium 
leading into the auction match; consequently, these orders may not 
be cancelled or modified after entry. See Notice, supra note 3, 82 
FR at 21648.
    \25\ See proposed IEX Rules 11.350(a)(23) and 11.350(c)(1)(C). 
Orders submitted to the Continuous Book after the Lock-out Time 
remain eligible for execution on the Continuous Book and in the 
upcoming Opening Auction match. See proposed IEX Rule 11.350(a)(23). 
IEX states that the Lock-out Time is designed to freeze the Auction 
Book and to provide Users with an opportunity to offset any 
remaining imbalance by submitting limit orders on the Continuous 
Book. See Notice, supra note 3, 82 FR at 21648.
    \26\ See proposed IEX Rule 11.350(c)(2)(A). See also IEX Rule 
11.350(a)(9).
    \27\ See proposed IEX Rules 11.350(c)(2)(B)(iv), 11.350(a)(27) 
(defining ``Opening/Closing Auction Collar''), and 11.350(a), 
Supplementary Material .01. IEX states that the default 10% 
threshold used to determine the Opening/Closing Auction Collar will 
provide an appropriate range within which price discovery may occur 
to maximize the number of shares executed in the auction. See 
Notice, supra note 3, 82 FR at 21646. IEX notes that a modification 
of the default threshold percentage values for the Opening/Closing 
Auction Collar would be subject to the requirements of Section 
19(b)(1) of the Act, 15 U.S.C. 78s(b)(1), and Rule 19b-4 thereunder, 
17 CFR 240.19b-4. See id. at 21646 n.51.
    \28\ See proposed IEX Rule 11.350(c)(4)(A).
    \29\ See Notice, supra note 3, 82 FR at 21649 and 21666.
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C. Closing Auctions

    On each trading day, IEX will attempt to conduct a Closing Auction 
for all IEX-listed securities.\30\ Users will be able to submit orders 
for participation in the Closing Auction at the beginning of the Pre-
Market Session,\31\ or at the beginning of the Order Acceptance Period 
for an IPO Auction.\32\ The Closing Auction Book consists of MOC and 
LOC orders, which will be queued until the Closing Auction match.\33\ 
Between the Closing Auction Lock-in Time (i.e., 3:50 p.m. or 10 minutes 
prior to the end of the Regular Market Session on days that IEX is 
subject to an early closing),\34\ and the Closing Auction match, orders 
on the Closing Auction Book may not be cancelled or modified.\35\ 
Hyper-aggressive Auction Orders submitted between the Closing Auction 
Lock-in Time and the Closing Auction match will be rejected upon 
entry.\36\ LOC orders that are not Hyper-aggressive Auction orders will 
be accepted until the Closing Auction Lock-out Time (i.e., 10 seconds 
prior to the Closing Auction match).\37\ IEX believes that rejecting 
Hyper-aggressive Auction Orders for the Closing Auction after the Lock-
in Time, while allowing LOC orders that are priced within the auction 
collar to be entered and eligible for execution in the Closing Auction 
until the Lock-out Time, will allow Users to continue to submit orders 
and offset imbalances on the Closing Auction Book in the minutes 
leading up to the auction match while attempting to avoid increasing 
auction imbalances resulting from aggressively priced orders in the 
Auction Book during the last ten minutes of the auction process.\38\ 
Orders eligible for the Closing Auction Book received between the 
Closing Auction Lock-out Time and the Closing Auction match will be 
rejected.\39\ At the beginning of the Closing Auction Lock-in Time, and 
updated every one second thereafter, IEX will disseminate IEX Auction 
Information associated with the Closing Auction.\40\ Before IEX will 
perform the closing match in an IEX-listed security, the Closing 
Auction price must be within the Opening/Closing Auction Collar.\41\ 
When a disruption occurs that prevents the execution of the Closing 
Auction, IEX will apply either its Primary Closing Auction Contingency 
Procedures or its Secondary Closing Auction Contingency Procedures.\42\ 
These procedures are designed to ensure the orderly and timely closing 
of IEX-listed securities.\43\
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    \30\ See proposed IEX Rule 11.350(d)(2).
    \31\ See note 18, supra.
    \32\ See proposed IEX Rule 11.350(d)(1)(A). The Order Acceptance 
Period for an IPO Auction begins at 8:00 a.m., unless otherwise 
specified. See proposed IEX Rule 11.350(a)(29)(A).
    \33\ See proposed IEX Rule 11.350(d)(1)(A).
    \34\ See proposed IEX Rule 11.350(a)(22).
    \35\ See proposed IEX Rule 11.350(d)(1)(B). However, between the 
Closing Auction Lock-in Time and five minutes before the Closing 
Auction match, On-Close orders may be cancelled if the User requests 
that IEX correct a legitimate error in the order (e.g., side, size, 
symbol, price, or duplication of an order). On-Close orders may not 
be cancelled or modified at or after five minutes before the Closing 
Auction match for any reason. See proposed IEX Rule 11.350(d)(1)(C).
    \36\ See proposed IEX Rule 11.350(d)(1)(B). For the Closing 
Auction, Hyper-aggressive Auction Orders are MOC and LOC orders to 
buy (sell) priced above (below) the latest upper (lower) threshold 
of the Opening/Closing Auction Collar calculated by the System. See 
proposed IEX Rule 11.350(a)(8)(B).
    \37\ See Notice, supra note 3, 82 FR at 21650 and proposed IEX 
Rule 11.350(a)(23) (defining ``Lock-out Time''). IEX notes that the 
Lock-out Time for the Closing Auction is designed to provide Users 
with an opportunity to offset any remaining imbalance during a 
period of relative stability (while the Auction Book is locked) by 
submitting limit orders to the Continuous Book. See Notice, supra 
note 3, 82 FR at 21650.
    \38\ See Notice, supra note 3, 82 FR at 21650.
    \39\ See proposed IEX Rule 11.350(d)(1)(D).
    \40\ See proposed IEX Rule 11.350(d)(2)(A).
    \41\ See proposed IEX Rules 11.350(d)(2)(B)(iv), 11.350(a)(27) 
(defining ``Opening/Closing Auction Collar''), and 11.350(a), 
Supplementary Material .01.
    \42\ See proposed IEX Rule 11.350(d)(4).
    \43\ See Notice, supra note 3, 82 FR at 21666.
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D. IPO Auctions

