Document ID: SEC-2019-1834-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Investors Exchange, LLC
Posted Date: 2019-12-09T05:00Z

[Federal Register Volume 84, Number 236 (Monday, December 9, 2019)]
[Notices]
[Pages 67302-67304]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26409]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87647; File No. SR-IEX-2019-13]

Self-Regulatory Organizations: Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 11.380 To Expand the Exchange's Optional Aggregate Risk Controls 
Mechanism To Include a Net Notional Exposure Risk Check in Addition to 
the Gross Notional Exposure Risk Check

December 3, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on November 27, 2019, the Investors Exchange LLC (``IEX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``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 Act,\4\ 
and Rule 19b-4 thereunder,\5\ IEX is filing with the Commission a 
proposed rule change to amend Rule 11.380 to offer an optional net 
notional exposure risk check to Members and their clearing firms as 
part of the Exchange's Aggregate Risk Controls 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 
website at www.iextrading.com, at the principal office of the Exchange, 
and at the Commission's Public Reference Room.

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

1. Purpose
    The Exchange proposes to amend Rule 11.380 to offer an optional net 
notional exposure risk check to Members and their clearing firms as 
part of the Exchange's Aggregate Risk Controls (``ARC'') mechanism. 
Rule 11.380, entitled Risk Management, describes the Exchange's current 
optional ARC mechanism that is designed to assist IEX Members \8\ and 
their clearing firms in their risk management efforts. IEX does not 
charge a fee for use of the ARC mechanism. As described in the rule, 
the ARC mechanism currently can be configured to provide trading limits 
based on the gross notional exposure for matched and

[[Page 67303]]

