Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Transaction and Regulatory Fees, 54873-54877 [2016-19581]
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Federal Register / Vol. 81, No. 159 / Wednesday, August 17, 2016 / Notices
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–CBOE–
2016–059 and should be submitted on
or before September 7, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–19584 Filed 8–16–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78550; File No. SR–IEX–
2016–09]
Self-Regulatory Organizations;
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Related to
Transaction and Regulatory Fees
August 11, 2016.
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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 August
5, 2016, 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, II and III
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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Pursuant to the provisions of Section
19(b)(1) under the Securities Exchange
Act of 1934 (‘‘Act’’),4 and Rule 19b–4
thereunder,5 Investors Exchange LLC
(‘‘IEX’’ or ‘‘Exchange’’) is filing with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
to (i) adopt transaction fees applicable
to Members 6 of the Exchange pursuant
to IEX Rule 15.110(a) and (c) (‘‘Fee
Schedule’’), and (ii) adopt regulatory
22 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
4 15 U.S.C. 78s(b)(1).
5 17 CRF [sic] 240.19b–4.
6 See, IEX Rule 1.160(s).
1 15
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fees related to the Central Registration
Depository (‘‘CRD system’’), which will
be collected by the Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)
pursuant to IEX Rule 15.110(a). The
Exchange proposes to implement the
rule change effective with its exchange
launch. The text of the proposed rule
change is available at the Exchange’s
Web site at www.iextrading.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of
and basis for the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of these statement [sic] 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
Transaction Fees
The Exchange proposes to implement
a fee schedule applicable to use of the
Exchange commencing on the date it
begins operating as a national securities
exchange. The Exchange currently
intends to commence operations as a
national securities exchange on or about
August 19, 2016. IEX proposes to
implement the Fee Schedule described
herein, which will be applicable to
transactions executed in all trading
sessions, effective with its exchange
launch.
(A) Displayed Match Fee
The Exchange does not propose to
charge any fee to Members for
executions on IEX that include resting
interest with displayed priority (i.e., an
order or portion of a reserve order that
is booked and ranked with display
priority on the Order Book either as the
IEX best bid or best offer (‘‘BBO’’) or at
a worse price on the Order Book) for
both the liquidity adding and liquidity
removing order.7
7 This pricing is referred to by the Exchange as
‘‘Displayed Match Fee’’ on the proposed Fee
Schedule with a Fee Code of ‘L’ to be provided by
the Exchange on execution reports.
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(B) Non-Displayed Match Fee
The Exchange proposes to charge
$0.0009 per share (or 0.30% of the total
dollar value of the transaction for
securities priced below $1.00) to
Members for executions on IEX that
include resting interest with nondisplayed priority (i.e., an order or
portion of a reserve order that is booked
and ranked with non-display priority on
the Order Book either at the NBBO
midpoint or at a worse price on the
Order Book) for both the liquidity
adding and liquidity removing order,8
with the exception of executions on the
Exchange where the adding and
removing order originated from the
same Exchange Member and displayable
orders removing non-displayed liquidity
upon entry, each as described below.
Notwithstanding the foregoing, the
Exchange does not propose to charge
any fee to Members for executions on
IEX that involve taking resting interest
with non-displayed priority where (a)
the liquidity removing order was
displayable (i.e., the order would have
booked and displayed if posted to the
Order Book) and (b) on a monthly basis,
at least 90% of the liquidity removing
Member’s aggregate executions of
displayable orders added liquidity
during such calendar month. However,
in such transactions, the non-displayed
liquidity adding interest will be subject
to the Non-Displayed Match Fee
described above.
(C) Internalization Fee
The Exchange does not propose to
charge any fee to Members for
executions on IEX when the adding and
removing order originated from the
same Exchange Member.9 Orders from
different market participant identifiers
of the same broker dealer, with the same
Central Registration Depository
registration number, would be treated as
originating from the same Exchange
Member.
(D) Routing Charges
The Exchange proposes to pass the fee
or rebate from an away trading center to
the Member and charge a fee of $0.0001
per share for all routing options offered
by the Exchange. All charges for routing
are applicable only in the event that an
8 This pricing is referred to by the Exchange as
‘‘Non-Displayed Match Fee’’ on the proposed Fee
Schedule with a Fee Code of ‘I’ to be provided by
the Exchange on execution reports.
9 This pricing is referred to by the Exchange as
‘‘Internalization Fee’’ on the proposed Fee Schedule
with a Fee Code of ‘S’ to be provided by the
Exchange on execution reports.
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(6) $30 for processing and posting to the
CRD system each set of fingerprint results
and identifying information that has been
processed through a self-regulatory
organization other than FINRA.
order is executed on an away trading
center.10
(E) Other Fees
The Exchange does not propose to
charge fees for membership,
connectivity port fees, or market data.
2. Statutory Basis
Regulatory Fees
IEX is proposing to adopt certain
regulatory fees under Rule 15.110(a)
related to the CRD system, which are
collected by FINRA.11 As proposed,
FINRA will collect and retain certain
regulatory fees via the CRD system for
the registration of persons associated
with an Exchange Members [sic] that are
not also FINRA members. The CRD
system fees are use-based and there is
no distinction in the cost incurred by
FINRA if the user is a FINRA member
or a member of an exchange but not a
FINRA member. Accordingly, IEX is
proposing to adopt the fees under IEX
Rule 15.110(a) to mirror those assessed
by FINRA pursuant to Section (4) of
Schedule A to the FINRA By-Laws. As
proposed, the fees are as follows: 12
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(1) $100 for each initial Form U4 filed for
the registration of a representative or
principal;
(2) $110 for the additional processing of
each initial or amended Form U4, Form U5
or Form BD that includes the initial
reporting, amendment, or certification of one
or more disclosure events or proceedings;
(3) $45 annual for each of the Member’s
registered representatives and principals for
system processing;
(4) $15 for processing and posting to the
CRD system each set of fingerprint cards
submitted electronically by the Member, plus
a pass-through of any other charge imposed
by the United States Department of Justice for
processing each set of fingerprints;
(5) $30 for processing and posting to the
CRD system each set of fingerprint cards
submitted in non-electronic format by the
Member, plus a pass-through of any other
charge imposed by the United States
Department of Justice for processing each set
of fingerprints; and
10 The Exchange will provide the Fee Code from
away market centers on execution reports of routed
transactions. In the proposed Fee Schedule, the Fee
Code of ‘‘Alpha’’ is used to indicate this behavior.
11 The CRD system is the central licensing and
registration system for the U.S. securities industry.