    IEX will conduct an IPO Auction for an initial public offering or 
for the launch of a new issue.\44\ Users will be able to submit Auction 
Eligible Orders for an IPO Auction beginning at the start of IEX's 
system hours (i.e., 8:00 a.m.), unless otherwise specified.\45\ Such 
orders will be queued, and may be cancelled or modified, until the time 
of the auction match.\46\ Thirty minutes prior to the scheduled auction 
match, IEX will begin to disseminate and update every one second IEX 
Auction Information associated with the IPO Auction.\47\ IEX will 
generally attempt to conduct an auction for corporate IPOs at 10:15 
a.m. and an auction for new issues at 9:30 a.m.\48\ If IEX is unable to 
complete an IPO Auction before the end of Post-Market Hours (i.e., 5:00 
p.m.), all open orders in the subject security on the Order Book will 
be canceled.\49\ Likewise, if a disruption occurs that prevents the 
execution of an IPO Auction, IEX will publicly announce that the Order 
Acceptance Period for the IPO Auction will be reset, cancel all orders 
in that subject security, and disseminate a new schedule for the Order 
Acceptance Period and auction match.\50\
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    \44\ See proposed IEX Rule 11.350(e).
    \45\ See proposed IEX Rule 11.350(a)(29)(A) and Notice, supra 
note 3, 82 FR at 21652. The Order Acceptance Period may be 
automatically or manually extended under certain circumstances. See 
proposed IEX Rule 11.350(e)(2)(B). In addition, the Pre-Launch 
Period for an IPO may be extended under certain circumstances. See 
proposed IEX Rule 11.280(h)(8)(B). The underwriter, with the 
concurrence of IEX, may determine to postpone and reschedule the IPO 
at any point during the IPO Auction process. See proposed IEX Rule 
11.280(h)(8)(B).
    \46\ See proposed IEX Rule 11.350(e)(1)(A)-(B) and Notice, supra 
note 3, 82 FR at 21652.
    \47\ See proposed IEX Rules 11.350(e)(2)(A) and 11.350(a)(5). 
The term ``Post-Market Hours'' or ``Post-Market Session'' refers to 
the time between 4:00 p.m. and 5:00 p.m. Eastern Time. See IEX Rule 
1.160(aa).
    \48\ See Notice, supra note 3, 82 FR at 21653.
    \49\ See proposed IEX Rule 11.350(e)(1)(D).
    \50\ See proposed IEX Rule 11.350(e)(4)(A).
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E. Halt Auctions

