Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Clarify the Eligibility of Market Orders and Limit Orders With a Time-In-Force of DAY for a Volatility Auction Occurring Outside of Regular Market Hours, 51319-51322 [2017-23928]
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Federal Register / Vol. 82, No. 212 / Friday, November 3, 2017 / Notices
and facilitating transactions in
securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
In particular, the proposed change is
a non-substantive change and does not
impact the governance, ownership or
operations of the Exchange. The
Exchange believes that by ensuring that
its parent company’s governance
documents and the Exchanges operative
documents accurately reflect the new
legal names, the proposed rule change
would reduce potential investor or
market participant confusion.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change is not intended to
address competitive issues but rather is
concerned solely with updating the
Company’s and Exchange’s governance
and operative documents to reflect the
abovementioned name change.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange neither solicited nor
received comments on the proposed
rule change.
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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 7 and paragraph (f) of Rule
19b–4 8 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. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change 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:
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[Release No. 34–81982; File No. SR–IEX–
2017–36]
• 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–
C2–2017–028 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–C2–2017–028. 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.
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–C2–2017–028 and should
be submitted on or before November 24,
2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–23925 Filed 11–2–17; 8:45 am]
BILLING CODE 8011–01–P
U.S.C. 78s(b)(3)(A).
8 17 CFR 240.19b–4(f).
7 15
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Self-Regulatory Organizations;
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Clarify the
Eligibility of Market Orders and Limit
Orders With a Time-In-Force of DAY for
a Volatility Auction Occurring Outside
of Regular Market Hours
October 30, 2017.
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 October
19, 2017, the Investors Exchange LLC
(‘‘IEX’’ or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
(a)[sic] 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 Commission a proposed
rule change to clarify the eligibility of
market orders and limit orders with a
time-in-force of DAY 6 for a Volatility
Auction 7 occurring outside of Regular
Market Hours.8 The Exchange has
designated this rule change as ‘‘noncontroversial’’ under Section 19(b)(3)(A)
of the Act 9 and provided the
Commission with the notice required by
Rule 19b–4(f)(6) thereunder.10
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.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
4 15 U.S.C. 78s(b)(1).
5 17 CRF 240.19b–4.
6 See Rule 11.190(c)(3).
7 See Rule 11.350(f).
8 See Rule 1.160(gg).
9 15 U.S.C. 78s(b)(3)(A).
10 17 CFR 240.19b–4.
2 15
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Federal Register / Vol. 82, No. 212 / Friday, November 3, 2017 / Notices
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
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The purpose of this proposed rule
change is to clarify the eligibility of
market orders and limit orders with a
time-in-force of DAY for a Volatility
Auction occurring outside of Regular
Market Hours. On August 4, 2017, the
Commission approved a proposed rule
change filed by the Exchange to adopt
rules governing auctions in IEX-listed
securities, including a Volatility
Auction process to resume trading after
a Limit Up-Limit Down trading pause in
an IEX-listed security.11 The Exchange
intends on launching a listings program
for corporate issuers in the fourth
quarter of 2017.
Pursuant to Rule 11.350(f), the
Exchange will conduct a Volatility
Auction to resume trading following a
Limit Up-Limit Down trading pause in
an IEX-listed security pursuant to IEX
Rule 11.280(e). Furthermore, pursuant
to Rule 11.350(f)(3), when an IEX-listed
security is paused pursuant to IEX Rule
11.280(e) at or after the Closing Auction
Lock-in Time,12 or the Order
Acceptance Period 13 of a Volatility
Auction for a security paused before the
Closing Auction Lock-in Time pursuant
to IEX Rule 11.280(e) would otherwise
be extended by the Exchange to a time
after the Closing Auction Lock-in Time,
no Closing Auction for the security will
occur. Instead, the Exchange will
conduct a Volatility Auction at the end
of Regular Market Hours to determine
the IEX Official Closing Price for the
security.
When the Exchange is closing with a
Volatility Auction pursuant to Rule
11 See Securities Exchange Act Release No. 81316
(August 4, 2017), 82 FR 37474 (August 10, 2017).
12 See Rule 11.350(a)(22).
13 See Rule 11.350(a)(29)(C).
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11.350(f)(3), Users may begin entering
Auction Eligible Orders at the beginning
of the Order Acceptance Period for
participation in the Volatility Auction.
Furthermore, Market-On-Close
(‘‘MOC’’) 14 and Limit-On-Close
(‘‘LOC’’) 15 orders queued for the
Closing Auction will be incorporated
into the Auction Book 16 for the
Volatility Auction. Moreover, nondisplayed interest with a time-in-force
of DAY and pegged orders are
immediately canceled, in order to allow
Users to re-enter such interest as
Auction Eligible Orders.17 In contrast to
the Closing Auction, there are no ‘‘lockin’’ or ‘‘lock-out’’ restrictions on order
entry, modification, or cancellation
leading up to the Volatility Auction.