The CRD system enables individuals and firms
seeking registration with multiple states and selfregulatory organizations to do so by submitting a
single form, fingerprint card and a combined
payment of fees to FINRA. Through the CRD
system, FINRA maintains the qualification,
employment and disciplinary histories of registered
associated persons of broker dealers.
12 The Exchange has only adopted the CRD
system fees charged by FINRA to Non-FINRA
Members when such fees are applicable. In this
regard, certain FINRA CRD system fees and
requirements are specific to FINRA members, but
do not apply to IEX Members that are not also
FINRA members. IEX Members that are also FINRA
members are charged CRD system fees according to
Section (4) of Schedule A to the FINRA By-Laws.
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Transaction Fees
IEX believes that the proposed rule
change is consistent with the provisions
of Section 6(b) 13 of the Act in general,
and furthers the objectives of Sections
[sic] 6(b)(4) 14 of the Act, in particular,
in that it is designed to provide for the
equitable allocation of reasonable dues,
fees and other charges among its
Members and other persons using its
facilities. Additionally, IEX believes that
the proposed fees are consistent with
the investor protection objectives of
Section 6(b)(5) 15 of the Act in particular
in that they are designed to promote just
and equitable principles of trade, to
remove impediments to a free and open
market and national market system, and
in general to protect investors and the
public interest.
The proposed Fee Schedule set forth
herein is designed to minimize
incentives for trading and order routing
decisions based solely on rebates that
could create conflicts of interest by
skewing economic incentives related to
such decisions. In addition, by not
offering rebates, IEX has simplified its
order type offering to avoid order types
designed to assure receipt of a rebate.16
By contrast, as proposed, IEX will
charge relatively low fees for all
executed shares, and which will be
significantly lower than many other
exchange fees charged for removing (or
taking) liquidity.17 Moreover, IEX
13 15
U.S.C. 78f.
U.S.C. 78f(b)(4).
15 15 U.S.C. 78f(b)(5).
16 In an address on equity market structure on
June 5, 2014, Chair Mary Jo White called upon the
exchanges to conduct a comprehensive review of
their order types and how they operate, as well as
to ‘‘consider appropriate rule changes to help
clarify the nature of their order types and how they
interact with each other, and how they support fair,
orderly, and efficient markets.’’ (See, speech by
Chair Mary Jo White at Sandler O’Neill & Partners,
L.P. Global Exchange and Brokerage Conference,
New York, N.Y., available at https://www.sec.gov/
News/Speech/Detail/Speech/1370542004312)
17 For example, the New York Stock Exchange
trading fee schedule on its public Web site reflects
fees to ‘‘take’’ liquidity ranging from $0.0024–
$0.00275 depending on the type of market
participant, order and execution (See, https://
www.nyse.com/markets/nyse/trading-info/fees).
The Nasdaq Stock Market (‘‘Nasdaq’’) trading fee
schedule on its public Web site reflects fees to
‘‘remove’’ liquidity ranging from $0.0030 per share
for shares executed at or above $1.00 or 0.30% of
total dollar volume for shares executed below $1.00
(See, https://nasdaqtrader.com/
Trader.aspx?id=PriceListTrading2). BATS BZX
Exchange (‘‘BZX) trading fee schedule on its public
Web site reflects fees for ‘‘removing’’ liquidity
14 15
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believes that adders of liquidity can be
incentivized to rest shares by offering a
market model and order types designed
to protect their interests as opposed to
the payment of a rebate.
IEX believes that it is appropriate,
reasonable and consistent with the Act,
to charge the $0.0009 per share NonDisplayed Match Fee, because it is
within the transaction fee range charged
by other exchanges.18 IEX also believes
that it is appropriate, reasonable and
consistent with the Act, not to charge a
fee for transactions that include
execution of an order with displayed
priority on the Order Book. This fee
structure is designed to incentivize
Members to send IEX aggressively
priced displayable orders, thereby
contributing to price discovery and
consistent with the overall goal of
enhancing market quality. IEX believes
that not charging a fee for both the
liquidity adder and remover is equitable
and not unfairly discriminatory because
it is designed to facilitate execution of,
and enhance trading opportunities for,
displayable orders, thereby further
incentivizing entry of displayed orders.
In addition, the Exchange believes
that it is appropriate, and consistent
with the Act, to not charge a fee to
Members with respect to displayable
orders that remove non-displayed
liquidity upon entry so long as at least
90% of the Member’s aggregate executed
shares of displayable orders added
liquidity during the month in question.
This flexibility is designed to address
limited inadvertent liquidity removal
for Exchange Members who are largely
adding displayed liquidity. Under these
circumstances, the Member generally
intends to add displayed liquidity on
IEX, and the Exchange therefore
believes that it is appropriate to provide
a fee incentive to such order, subject to
the 90% limitation described herein, to
further encourage aggressively priced
displayed orders. The Exchange also
believes that it is appropriate,
reasonable and consistent with the Act,
to charge the $0.0009 per share NonDisplayed Match Fee to Members for the
resting, non-displayed order that
matches with the displayable order
under such circumstances because the
reduced fee for Members entering
displayable orders removing nondisplayed liquidity is a narrowly drawn
incentive to address unintended
ranging from $0.0030 for shares executed at or
above $1.00 or 0.30% of total dollar volume for
shares executed below $1.00, subject to certain
limited exceptions for orders trading in the
opening, IPO or halt auctions BZX listed securities
(See, https://www.batstrading.com/support/fee_
schedule/bzx/).
18 Id.
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consequences. Accordingly, the
Exchange believes that it is appropriate
to charge the $0.0009 per share NonDisplayed Match Fee for such orders.
The Exchange also notes that most other
national securities exchanges charge
different fees to members for adding and
removing liquidity, and that this aspect
of IEX’s proposed Fee Schedule does
not raise any new or novel issues that
have not previously been considered by
the Commission in connection with the
fees of other national securities
exchanges.19
With respect to internalized trades,
the proposal to charge no fee is designed
to incentivize Members (and their
customers) to send orders to IEX that
may otherwise be internalized off
exchange. As broker operated ATSs and
internalization mechanisms have
proliferated to account for nearly 40%
of trading volume,20 natural investor
trading interest has become increasingly
dispersed across these venues, while the
overall trading volume on regulated
exchanges has declined.21 IEX believes
that one of the factors driving broker
decisions to trade away from regulated
exchanges has been exchange access
fees. Accordingly, this fee structure is
designed with the goal to increase
resultant order interaction on IEX. In
this regard, IEX believes that increased
liquidity on IEX would have several
benefits to investors in securities traded
on IEX. First, it would increase
opportunities for investors’ orders to
interact directly, thereby concurrently
reducing the need for unnecessary
intermediation and the associated
implicit costs, including potential
information leakage and gaming.