    IEX may initiate trading halts under certain circumstances in which 
the Exchange deems it necessary to protect investors and the public 
interest.\51\ Following a trading halt in an IEX-listed security 
pursuant to proposed IEX Rules 11.280(g)(1), (4), or (5), IEX will 
conduct a Halt Auction.\52\ IEX Users will be able

[[Page 37477]]

to submit Auction Eligible Orders for a Halt Auction five minutes prior 
to the scheduled auction match.\53\ Such orders will be queued, and may 
be cancelled or modified, until the time of the Halt Auction.\54\ At 
the start of the Order Acceptance Period for a Halt Auction, IEX will 
begin to disseminate IEX Auction Information associated with the Halt 
Auction and will update that information every one second 
thereafter.\55\ If there is insufficient crossing interest to conduct a 
Halt Auction, no Halt Auction will occur and the security will be 
transitioned to continuous trading.\56\ If IEX is unable to complete a 
Halt Auction before the end of Post-Market Hours (i.e., 5:00 p.m.), all 
open orders in the subject security on the Order Book will be 
canceled.\57\ When a disruption occurs that prevents the execution of a 
Halt Auction, IEX will publicly announce that no Halt Auction will 
occur, cancel all orders in that subject security, and open the 
security for trading without an auction.\58\
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    \51\ See proposed IEX Rule 11.280(g). Proposed IEX Rule 
11.280(h) establishes the procedures that IEX must follow to 
initiate or terminate a trading halt.
    \52\ See proposed IEX Rule 11.350(e). Proposed IEX Rule 
11.280(g)(1) allows IEX to halt trading to permit the dissemination 
of material news; IEX Rule 280(g)(4) allows IEX to halt trading in 
an American Depository Receipt (``ADR'') or other security listed on 
IEX when the IEX-listed security or security underlying the ADR is 
listed on or registered with another national or foreign securities 
exchange or market, and that exchange or market, or a regulatory 
overseeing that exchange or market, halts trading in the security 
for regulatory reasons; and IEX Rule 11.280(g)(5) allows IEX to halt 
trading in a security listed on IEX when IEX requests information 
from the issuer relating to material news, the issuer's ability to 
meet IEX listing qualification requirements, or any other 
information necessary to protect investors and the public interest.
    \53\ See IEX Rule 11.350(a)(29)(B) and Notice, supra note 3, 82 
FR at 21652.
    \54\ See proposed IEX Rule 11.350(e)(1)(A)-(B) and Notice, supra 
note 3, 82 FR at 21652.
    \55\ See proposed IEX Rules 11.350(e)(2)(A) and 11.350(a)(5). 
IEX will extend the Order Acceptance Period automatically for one 
minute when there are unmatched shares from market orders on the 
Auction Book or the Indicative Clearing Price differs by the greater 
of five percent or fifty cents from any of the previous fifteen 
Indicative Clearing Prices disseminations. See proposed IEX Rules 
11.350(e)(2)(B)(i) and (ii) and 11.350(a)(9)(E) (defining 
``Indicative Clearing Price'').
    \56\ See proposed IEX Rule 11.350(e)(2)(C).
    \57\ See proposed IEX Rule 11.350(e)(1)(D). See also IEX Rule 
1.160(aa) (defining ``Post-Market Hours'').
    \58\ See proposed IEX Rule 11.350(e)(4)(B).
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F. Volatility Auctions