At the end of Regular Market Hours,
the Exchange will attempt to conduct
the Volatility Closing auction using all
Auction Eligible Orders. However, if
there is a market order imbalance (i.e.,
one or more market order shares will
not be executed in the auction), or the
auction match price is outside of the
Volatility Auction Collar 18 (either
resulting in an ‘‘Impermissible
Price’’ 19), the Order Acceptance Period
is automatically extended for five
minutes, and the Volatility Auction
Collar is expanded in the direction of
the Impermissible Price.20 Similarly, if
the Indicative Clearing Price differs by
the greater of five percent (5%) or fifty
cents ($0.50) from any of the previous
fifteen (15) Indicative Clearing Price
disseminations, the Order Acceptance
period will be extended for an
additional five-minute period.21
Pursuant to Supplemental Material .03
of Rule 11.350(a), if a Volatility Auction
originally scheduled to occur during
Regular Market Hours receives an
automatic extension which causes the
auction to occur outside of Regular
Market Hours, limit orders with a timein-force of DAY, and market orders
which were submitted during the Order
Acceptance Period within Regular
Market Hours are included in the
Volatility Auction, and are only
canceled by the System after the auction
match, or if the auction is extended to
the end of Post-Market Hours.22
Rule 11.350(a)(24).
Rule 11.350(a)(20).
16 See Rule 11.350(a)(1).
17 See Rule 11.350(a)(2).
18 See Rule 11.350(a)(31).
19 See Rule 11.350(a)(17).
20 See Rule 11.350(f)(3)(B)(ii)(d). See also Rule
11.350(f)(2)(D) regarding the process for
incremental extensions of the Order Acceptance
Period.
21 See Rule 11.350(f)(3)(B)(ii)(e).
22 See Rule 1.160(aa).
Proposed Clarifications
During development and testing of the
functionality for Volatility Auctions, the
Exchange identified a minor ambiguity
in Supplemental Material .03 of Rule
11.350(a) regarding the eligibility of
market orders and limit orders with a
time-in-force of DAY when closing with
a Volatility Auction outside of Regular
Market Hours. Specifically,
Supplemental Material .03 does not
distinguish between routable and nonroutable orders. Thus, the Exchange
proposes to clarify that only nonroutable limit orders with a time-inforce of DAY, and non-routable market
orders which were submitted during the
Order Acceptance Period within Regular
Market Hours, are included in the
Volatility Auction. The Exchange’s
routing logic is one of numerous
distributed components that together
make up the Exchange’s System, but is
separate and distinct from the order
book logic that is responsible for
conducting the Volatility Auction
match; however, the Exchange did not
explicitly make this important
distinction between such processes in
the current Supplemental Material .03.
Furthermore, the interactions between
the routing logic and the order book are
optimized for continuous trading, and
the archetypal Opening, Closing, IPO,
Halt, and Volatility Auctions, but
supporting the extended expiration of
routable orders with a time-in-force of
DAY when the Exchange is closing with
a Volatility Auction that is extended
beyond Regular Market Hours requires
complex technology changes that raise
risks to the System. Accordingly, in the
interest of investor protection and the
public interest, the Exchange is
proposing to instead clarify that such
routable orders will not be included in
the Volatility Auction, and will instead
be canceled at the end of Regular Market
Hours in accordance with their standard
expiry instructions.23
The Exchange notes that Users
intending to trade in a Volatility
Auction which is extended that receive
cancelations at the end of Regular
Market Hours on routable orders with a
time-in-force of DAY when the
Exchange is closing with a Volatility
Auction that is extended beyond
14 See
15 See
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23 Notably, based on an analysis conducted by the
Exchange of trading activity year to date, there have
been only ten (10) cases where a trading pause was
in effect during the final ten (10) minutes of the
trading day, eight (8) of which occurred on fully
electronic markets causing such primary listing
market to close the security using an auction
equivalent to the IEX Volatility Auction, but in
none of the eight cases was there an extension of
such auction that pushed the auction match beyond
Regular Market Hours. Thus, the Exchange believes
this scenario to be an extremely rare edge case.
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Regular Market Hours will have a fiveminute opportunity to re-enter such
orders as Auction Eligible Orders during
the extended Order Acceptance Period.
Thus, the Exchange believes that there
will be no material adverse impact to
Users that choose to interact with IEX
Auctions using routable orders when
the Exchange is closing with a Volatility
Auction that is extended beyond
Regular Market Hours.