Second, to the extent Exchange
Members post more displayed orders on
IEX, price discovery would be enhanced
drawing more natural trading interest to
the public markets which would deepen
liquidity and dampen the impact of
shocks from liquidity demand. Third,
orders executed on IEX rather than
being internalized on broker-operated
platforms, will have the benefit of
19 See, for example https://www.nyse.com/
markets/nyse/trading-info/fees, https://
nasdaqtrader.com/Trader.aspx?id=
PriceListTrading2, and https://
www.batstrading.com/support/fee_schedule/bzx/).
20 See, for example, BATS Market Volume
Summary for June 14, 2016 available at https://
batstrading.com/market_summary/.
21 See, for example a speech by former
Commissioner Luis A. Aguilar on May 11, 2015
entitled ‘‘U.S. Equity Market Structure: Making Our
Markets Work Better for Investors’’ (available at
https://www.sec.gov/news/statement/us-equitymarket-structure.html#_ednref1), and speech by
Commission Chair Mary Jo White on June 5, 2014
entitled ‘‘Enhancing our Equity Market Structure’’
(available at https://www.sec.gov/News/Speech/
Detail/Speech/1370542004312#_ednref17).
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exchange transparency, regulation, and
oversight. Additionally, because IEX
prices orders based on direct market
data feeds of protected markets,22 the
quality of executions on IEX may be
enhanced compared to orders that are
internalized on certain broker-operated
platforms that price orders based on SIP
market data feeds.
It is important to note that orders
entered by the same broker (that by their
terms could be executable against each
other) are not guaranteed to be matched
against each other, and each order is
individually at market risk for execution
against contra-side orders from other
Members. Moreover, Members sending
orders eligible for this fee structure are
subject to all existing IEX and FINRA
rules applicable to customer orders,
including without limitation those
pertaining to wash sales, best execution,
and customer priority. (See for example,
Chapter 10 of the IEX Rules and FINRA
Rules 5210, 5310 and 5320).
Moreover, IEX believes that there are
precedents for exchanges to charge fees
that distinguish between different types
of members to incentivize certain types
of members. These fee structures may
discriminate in favor of certain types of
members but not in an unfairly
discriminatory manner in violation of
the Act. In this regard, most other
exchanges offer reduced fees to
members that reach certain volume
based tiers. Such fee structures, while
nominally available to all members, are
targeted to incentivize larger members
with enough volume to reach the
volume-based tiers. For example, the
NYSE fee schedule provides rebates of
up to $0.0022 per share for members
generally that provide greater than
1.10% of consolidated average trading
volume compared to no rebate for firms
that do not reach specified volume tiers.
And NYSE floor brokers, which have no
unique obligations to the market,
receive higher rebates at certain volume
levels, as well as lower take fees,
compared to NYSE member firms
generally.23
Similarly, the IEX fee structure is
designed to incentivize Members to
send orders to a regulated exchange and
enable IEX to compete more effectively
with internalizers and dark pools that
provide internalized matching.
Notwithstanding that IEX will not pay
for order flow, the Exchange believes
that some Members may nonetheless
choose to direct order flow to IEX as a
22 See
IEX Rule 11.410(a)(2)–(4), which describes
IEX’s use of proprietary market data feeds and those
of the Securities Information Processors.
23 See, https://www.nyse.com/markets/nyse/
trading-info/fees.
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regulated exchange in order to benefit
from real-time reporting and regulatory
oversight, and that not charging a fee
will help IEX to compete for such order
flow. The Exchange does not believe
that this fee incentive is unfairly
discriminatory because it is available to
any IEX Member, consistent with
applicable FINRA and IEX rules, and
potentially benefits all members because
the fee incentive may result in increased
order flow and liquidity in IEX. As
noted above, internalization on IEX is
not guaranteed, and the additional order
flow that does not internalize is
available to trade by all Members, and
would enhance price discovery if such
order flow results in more displayed
orders.
Trading on the IEX alternative trading
system (‘‘ATS’’) directly supports the
Exchange’s contention that the proposed
pricing structure will provide benefits to
Members generally and is not unfairly
discriminatory. IEX has offered
comparable pricing on its ATS. Between
January 1, 2016 and June 30, 2016,
internalized transactions occurred
across 66 of 145 ATS subscribers with
a range of business models (e.g., full
service, agency, and retail brokerdealers).24 During the period January 1,
2016 through June 30, 2016,
approximately 454 million shares
internalized on the IEX ATS. For those
transactions on the IEX ATS that
included self-matched volume, the
liquidity removing orders also executed
against approximately 63 million resting
shares of other subscribers.25 Thus, IEX
does not believe that the internalization
fee incentive has had an unfairly
discriminatory impact in practice, since
internalized transactions occurred
across a large number of different types
of subscribers, providing collateral
liquidity benefits to other subscribers.
Additionally, the Exchange believes
that its proposed fee codes, to be
provided on execution and routing
reports, will provide transparency and
predictability to Members as to
applicable transaction fees. In this
regard, IEX notes that Members will be
able to maintain a tally of executions of
displayable orders eligible for no fee for
taking non-displayed liquidity by
calculating, on a monthly basis, whether
the proportion of their executed
displayable orders that added liquidity
is 90% or more of their total monthly
volume of executed displayable orders.
Using IEX execution reports, Members
24 Between January 1, 2016 and June 30, 2016,
only 2.97 percent of overall subscribers’ volume
was from internalized transactions.
25 During the same period, there were also
approximately 578 million unexecuted shares from
the incoming orders that self-matched.
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can calculate whether the sum of
executions with Fee Code L and a Last
Liquidity Indicator (FIX tag 851) of ‘1’
(Added Liquidity), divided by the sum
of executions with Fee Code L is at least
90%.
In summary, IEX believes that the
proposed fee structure for internalized
transactions is reasonable, fair and
equitable, and not an unfairly
discriminatory allocation of fees
because it will provide all Members
with incentives not to avoid sending
orders to IEX that will contribute to
enhanced liquidity and price discovery
on a regulated exchange. While not all
Members necessarily will have the
ability to directly benefit from the
proposed fee structure for internalized
transactions, as noted above
internalization is not guaranteed so IEX
believes that Members generally may
indirectly benefit from an increase in
order flow that does not internalize on
IEX, as has been the case on the ATS.