    IEX will conduct a Volatility Auction to re-open an IEX-listed 
security after that security is subject to a trading pause pursuant to 
the National Market System Plan to Address Extraordinary Market 
Volatility (``Limit Up-Limit Down Plan'' or ``LULD Plan'').\59\ Orders 
may be submitted for a Volatility Auction during a five-minute Order 
Acceptance Period beginning immediately after the dissemination of the 
trading pause and are queued until the auction match.\60\ Orders may be 
canceled or modified at any time prior to the auction match.\61\ IEX 
will begin to disseminate IEX Auction Information associated with the 
Volatility Auction commencing at the start of the Order Acceptance 
Period for such auction, and will update that information every one 
second thereafter.\62\ Before IEX will perform the Volatility Auction 
match, the Volatility Auction price must be at or within the Volatility 
Auction Collar.\63\ When a disruption occurs that prevents the 
execution of the Volatility Auction, IEX will apply its Volatility 
Auction Contingency Procedures.\64\
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    \59\ See proposed IEX Rule 11.350(f). See also, e.g., Securities 
Exchange Act Release Nos. 67091 (May 31, 2012), 77 FR 33498 (June 6, 
2012) (approving LULD Plan); 80455 (April 13, 2017), 82 FR 18519 
(April 19, 2017) (approving thirteenth amendment to LULD Plan).
    \60\ See proposed IEX Rules 11.350(f)(1)(A), 11.350(a)(29)(C), 
and 11.350(f)(1)(B). The Order Acceptance Period for a Volatility 
Auction may be extended under certain circumstances. See proposed 
IEX Rules 11.350(f)(2)(C) and (D).
    \61\ See proposed IEX Rule 11.350(f)(1)(C).
    \62\ See proposed IEX Rules 11.350(f)(2)(A) and 11.350(a)(5).
    \63\ See proposed IEX Rules 11.350(f)(2)(B); 11.350(a)(31) 
(defining ``Volatility Auction Collar''); 11.350(a), Supplementary 
Material .02. IEX states that its proposed Volatility Auction Collar 
functionality is consistent with the commitment made by each primary 
listing exchange set forth in the twelfth amendment to the LULD Plan 
to file rule changes with the Commission under Section 19(b) of the 
Act to amend its respective trading practice for automated re-
openings following a trading pause consistent with a standardized 
approach agreed to by LULD Plan participants that would allow for 
extensions of an LULD trading pause if equilibrium cannot be met for 
a re-opening price within specified parameters. See Securities 
Exchange Act Release No. 79845 (January 19, 2017), 82 FR 8551 
(January 26, 2017) (``LULD Plan Twelfth Amendment Approval Order'') 
and Notice, supra note 3, 82 FR at 21646.
    \64\ See proposed IEX Rule 11.350(f)(2)(H).
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    In place of its normal Closing Auction procedures, IEX will close 
an IEX-listed security using a Volatility Auction when the IEX-listed 
security is paused pursuant to IEX Rule 11.280(e) at or after the 
Closing Auction Lock-in Time, or when the Order Acceptance Period for a 
Volatility Auction for a security paused before the Closing Auction 
Lock-Time pursuant to IEX Rule 11.280(e) would otherwise be extended to 
a time after the Closing Auction Lock-in Time.\65\
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    \65\ See proposed IEX Rule 11.350(f)(3).
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    In addition, IEX proposes several amendments to IEX Rule 11.280 
relating to LULD trading pauses.\66\ In Amendment No. 2, IEX states 
that it intends to continue coordinating with other LULD Plan 
participants and the Securities Information Processors (``SIPs'') 
regarding the implementation timeline of changes to the SIPs pursuant 
to the twelfth amendment to the LULD Plan to support dissemination of 
certain data related to re-opening auctions after LULD trading 
pauses.\67\
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    \66\ In particular, IEX proposes to amend IEX Rule 11.280 to 
provide that Auction Eligible Orders on the Auction Book are not 
price slid or canceled due to LULD price bands; that the Exchange 
may declare an LULD trading pause for a NMS Stock listed on the 
Exchange during a straddle state; and that following a trading 
pause, the Exchange will re-open trading in IEX-listed securities 
pursuant to the procedures set forth in proposed IEX Rule 11.350(f). 
See proposed IEX Rules 11.280(e)(5)(F) and (e)(7) and (8). In 
addition, the revised rule indicates that trading in non-IEX-listed 
securities will re-open upon receipt of the Price Bands from the 
single plan processor responsible for consolidation of information 
for the security. See proposed IEX Rule 11.280(e)(8).
    \67\ See Amendment No. 2, supra note 8, at 44-45. See also LULD 
Plan Twelfth Amendment Approval Order, supra note 63, 82 FR at 8553-
54 n.22 (expecting LULD participants to implement the twelfth 
amendment no later than six months after the date of the order); 
80549 (April 28, 2017), 82 FR 20928 (May 4, 2017) (extending the 
time frame to implement the LULD twelfth amendment to no later than 
the end of the third quarter of 2017).
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G. Additional Changes