routed trades for a Member or clearing firm's broker correspondent 
across MPIDs, by MPID, by FIX session or in combination, per clearing 
firm relationship or Member, as applicable (``Gross Notional 
Exposure''). Once the Gross Notional Exposure, as elected and 
configured by a Member or its clearing firm, has exceeded the pre-
determined limit, IEX will automatically reject new orders and cancel 
all open orders for the applicable MPID(s) and/or FIX session 
specified. Further, the Gross Notional Exposure risk control may be 
increased or decreased on an intra-day basis by a Member or the 
clearing firm of a Member, as applicable. As specified in paragraph 
(a)(2)(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. And 
the Gross Notional Exposure resets for each new trading day.
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    \8\ See Rule 1.160(s).
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    IEX proposes to revise the rule to provide Members or the clearing 
firms of Members with an additional option of configuring an ARC 
trading limit on the net notional exposure for matched and routed 
trades for a Member or clearing firm's broker correspondent across 
MPIDs, by MPID, by FIX session or in combination, per clearing firm 
relationship or Member as applicable (``Net Notional Exposure''). IEX 
notes that other exchanges offer their members the option of a risk 
control based upon the member's net notional exposure.\9\ As proposed, 
once the Net Notional Exposure, as elected and configured by a Member 
or its clearing firm, has exceeded the pre-determined limit, IEX will 
automatically reject new orders and cancel all open orders for the 
applicable MPID(s) and/or FIX session specified. However, just as with 
the existing Gross Notional Exposure risk control, the proposed new Net 
Notional Exposure risk control may be increased or decreased on an 
intra-day basis by a Member or the clearing firm of a Member, as 
applicable. As specified in the proposed new paragraph (a)(2)(B) of 
Rule 11.380, Net Notional Exposure will be calculated as the absolute 
net sum of the notional value of all buy and sell trades (i.e., equal 
to the value of executed buys minus the absolute value of executed long 
sells minus the absolute value of executed short sells). Netting will 
be calculated across all symbols. And, as with Gross Notional Exposure 
risk controls, the proposed Net Notional Exposure risk control would 
reset for each new trading day.
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    \9\ See e.g., Nasdaq Stock Market (``Nasdaq'') Rule 6130; Cboe 
BZX Exchange, Inc. (``Cboe'') Rule 11.13 Interpretations and 
Policies .01(h); see also New York Stock Exchange LLC (``NYSE'') 
Technology FAQ and Best Practices: Equities (November 2019) Section 
5.7, available at https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Group_Equities_Technology_FAQ.pdf.
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    Under the proposed rule change, Members or their clearing firms, if 
they choose to avail themselves of IEX's ARC mechanism, may elect to 
configure the ARC mechanism to accumulate and specify a limit or limits 
on either the Gross Notional Exposure, the newly-offered Net Notional 
Exposure, or both (collectively defined in the proposed new rule as the 
``ARC Limit'').\10\
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    \10\ 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 the lower of the ARC 
Limits being applicable since it will trigger first.
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    IEX believes that adding a Net Notional Exposure risk control to 
its existing ARC mechanism will enhance the risk management tools 
available to IEX Members. The Exchange notes, however, that use of an 
ARC Limit by a Member or the clearing firm of a Member does not 
automatically constitute compliance with IEX rules or SEC rules, nor 
does it replace Member-managed and clearing firm-managed risk 
management solutions. The Exchange does not propose to require Members 
or their clearing firms to use the ARC mechanism, and Members and their 
clearing firms may use any other appropriate risk-management tool or 
service instead of, or in combination with, IEX's ARC mechanism. The 
Exchange will not provide preferential treatment to Members or clearing 
firms using IEX's ARC mechanism, nor will the use of the ARC mechanism 
impact a Member's or clearing firm's use of IEX other than when it 
results in orders being rejected or cancelled pursuant to the ARC 
Limit. In addition, IEX will continue to provide the ARC mechanism to 
Members and clearing firms without charge.
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Sections 6(b) \11\ of the Act in general, and furthers 
the objectives of Section 6(b)(5) \12\ 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 enhancing the risk management protections available 
to Exchange Members and their clearing firms. The Exchange believes 
that the proposed rule change supports these objectives because it is 
designed to enable all IEX Members an additional option for how to 
manage and limit their own trading exposure (whether on the basis of 
the Member's Gross Notional Exposure, Net Notional Exposure, or both) 
on IEX, in addition to enabling clearing firms an additional option to 
monitor their correspondent Members' trading exposure as well as their 
own trading exposure (whether on the basis of the clearing firm's Gross 
Notional Exposure, Net Notional Exposure, or both), including by intra-
day increases or decreases in the limits.
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    \11\ 15 U.S.C. 78f.
    \12\ 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 an additional mechanism to enable IEX Members and 
clearing firms of IEX Members to manage their risk by preventing 
trading that exceeds a Member's, or clearing firm of a Member's, 
financial resources on a net notional basis (as well as the currently 
available gross notional basis risk control), and thereby contributes 
to the stability of the equities markets. Thus, the Exchange believes 
the addition of a Net Notional Exposure risk control offers Members and 
their clearing firms an important compliance tool that Members and 
their clearing firms may use to help maintain the regulatory integrity 
of the markets.
    The Exchange notes that other exchanges' rules provide for similar 
functionality, as discussed in the Purpose section, and accordingly IEX 
does not believe that the proposed rule change raises any new or novel 
issues not already considered by the Commission.\13\
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    \13\ See supra note 9.
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    In addition, the Exchange believes that the proposal is consistent 
with just and equitable principles of trade and not unfairly 
discriminatory because the ARC mechanism is available to all IEX 
Members and their clearing firms 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

[[Page 67304]]

necessary or appropriate in furtherance of the purposes of the Act. The 
proposal is designed to expand the Exchange's existing, optional, ARC 
mechanism by adding a new Net Notional Exposure risk control as 
described in the Purpose section. The Exchange is not proposing to 
charge any fee for use of any aspect of its ARC mechanism, which as 
proposed, is available to all Members and clearing firms of Members 
without charge. The Exchange does not believe the proposed rule change 
will impose any burden on intermarket competition because other 
exchanges offer similar functionality.\14\ The Exchange also does not 
believe that the proposal will impose an burden on intramarket 
competition because it is available to all Members, and clearing firms 
of Members, and provides a mechanism to enable IEX Members and clearing 
firms to manage their risk by preventing trading that is erroneous or 
exceeds a Member's or clearing firm's financial resources, thereby 
contributing to the stability of the equities markets. Accordingly, the 
Exchange does not believe that this proposal will have any impact on 
competition.
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    \14\ See supra note 9.
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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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \15\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \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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    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 to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. 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-2019-13 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-2019-13. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-IEX-2019-13 and should be submitted on 
or before December 30, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-26409 Filed 12-6-19; 8:45 am]
 BILLING CODE 8011-01-P