With respect to orders routed to other
exchanges, the proposal to pass through
fees charged by such other away trading
centers for executed shares plus charge
a fee of $0.0001 payable to IEX is a
reasonable, fair and equitable, and not
an unfairly discriminatory allocation of
fees because the fee is applicable to all
Members in an equivalent manner. The
$0.0001 fee payable to IEX is not
inconsistent with the fees charged by
other exchanges for routed orders, since
many of their routing fees are variable
based on the fees and rebates charged by
such other venues.26 Accordingly, the
IEX proposed approach raises no new or
novel issues.
As described more fully below in the
Exchange’s statement regarding the
burden on competition, the Exchange
believes that it is subject to significant
competitive forces, and that its
proposed fee structure is an appropriate
effort to address such forces.
IEX also believes that not charging a
fee for membership, connectivity or
market data is reasonable because it may
incentivize broker-dealers to become
members of the Exchange and to
therefore direct order flow to IEX. As a
new exchange, IEX will operate in a
highly competitive environment, and
not charging fees for such services and
access is designed to enable it to
compete effectively.
In conclusion, the Exchange also
submits that its proposed fee structure
satisfies the requirements of Sections
6(b)(4) and 6(b)(5) of the Act for the
reasons discussed above in that it does
not permit unfair discrimination
26 See, for example, Nasdaq Stock Market Rule
7018(a)(1).
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between customers, issuers, brokers, or
dealers, and is designed to promote just
and equitable principles of trade, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system. For the
foregoing reasons, the Exchange believes
that its simplified fee structure is
consistent with the Act, in that it is
designed to promote just and equitable
principles of trade, to remove
impediments to a free and open market
and national market system and in
general to protect investors and the
public interest.
Regulatory Fees
IEX believes that the proposed rule
change is consistent with the provisions
of Section 6(b) 27 of the Act in general,
and furthers the objectives of Section
6(b)(4) 28 of the Act, in particular, in that
it provides for the equitable allocation
of reasonable fees and other charges
among its members, and does not
unfairly discriminate between
customers, issuers, brokers and dealers.
All similarly situated Members are
subject to the same fee structure, and
every Member firm must use the CRD
system for registration and disclosure.
The proposed fees are reasonable
because they are identical to those
adopted by FINRA for use of the CRD
system for disclosure and the
registration of associated persons of
FINRA members.29 As FINRA noted in
its filing adopting its existing fees, it
believes the fees are reasonable based on
the increased costs associated with
operating and maintaining the CRD
system, and listed a number of
enhancements made to the CRD system
since the last fee increase, including: (1)
Incorporation of various uniform
registration form changes; (2) electronic
fingerprint processing; (3) Web EFTTM,
which allows subscribing firms to
submit batch filings to the CRD system;
(4) increases in the number and types of
reports available through the CRD
system; and (5) significant changes to
BrokerCheck, including making
BrokerCheck easier to use and
expanding the amount of information
made available through the system.30
These increased costs are similarly
borne by FINRA when a member of IEX
that is not a member of FINRA uses the
CRD system, so the fees collected for
such use should mirror the fees assessed
on FINRA members, as is proposed by
IEX. FINRA further noted its belief that
27 15
U.S.C. 78f.
U.S.C. 78f(b)(4).
29 See Securities Exchange Act Release No. 67247
(June 25, 2012), 77 FR 38866 (June 29, 2012) (SR–
FINRA–2012–30).
30 See supra, note 27 [sic], at 77 FR 38866, 38868.
28 15
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the proposed fees are reasonable
because they help to ensure the integrity
of the information in the CRD system,
which is important because the
Commission, FINRA, other selfregulatory organizations and state
securities regulators use the CRD system
to make licensing and registration
decisions, among other things.31
The Exchange also believes that the
proposed fees, like FINRA’s fees, are
consistent with an equitable allocation
of fees because the fees will apply
equally to all individuals and members
required to report information to the
CRD system. Thus, those members that
register more individuals or submit
more filings through the CRD system
will generally pay more in fees than
those members that use the CRD system
to a lesser extent. In addition, the
proposed fees, like FINRA’s fees, are
equitable and not unfairly
discriminatory because they will result
in the same regulatory fees being
charged to all IEX Members required to
report information to the CRD system
and for services performed by FINRA,
regardless of whether or not such
Member is a FINRA member.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Transaction Fees
IEX does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe that the
proposed rule change will impose any
burden on intermarket competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
To the contrary, the Exchange believes
that the proposed pricing structure will
increase competition and hopefully
draw additional volume to the
Exchange. The Exchange will operate in
a highly competitive market in which
market participants can readily favor
competing venues if fee schedules at
other venues are viewed as more
favorable. As a new exchange, IEX
expects to face intense competition from
existing exchanges and other nonexchange venues that provide markets
for equities trading. Consequently, the
Exchange believes that the degree to
which IEX fees could impose any
burden on competition is extremely
limited, and does not believe that such
fees would burden competition of
Members or competing venues in a
manner that is not necessary or
appropriate in furtherance of the
purposes of the Act.
31 See
E:\FR\FM\17AUN1.SGM
supra [sic], at 77 FR 38866, 38868.
17AUN1
Federal Register / Vol. 81, No. 159 / Wednesday, August 17, 2016 / Notices
The Exchange does not believe that
the proposed rule change will impose
any burden on intramarket competition
that is not necessary or appropriate in
furtherance of the purposes of the Act
because, while different fees are
assessed in some circumstances, these
different fees are not based on the type
of Member entering the orders that
match but on the type of order entered
and all Members can submit any type of
order. Further, the proposed fees are
intended to encourage market
participants to bring increased volume
to the Exchange, which benefits all
market participants.
Regulatory Fees
IEX does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. Specifically,
the Exchange believes that the proposed
fees will result in the same regulatory
fees being charged to all Members
required to report information to the
CRD system and for services performed
by FINRA, regardless of whether or not
such Members are FINRA members.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 32 and paragraph (f) of Rule
19b–4 33 thereunder. 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.
mstockstill on DSK3G9T082PROD with NOTICES
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
IEX–2016–09 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–IEX–2016–09. 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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–IEX–
2016–09, and should be submitted on or
before September 7, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–19581 Filed 8–16–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78556; File No. SR–NYSE–
2016–45]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change
Amending the Co-location Services
Offered by the Exchange To Add
Certain Access and Connectivity Fees
August 11, 2016.