    IEX proposes to adopt several additional provisions relating to IEX 
Auctions. New IEX Rule 11.350(g) will address the handling during 
Opening, Closing, Halt, and Volatility Auctions of short sale orders 
for covered securities not marked short exempt when the Short Sale 
Price Test of Rule 201 of Regulation SHO (``Short Sale Price Test'') is 
in effect.\68\
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    \68\ See proposed IEX Rule 11.350(g). IEX notes that a security 
in an IPO Auction will never be subject to the Short Sale Price Test 
because there will have been no prior trading in the security. See 
Notice, supra note 3, 82 FR at 21656-57.
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    In addition, new IEX Rule 11.350(h) will allow IEX to adjust the 
timing of or suspend an IEX Auction with prior notice to Users when, in 
IEX's judgment, the interests of a fair and orderly market require such 
action. IEX believes that this discretion is necessary to give IEX 
latitude to adapt to quickly changing, volatile market conditions that 
may negatively impact market participants.\69\
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    \69\ See Notice, supra note 3, 82 FR at 21657.
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    New IEX Rule 11.350(i) provides that, for purposes of Rule 
611(b)(3) of Regulation NMS and section VI(D)(6) of Tick Size Pilot, 
orders executed pursuant to IEX Auctions may trade-through or trade-at 
the price of any other trading center's Manual or Protected Quotations 
if the transaction that traded-at or constituted a trade-through was a 
single-priced opening, re-opening, or closing transaction at the 
trading center.
    Finally, new IEX Rule 11.350(j) specifies that, for purposes of the 
Rule, references to a.m. and p.m. mean Eastern Time.

III. Summary of Comments and IEX's Response

    As noted above, the Commission received one comment regarding the 
proposal, and a response to the

[[Page 37478]]

comment from IEX.\70\ In its proposal, IEX expresses its intention to 
disseminate ``substantially the same information'' as the IEX Auction 
Information through the Consolidated Quotation System operated by the 
Consolidated Tape Association (``CTA'') securities information 
processor, ``pending approval by the Operating Committee of the CTA.'' 
\71\ IEX states that ``[f]ollowing such approval, IEX will amend Rule 
11.330 to reflect this additional means of dissemination.'' \72\ The 
commenter expresses the view that any Commission approval of the 
current proposal ``should not be construed as approval for 
dissemination of [IEX Auction Information] data through the CQS,'' and 
that the Commission, if it approves the proposal, should make clear 
that its approval of the proposal does not constitute an approval of 
the inclusion of IEX Auction Information in the CQS.\73\ The commenter 
further states that ``there are serious legal and policy impediments to 
the dissemination of IEX Auction Information . . . through the 
facilities of the CQ Plan,'' and ``that an opportunity for public 
comment and formal action by the Commission, either in the context of a 
proposed CQ Plan amendment or a proposed rule change, is needed to 
ensure that these issues are given adequate consideration.'' \74\ The 
commenter acknowledges, however, that this issue is not directly before 
the Commission at this time.\75\
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    \70\ See Nasdaq Letter, supra note 4; and IEX Response, supra 
note 5.
    \71\ See Notice, supra note 3, 82 FR at 21657.
    \72\ See id. at 21657 n.134.
    \73\ Nasdaq Letter, supra note 4, at 2.
    \74\ Id. at 3.
    \75\ Id. at 3 n.3.
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    IEX submitted a letter in response to the comment letter, which 
acknowledges that the dissemination of IEX Auction Information through 
the CQS would require action by the CTA Operating Committee.\76\ IEX 
states that it would file a separate proposed rule change with the 
Commission that would be subject to notice and comment if it decides to 
pursue such dissemination.\77\
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    \76\ See IEX Response, supra note 5, at 1.
    \77\ See id. at 1-2.
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    The Commission believes that IEX's response addresses the concern 
raised by the commenter. The Commission notes that IEX's proposal and 
proposed rule text do not provide for the dissemination of IEX Auction 
Information through the facilities of the CQ Plan. Accordingly, despite 
IEX's statement in the current proposal of its intention to pursue such 
dissemination in the future, the issue is not presently before the 
Commission as part of the current proposal.