Pursuant to section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on July 29,
2016, New York Stock Exchange LLC
(‘‘NYSE’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend the
co-location services offered by the
Exchange as follows: (1) To provide
additional information regarding the
access to trading and execution services
and connectivity to data provided to
Users with local area networks available
in the data center; and (2) to establish
fees relating to User’s access to trading
and execution services; connectivity to
data feeds and to testing and
certification feeds; access to clearing;
and other services. In addition, this
proposed rule change reflects changes to
the Exchange’s Price List related to
these co-location services. The proposed
rule change is available on the
Exchange’s Web site at www.nyse.com,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
1 15
32 15
U.S.C. 78s(b)(3)(A).
33 17 CFR 240.19b–4(f).
VerDate Sep<11>2014
16:39 Aug 16, 2016
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
34 17
Jkt 238001
PO 00000
CFR 200.30–3(a)(12).
Frm 00092
Fmt 4703
Sfmt 4703
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E:\FR\FM\17AUN1.SGM
17AUN1
]]>Agencies
[Federal Register Volume 81, Number 159 (Wednesday, August 17, 2016)]
[Notices]
[Pages 54873-54877]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-19581]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78550; File No. SR-IEX-2016-09]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Related to
Transaction and Regulatory Fees
August 11, 2016.
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 August 5, 2016, 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, II
and III 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of Section 19(b)(1) under the Securities
Exchange Act of 1934 (``Act''),\4\ and Rule 19b-4 thereunder,\5\
Investors Exchange LLC (``IEX'' or ``Exchange'') is filing with the
Securities and Exchange Commission (``Commission'') a proposed rule
change to (i) adopt transaction fees applicable to Members \6\ of the
Exchange pursuant to IEX Rule 15.110(a) and (c) (``Fee Schedule''), and
(ii) adopt regulatory fees related to the Central Registration
Depository (``CRD system''), which will be collected by the Financial
Industry Regulatory Authority, Inc. (``FINRA'') pursuant to IEX Rule
15.110(a). The Exchange proposes to implement the rule change effective
with its exchange launch. The text of the proposed rule change is
available at the Exchange's Web site at www.iextrading.com, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(b)(1).
\5\ 17 CRF [sic] 240.19b-4.
\6\ See, IEX Rule 1.160(s).
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statement [sic] 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
Transaction Fees
The Exchange proposes to implement a fee schedule applicable to use
of the Exchange commencing on the date it begins operating as a
national securities exchange. The Exchange currently intends to
commence operations as a national securities exchange on or about
August 19, 2016. IEX proposes to implement the Fee Schedule described
herein, which will be applicable to transactions executed in all
trading sessions, effective with its exchange launch.
(A) Displayed Match Fee
The Exchange does not propose to charge any fee to Members for
executions on IEX that include resting interest with displayed priority
(i.e., an order or portion of a reserve order that is booked and ranked
with display priority on the Order Book either as the IEX best bid or
best offer (``BBO'') or at a worse price on the Order Book) for both
the liquidity adding and liquidity removing order.\7\
---------------------------------------------------------------------------
\7\ This pricing is referred to by the Exchange as ``Displayed
Match Fee'' on the proposed Fee Schedule with a Fee Code of `L' to
be provided by the Exchange on execution reports.
---------------------------------------------------------------------------
(B) Non-Displayed Match Fee
The Exchange proposes to charge $0.0009 per share (or 0.30% of the
total dollar value of the transaction for securities priced below
$1.00) to Members for executions on IEX that include resting interest
with non-displayed priority (i.e., an order or portion of a reserve
order that is booked and ranked with non-display priority on the Order
Book either at the NBBO midpoint or at a worse price on the Order Book)
for both the liquidity adding and liquidity removing order,\8\ with the
exception of executions on the Exchange where the adding and removing
order originated from the same Exchange Member and displayable orders
removing non-displayed liquidity upon entry, each as described below.
---------------------------------------------------------------------------
\8\ This pricing is referred to by the Exchange as ``Non-
Displayed Match Fee'' on the proposed Fee Schedule with a Fee Code
of `I' to be provided by the Exchange on execution reports.
---------------------------------------------------------------------------
Notwithstanding the foregoing, the Exchange does not propose to
charge any fee to Members for executions on IEX that involve taking
resting interest with non-displayed priority where (a) the liquidity
removing order was displayable (i.e., the order would have booked and
displayed if posted to the Order Book) and (b) on a monthly basis, at
least 90% of the liquidity removing Member's aggregate executions of
displayable orders added liquidity during such calendar month. However,
in such transactions, the non-displayed liquidity adding interest will
be subject to the Non-Displayed Match Fee described above.
(C) Internalization Fee
The Exchange does not propose to charge any fee to Members for
executions on IEX when the adding and removing order originated from
the same Exchange Member.\9\ Orders from different market participant
identifiers of the same broker dealer, with the same Central
Registration Depository registration number, would be treated as
originating from the same Exchange Member.
---------------------------------------------------------------------------
\9\ This pricing is referred to by the Exchange as
``Internalization Fee'' on the proposed Fee Schedule with a Fee Code
of `S' to be provided by the Exchange on execution reports.
---------------------------------------------------------------------------
(D) Routing Charges
The Exchange proposes to pass the fee or rebate from an away
trading center to the Member and charge a fee of $0.0001 per share for
all routing options offered by the Exchange. All charges for routing
are applicable only in the event that an
[[Page 54874]]
order is executed on an away trading center.\10\
---------------------------------------------------------------------------
\10\ The Exchange will provide the Fee Code from away market
centers on execution reports of routed transactions. In the proposed
Fee Schedule, the Fee Code of ``Alpha'' is used to indicate this
behavior.
---------------------------------------------------------------------------
(E) Other Fees
The Exchange does not propose to charge fees for membership,
connectivity port fees, or market data.
Regulatory Fees
IEX is proposing to adopt certain regulatory fees under Rule
15.110(a) related to the CRD system, which are collected by FINRA.\11\
As proposed, FINRA will collect and retain certain regulatory fees via
the CRD system for the registration of persons associated with an
Exchange Members [sic] that are not also FINRA members. The CRD system
fees are use-based and there is no distinction in the cost incurred by
FINRA if the user is a FINRA member or a member of an exchange but not
a FINRA member. Accordingly, IEX is proposing to adopt the fees under
IEX Rule 15.110(a) to mirror those assessed by FINRA pursuant to
Section (4) of Schedule A to the FINRA By-Laws. As proposed, the fees
are as follows: \12\
---------------------------------------------------------------------------
\11\ The CRD system is the central licensing and registration
system for the U.S. securities industry. The CRD system enables
individuals and firms seeking registration with multiple states and
self-regulatory organizations to do so by submitting a single form,
fingerprint card and a combined payment of fees to FINRA. Through
the CRD system, FINRA maintains the qualification, employment and
disciplinary histories of registered associated persons of broker
dealers.
\12\ The Exchange has only adopted the CRD system fees charged
by FINRA to Non-FINRA Members when such fees are applicable. In this
regard, certain FINRA CRD system fees and requirements are specific
to FINRA members, but do not apply to IEX Members that are not also
FINRA members. IEX Members that are also FINRA members are charged
CRD system fees according to Section (4) of Schedule A to the FINRA
By-Laws.
(1) $100 for each initial Form U4 filed for the registration of
a representative or principal;
(2) $110 for the additional processing of each initial or
amended Form U4, Form U5 or Form BD that includes the initial
reporting, amendment, or certification of one or more disclosure
events or proceedings;
(3) $45 annual for each of the Member's registered
representatives and principals for system processing;
(4) $15 for processing and posting to the CRD system each set of
fingerprint cards submitted electronically by the Member, plus a
pass-through of any other charge imposed by the United States
Department of Justice for processing each set of fingerprints;
(5) $30 for processing and posting to the CRD system each set of
fingerprint cards submitted in non-electronic format by the Member,
plus a pass-through of any other charge imposed by the United States
Department of Justice for processing each set of fingerprints; and
(6) $30 for processing and posting to the CRD system each set of
fingerprint results and identifying information that has been
processed through a self-regulatory organization other than FINRA.
2. Statutory Basis
Transaction Fees
IEX believes that the proposed rule change is consistent with the
provisions of Section 6(b) \13\ of the Act in general, and furthers the
objectives of Sections [sic] 6(b)(4) \14\ of the Act, in particular, in
that it is designed to provide for the equitable allocation of
reasonable dues, fees and other charges among its Members and other
persons using its facilities. Additionally, IEX believes that the
proposed fees are consistent with the investor protection objectives of
Section 6(b)(5) \15\ of the Act in particular in that they are designed
to promote just and equitable principles of trade, to remove
impediments to a free and open market and national market system, and
in general to protect investors and the public interest.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f.
\14\ 15 U.S.C. 78f(b)(4).
\15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The proposed Fee Schedule set forth herein is designed to minimize
incentives for trading and order routing decisions based solely on
rebates that could create conflicts of interest by skewing economic
incentives related to such decisions. In addition, by not offering
rebates, IEX has simplified its order type offering to avoid order
types designed to assure receipt of a rebate.\16\ By contrast, as
proposed, IEX will charge relatively low fees for all executed shares,
and which will be significantly lower than many other exchange fees
charged for removing (or taking) liquidity.\17\ Moreover, IEX believes
that adders of liquidity can be incentivized to rest shares by offering
a market model and order types designed to protect their interests as
opposed to the payment of a rebate.
---------------------------------------------------------------------------
\16\ In an address on equity market structure on June 5, 2014,
Chair Mary Jo White called upon the exchanges to conduct a
comprehensive review of their order types and how they operate, as
well as to ``consider appropriate rule changes to help clarify the
nature of their order types and how they interact with each other,
and how they support fair, orderly, and efficient markets.'' (See,
speech by Chair Mary Jo White at Sandler O'Neill & Partners, L.P.
Global Exchange and Brokerage Conference, New York, N.Y., available
at https://www.sec.gov/News/Speech/Detail/Speech/1370542004312)
\17\ For example, the New York Stock Exchange trading fee
schedule on its public Web site reflects fees to ``take'' liquidity
ranging from $0.0024-$0.00275 depending on the type of market
participant, order and execution (See, https://www.nyse.com/markets/nyse/trading-info/fees). The Nasdaq Stock Market (``Nasdaq'')
trading fee schedule on its public Web site reflects fees to
``remove'' liquidity ranging from $0.0030 per share for shares
executed at or above $1.00 or 0.30% of total dollar volume for
shares executed below $1.00 (See, https://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2). BATS BZX Exchange (``BZX) trading
fee schedule on its public Web site reflects fees for ``removing''
liquidity ranging from $0.0030 for shares executed at or above $1.00
or 0.30% of total dollar volume for shares executed below $1.00,
subject to certain limited exceptions for orders trading in the
opening, IPO or halt auctions BZX listed securities (See, https://www.batstrading.com/support/fee_schedule/bzx/).
---------------------------------------------------------------------------
IEX believes that it is appropriate, reasonable and consistent with
the Act, to charge the $0.0009 per share Non-Displayed Match Fee,
because it is within the transaction fee range charged by other
exchanges.\18\ IEX also believes that it is appropriate, reasonable and
consistent with the Act, not to charge a fee for transactions that
include execution of an order with displayed priority on the Order
Book. This fee structure is designed to incentivize Members to send IEX
aggressively priced displayable orders, thereby contributing to price
discovery and consistent with the overall goal of enhancing market
quality. IEX believes that not charging a fee for both the liquidity
adder and remover is equitable and not unfairly discriminatory because
it is designed to facilitate execution of, and enhance trading
opportunities for, displayable orders, thereby further incentivizing
entry of displayed orders.
---------------------------------------------------------------------------
\18\ Id.
---------------------------------------------------------------------------
In addition, the Exchange believes that it is appropriate, and
consistent with the Act, to not charge a fee to Members with respect to
displayable orders that remove non-displayed liquidity upon entry so
long as at least 90% of the Member's aggregate executed shares of
displayable orders added liquidity during the month in question. This
flexibility is designed to address limited inadvertent liquidity
removal for Exchange Members who are largely adding displayed
liquidity. Under these circumstances, the Member generally intends to
add displayed liquidity on IEX, and the Exchange therefore believes
that it is appropriate to provide a fee incentive to such order,
subject to the 90% limitation described herein, to further encourage
aggressively priced displayed orders. The Exchange also believes that
it is appropriate, reasonable and consistent with the Act, to charge
the $0.0009 per share Non-Displayed Match Fee to Members for the
resting, non-displayed order that matches with the displayable order
under such circumstances because the reduced fee for Members entering
displayable orders removing non-displayed liquidity is a narrowly drawn
incentive to address unintended
[[Page 54875]]
consequences. Accordingly, the Exchange believes that it is appropriate
to charge the $0.0009 per share Non-Displayed Match Fee for such
orders. The Exchange also notes that most other national securities
exchanges charge different fees to members for adding and removing
liquidity, and that this aspect of IEX's proposed Fee Schedule does not
raise any new or novel issues that have not previously been considered
by the Commission in connection with the fees of other national
securities exchanges.\19\
---------------------------------------------------------------------------
\19\ See, for example https://www.nyse.com/markets/nyse/trading-info/fees, https://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2,
and https://www.batstrading.com/support/fee_schedule/bzx/).