IV. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 2, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\78\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\79\ 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. This order approves the proposed 
rule change in its entirety, although only certain more significant 
aspects of the proposed rules are discussed below.
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    \78\ 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).
    \79\ 15 U.S.C. 78f(b)(5).
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    In its filing, IEX notes that its auctions were designed based on 
its understanding of how the auctions work on other primary listing 
exchanges, including the New York Stock Exchange, NYSE Arca, Nasdaq, 
and Bats.\80\ IEX further notes that its proposed auctions contain a 
number of attributes that are ``substantially similar to existing 
exchange auction models, and will therefore be familiar'' to Users.\81\ 
In addition, the Commission notes that the price determination process 
in the IEX Auctions is substantially similar to the opening process 
that the Commission recently approved IEX to use for non-IEX-listed 
securities.\82\
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    \80\ See Notice, supra note 3, 82 FR at 21634.
    \81\ See id.
    \82\ See IEX Rule 11.231 and Securities Exchange Act Release No. 
81195 (July 24, 2017), 82 FR 35250 (July 28, 2017) (order approving 
File No. SR-IEX-2017-11).
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    IEX states that its proposal is integral to its future operation of 
a listing market,\83\ and that the proposed rules will benefit issuers 
and investors by allowing IEX to provide companies with an additional 
listing option.\84\ IEX believes that the operation of IEX Auctions for 
securities listed on IEX will assist in the price discovery process and 
help to ensure a fair and orderly market for securities listed on 
IEX.\85\ IEX further believes that its auction is designed to provide a 
transparent, efficient, and robust process for aggregating trading 
interest submitted by a broad range of market participants to be 
matched at a single clearing price.\86\
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    \83\ The Commission notes that it has separately approved rules 
for the qualification, listing, and delisting of companies on IEX. 
See Form 1 Order, supra note 9.
    \84\ See Notice, supra note 3, 82 FR at 21662.
    \85\ See id.
    \86\ See id.
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    IEX's auction process is designed to match orders at a single price 
that maximizes the number of shares to be executed.\87\ IEX has 
designed the IEX Auctions to be conducted within specified periods of 
time and in accordance with specified order entry, calculation, price, 
and execution priority parameters. IEX may adjust the timing of or 
suspend IEX Auctions with prior notice to Users, whenever, in the 
judgement of the Exchange, the interests of a fair and orderly market 
so require.\88\ IEX's auction rules are designed to open, close, or re-
open trading in each IEX-listed security by matching as much interest 
as possible at a price determined through an objective process set 
forth in the proposed rules.
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    \87\ See id. at 21642.
    \88\ See proposed IEX Rule 11.350(h).
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    Finally, the Commission believes that the proposed rules relating 
to Volatility Auctions are designed to further the goal of establishing 
a standardized approach for how primary listing exchanges will conduct 
certain aspects of an automated re-opening following an LULD trading 
pause, which should help to provide certainty for market participants 
regarding how a security would re-open following an LULD trading pause, 
regardless of the listing exchange.\89\
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    \89\ See Securities Exchange Act Release Nos. 79846 (January 19, 
2017), 82 FR 8548 (January 26, 2017) (order approving File No. SR-
NYSEArca-2016-130); 79884 (January 26, 2017), 82 FR 8968 (February 
1, 2017) (order approving File No. SR-BatsBZX-2016-61); and 79876 
(January 25, 2017), 82 FR 8888 (January 31, 2017) (order approving 
File No. SR-Nasdaq-2016-131).
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V. Solicitation of Comments on Amendment No. 2

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 2 is consistent with the 
Act. Comments may be submitted by any of the following methods:

[[Page 37479]]

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-2017-10 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-2017-10. 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 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-2017-10, and should be 
submitted on or before August 31, 2017.

VI. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 2, prior to the thirtieth day 
after the date of publication of the notice of Amendment No. 2 in the 
Federal Register. The Commission believes that the proposed changes to 
the description of the process for determining the Auction Clearing 
Price that were included in Amendment No. 2 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 to prevent 
certain Tick Size Pilot securities from trading in an impermissible 
increment eliminates a potential conflict between the Tick Size Pilot 
and IEX Auctions. Further, the Commission believes that the proposed 
modification of the process for affecting incremental extensions of the 
period for accepting orders after an LULD trading pause will clarify 
the process and ensure consistency with the standardized approach 
agreed to by the LULD Plan participants. The Commission does not 
believe that any of the changes proposed in Amendment No. 2 introduce 
novel concepts, but rather add detail to better reflect in the proposed 
rule text how the proposed IEX Auctions would work for IEX-listed 
securities, and also reconciles the proposed IEX Auctions 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. 2, on an accelerated basis, pursuant to Section 19(b)(2) of the 
Act.\90\
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    \90\ 15 U.S.C. 78s(b)(2).
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VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\91\ that the proposed rule change (SR-IEX-2017-10), as modified by 
Amendment No. 2, is approved on an accelerated basis.
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    \91\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\92\
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    \92\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-16830 Filed 8-9-17; 8:45 am]
 BILLING CODE 8011-01-P