---------------------------------------------------------------------------
With respect to internalized trades, the proposal to charge no fee
is designed to incentivize Members (and their customers) to send orders
to IEX that may otherwise be internalized off exchange. As broker
operated ATSs and internalization mechanisms have proliferated to
account for nearly 40% of trading volume,\20\ natural investor trading
interest has become increasingly dispersed across these venues, while
the overall trading volume on regulated exchanges has declined.\21\ IEX
believes that one of the factors driving broker decisions to trade away
from regulated exchanges has been exchange access fees. Accordingly,
this fee structure is designed with the goal to increase resultant
order interaction on IEX. In this regard, IEX believes that increased
liquidity on IEX would have several benefits to investors in securities
traded on IEX. First, it would increase opportunities for investors'
orders to interact directly, thereby concurrently reducing the need for
unnecessary intermediation and the associated implicit costs, including
potential information leakage and gaming. Second, to the extent
Exchange Members post more displayed orders on IEX, price discovery
would be enhanced drawing more natural trading interest to the public
markets which would deepen liquidity and dampen the impact of shocks
from liquidity demand. Third, orders executed on IEX rather than being
internalized on broker-operated platforms, will have the benefit of
exchange transparency, regulation, and oversight. Additionally, because
IEX prices orders based on direct market data feeds of protected
markets,\22\ the quality of executions on IEX may be enhanced compared
to orders that are internalized on certain broker-operated platforms
that price orders based on SIP market data feeds.
---------------------------------------------------------------------------
\20\ See, for example, BATS Market Volume Summary for June 14,
2016 available at https://batstrading.com/market_summary/.
\21\ See, for example a speech by former Commissioner Luis A.
Aguilar on May 11, 2015 entitled ``U.S. Equity Market Structure:
Making Our Markets Work Better for Investors'' (available at https://www.sec.gov/news/statement/us-equity-market-structure.html#_ednref1), and speech by Commission Chair Mary Jo
White on June 5, 2014 entitled ``Enhancing our Equity Market
Structure'' (available at https://www.sec.gov/News/Speech/Detail/Speech/1370542004312#_ednref17).
\22\ See IEX Rule 11.410(a)(2)-(4), which describes IEX's use of
proprietary market data feeds and those of the Securities
Information Processors.
---------------------------------------------------------------------------
It is important to note that orders entered by the same broker
(that by their terms could be executable against each other) are not
guaranteed to be matched against each other, and each order is
individually at market risk for execution against contra-side orders
from other Members. Moreover, Members sending orders eligible for this
fee structure are subject to all existing IEX and FINRA rules
applicable to customer orders, including without limitation those
pertaining to wash sales, best execution, and customer priority. (See
for example, Chapter 10 of the IEX Rules and FINRA Rules 5210, 5310 and
5320).
Moreover, IEX believes that there are precedents for exchanges to
charge fees that distinguish between different types of members to
incentivize certain types of members. These fee structures may
discriminate in favor of certain types of members but not in an
unfairly discriminatory manner in violation of the Act. In this regard,
most other exchanges offer reduced fees to members that reach certain
volume based tiers. Such fee structures, while nominally available to
all members, are targeted to incentivize larger members with enough
volume to reach the volume-based tiers. For example, the NYSE fee
schedule provides rebates of up to $0.0022 per share for members
generally that provide greater than 1.10% of consolidated average
trading volume compared to no rebate for firms that do not reach
specified volume tiers. And NYSE floor brokers, which have no unique
obligations to the market, receive higher rebates at certain volume
levels, as well as lower take fees, compared to NYSE member firms
generally.\23\
---------------------------------------------------------------------------
\23\ See, https://www.nyse.com/markets/nyse/trading-info/fees.
---------------------------------------------------------------------------
Similarly, the IEX fee structure is designed to incentivize Members
to send orders to a regulated exchange and enable IEX to compete more
effectively with internalizers and dark pools that provide internalized
matching. Notwithstanding that IEX will not pay for order flow, the
Exchange believes that some Members may nonetheless choose to direct
order flow to IEX as a regulated exchange in order to benefit from
real-time reporting and regulatory oversight, and that not charging a
fee will help IEX to compete for such order flow. The Exchange does not
believe that this fee incentive is unfairly discriminatory because it
is available to any IEX Member, consistent with applicable FINRA and
IEX rules, and potentially benefits all members because the fee
incentive may result in increased order flow and liquidity in IEX. As
noted above, internalization on IEX is not guaranteed, and the
additional order flow that does not internalize is available to trade
by all Members, and would enhance price discovery if such order flow
results in more displayed orders.
Trading on the IEX alternative trading system (``ATS'') directly
supports the Exchange's contention that the proposed pricing structure
will provide benefits to Members generally and is not unfairly
discriminatory. IEX has offered comparable pricing on its ATS. Between
January 1, 2016 and June 30, 2016, internalized transactions occurred
across 66 of 145 ATS subscribers with a range of business models (e.g.,
full service, agency, and retail broker-dealers).\24\ During the period
January 1, 2016 through June 30, 2016, approximately 454 million shares
internalized on the IEX ATS. For those transactions on the IEX ATS that
included self-matched volume, the liquidity removing orders also
executed against approximately 63 million resting shares of other
subscribers.\25\ Thus, IEX does not believe that the internalization
fee incentive has had an unfairly discriminatory impact in practice,
since internalized transactions occurred across a large number of
different types of subscribers, providing collateral liquidity benefits
to other subscribers.
---------------------------------------------------------------------------
\24\ Between January 1, 2016 and June 30, 2016, only 2.97
percent of overall subscribers' volume was from internalized
transactions.
\25\ During the same period, there were also approximately 578
million unexecuted shares from the incoming orders that self-
matched.
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Additionally, the Exchange believes that its proposed fee codes, to
be provided on execution and routing reports, will provide transparency
and predictability to Members as to applicable transaction fees. In
this regard, IEX notes that Members will be able to maintain a tally of
executions of displayable orders eligible for no fee for taking non-
displayed liquidity by calculating, on a monthly basis, whether the
proportion of their executed displayable orders that added liquidity is
90% or more of their total monthly volume of executed displayable
orders. Using IEX execution reports, Members
[[Page 54876]]
can calculate whether the sum of executions with Fee Code L and a Last
Liquidity Indicator (FIX tag 851) of `1' (Added Liquidity), divided by
the sum of executions with Fee Code L is at least 90%.
In summary, IEX believes that the proposed fee structure for
internalized transactions is reasonable, fair and equitable, and not an
unfairly discriminatory allocation of fees because it will provide all
Members with incentives not to avoid sending orders to IEX that will
contribute to enhanced liquidity and price discovery on a regulated
exchange. While not all Members necessarily will have the ability to
directly benefit from the proposed fee structure for internalized
transactions, as noted above internalization is not guaranteed so IEX
believes that Members generally may indirectly benefit from an increase
in order flow that does not internalize on IEX, as has been the case on
the ATS.
With respect to orders routed to other exchanges, the proposal to
pass through fees charged by such other away trading centers for
executed shares plus charge a fee of $0.0001 payable to IEX is a
reasonable, fair and equitable, and not an unfairly discriminatory
allocation of fees because the fee is applicable to all Members in an
equivalent manner. The $0.0001 fee payable to IEX is not inconsistent
with the fees charged by other exchanges for routed orders, since many
of their routing fees are variable based on the fees and rebates
charged by such other venues.\26\ Accordingly, the IEX proposed
approach raises no new or novel issues.
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\26\ See, for example, Nasdaq Stock Market Rule 7018(a)(1).
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As described more fully below in the Exchange's statement regarding
the burden on competition, the Exchange believes that it is subject to
significant competitive forces, and that its proposed fee structure is
an appropriate effort to address such forces.
IEX also believes that not charging a fee for membership,
connectivity or market data is reasonable because it may incentivize
broker-dealers to become members of the Exchange and to therefore
direct order flow to IEX. As a new exchange, IEX will operate in a
highly competitive environment, and not charging fees for such services
and access is designed to enable it to compete effectively.
In conclusion, the Exchange also submits that its proposed fee
structure satisfies the requirements of Sections 6(b)(4) and 6(b)(5) of
the Act for the reasons discussed above in that it does not permit
unfair discrimination between customers, issuers, brokers, or dealers,
and is designed to promote just and equitable principles of trade, to
remove impediments to and perfect the mechanism of a free and open
market and a national market system. For the foregoing reasons, the
Exchange believes that its simplified fee structure is consistent with
the Act, in that it is designed to promote just and equitable
principles of trade, to remove impediments to a free and open market
and national market system and in general to protect investors and the
public interest.
Regulatory Fees
IEX believes that the proposed rule change is consistent with the
provisions of Section 6(b) \27\ of the Act in general, and furthers the
objectives of Section 6(b)(4) \28\ of the Act, in particular, in that
it provides for the equitable allocation of reasonable fees and other
charges among its members, and does not unfairly discriminate between
customers, issuers, brokers and dealers. All similarly situated Members
are subject to the same fee structure, and every Member firm must use
the CRD system for registration and disclosure.
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\27\ 15 U.S.C. 78f.
\28\ 15 U.S.C. 78f(b)(4).
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The proposed fees are reasonable because they are identical to
those adopted by FINRA for use of the CRD system for disclosure and the
registration of associated persons of FINRA members.\29\ As FINRA noted
in its filing adopting its existing fees, it believes the fees are
reasonable based on the increased costs associated with operating and
maintaining the CRD system, and listed a number of enhancements made to
the CRD system since the last fee increase, including: (1)
Incorporation of various uniform registration form changes; (2)
electronic fingerprint processing; (3) Web EFTTM, which
allows subscribing firms to submit batch filings to the CRD system; (4)
increases in the number and types of reports available through the CRD
system; and (5) significant changes to BrokerCheck, including making
BrokerCheck easier to use and expanding the amount of information made
available through the system.\30\ These increased costs are similarly
borne by FINRA when a member of IEX that is not a member of FINRA uses
the CRD system, so the fees collected for such use should mirror the
fees assessed on FINRA members, as is proposed by IEX. FINRA further
noted its belief that the proposed fees are reasonable because they
help to ensure the integrity of the information in the CRD system,
which is important because the Commission, FINRA, other self-regulatory
organizations and state securities regulators use the CRD system to
make licensing and registration decisions, among other things.\31\
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\29\ See Securities Exchange Act Release No. 67247 (June 25,
2012), 77 FR 38866 (June 29, 2012) (SR-FINRA-2012-30).
\30\ See supra, note 27 [sic], at 77 FR 38866, 38868.
\31\ See supra [sic], at 77 FR 38866, 38868.
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The Exchange also believes that the proposed fees, like FINRA's
fees, are consistent with an equitable allocation of fees because the
fees will apply equally to all individuals and members required to
report information to the CRD system. Thus, those members that register
more individuals or submit more filings through the CRD system will
generally pay more in fees than those members that use the CRD system
to a lesser extent. In addition, the proposed fees, like FINRA's fees,
are equitable and not unfairly discriminatory because they will result
in the same regulatory fees being charged to all IEX Members required
to report information to the CRD system and for services performed by
FINRA, regardless of whether or not such Member is a FINRA member.
B. Self-Regulatory Organization's Statement on Burden on Competition
Transaction Fees
IEX does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange does not believe
that the proposed rule change will impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. To the contrary, the Exchange believes that the
proposed pricing structure will increase competition and hopefully draw
additional volume to the Exchange. The Exchange will operate in a
highly competitive market in which market participants can readily
favor competing venues if fee schedules at other venues are viewed as
more favorable. As a new exchange, IEX expects to face intense
competition from existing exchanges and other non-exchange venues that
provide markets for equities trading. Consequently, the Exchange
believes that the degree to which IEX fees could impose any burden on
competition is extremely limited, and does not believe that such fees
would burden competition of Members or competing venues in a manner
that is not necessary or appropriate in furtherance of the purposes of
the Act.
[[Page 54877]]
The Exchange does not believe that the proposed rule change will
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because, while
different fees are assessed in some circumstances, these different fees
are not based on the type of Member entering the orders that match but
on the type of order entered and all Members can submit any type of
order. Further, the proposed fees are intended to encourage market
participants to bring increased volume to the Exchange, which benefits
all market participants.
Regulatory Fees
IEX does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. Specifically, the Exchange
believes that the proposed fees will result in the same regulatory fees
being charged to all Members required to report information to the CRD
system and for services performed by FINRA, regardless of whether or
not such Members are FINRA members.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \32\ and paragraph (f) of Rule 19b-4 \33\
thereunder. 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.
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\32\ 15 U.S.C. 78s(b)(3)(A).
\33\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-IEX-2016-09 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-IEX-2016-09. 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 (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-IEX-2016-09, and should be
submitted on or before September 7, 2016.
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\34\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-19581 Filed 8-16-16; 8:45 am]
BILLING CODE 8011-01-P