In addition to the proposed
clarification discussed above, the
Exchange proposes to further clarify that
only non-routable market orders entered
during the Order Acceptance Period
within Regular Market Hours are
included in the Volatility Auction when
the Exchange is closing with a Volatility
Auction that is extended beyond
Regular Market Hours. On September
26, 2017, the Commission noticed an
immediately effective Exchange rule
filing to, in part, clarify that in the event
an IEX-listed security is subject to a
trading pause, the Router Constraint
Reference Price 24 is invalid.25
Furthermore, the Exchange clarified that
pursuant to Rule 11.190(f)(2)(B), in the
absence of a valid Router Constraint
Reference Price, the Exchange will reject
any routable orders for the security.
Accordingly, consistent with Rule
11.190(f)(2)(B), the Exchange proposes
to clarify that when the Exchange is
closing with a Volatility Auction, only
non-routable market orders entered
during the Order Acceptance Period
within Regular Market Hours will be
included in the Volatility Auction,
because routable market orders will be
rejected.
Lastly, as announced in IEX Trading
Alert #2017–015, the Exchange intends
to become a primary listing exchange
and support its first IEX-listed security
in November of 2017.26 In addition, as
part of the listings initiative, the
Exchange is providing a series of
industry wide weekend tests for the
Exchange and its Members to exercise
the various technology changes required
to support IEX Auctions and listings
24 Rule 11.190(f)(2) sets forth the operation of the
IEX Router Constraint, which prevents an order
from routing at prices more aggressive than the
Router Constraint price range. The Order Collar and
Router Constraint price ranges are calculated by
applying the numerical guidelines for clearly
erroneous executions to the Order Collar Reference
Price and Router Constraint Reference Price,
respectively.
25 See Securities and Exchange Act Release No.
81662 (September 20, 2017), 82 FR 44861
(September 26, 2017) (SR–IEX–2017–31).
26 See IEX Trading Alert #2017–015 (Listings
Specifications, Testing Opportunities, and
Timelines), May 31, 2017. See also IEX Trading
Alert #2017–040 (Rescheduled 4th Listing
Functionality Industry Test), September 29, 2017.
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functionality.27 Accordingly, in order to
provide clarity to Members and other
market participants regarding the
handling of orders eligible for
participation in the Volatility Auction
when the Exchange is closing with a
Volatility Auction, and such auction is
extended past the end of Regular Market
Hours, the Exchange is proposing to
make the clarifying changes to
Supplemental Material .03 of Rule
11.350(a), as described above.
2. Statutory Basis
IEX believes that the proposed rule
change is consistent with the provisions
of Section 6(b) 28 of the Act in general,
and furthers the objectives of Section
6(b)(5) of the Act 29 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.
The Exchange believes that the
proposed rule clarification does not
alter the substantive functionality
governing the process for closing with a
Volatility Auction that is extended
beyond Regular Market Hours, but
instead clarifies the Exchanges [sic]
handling of orders during such process,
and makes the Exchanges [sic] rules
more clear and complete. The Exchange
further believes that the proposed
clarifying rule change is consistent with
the protection of investors and the
public interest because the proposed
clarifications are designed to avoid any
potential confusion regarding the
Exchange’s handling of orders when
closing with a Volatility Auction that is
extended beyond Regular Market Hours
as IEX continues industry-wide testing
to exercise the technology changes being
made by the Exchange and its Members
to support IEX as a listings market.
Additionally, the Exchange believes it is
consistent with the Act to clarify the
rule provisions governing the process
for closing with a Volatility Auction that
is extended beyond Regular Market
Hours so that IEX’s rules are accurate
and descriptive of the System’s
functionality as approved by the
27 See, e.g., IEX Trading Alert #2017–028 (First
Listings Functionality Industry Test on Saturday,
August 26), August 17, 2017; IEX Trading Alert
#2017–037 (Second Listings Functionality Industry
Test on Saturday, September 9), September 7, 2017;
IEX Trading Alert #2017–039 (Third Listings
Functionality Industry Test on Saturday, September
23), September 18, 2017; IEX Trading Alert #2017–
040 (Rescheduled 4th Listing Functionality
Industry Test), September 29, 2017.
28 15 U.S.C. 78f.
29 15 U.S.C. 78f(b)(5).
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51321
Commission, and to avoid any potential
confusion among Members and market
participants regarding such
functionality.
Lastly, as discussed above, the
Exchange believes that providing Users
the proposed clarification regarding the
Exchange’s order handling is consistent
with the protection of investors and the
public interest, because supporting the
extended expiration of routable orders
with a time-in-force of DAY when the
Exchange is closing with a Volatility
Auction that is extended beyond
Regular Market Hours requires complex
technology changes that raise potential
risks to the System. Accordingly, the
Exchange is proposing to clarify the
handling of such orders, rather than
increase the technical complexities
within the System that raise risks to
Exchange operations, Members, and
their investor clients.
The Exchange also believes that the
proposed rule change would not result
in unfair discrimination, since all
Members can enter routable or nonroutable orders. Moreover, as discussed
in the Burden on Competition section,
Users intending to trade in the Closing
Auction or the Volatility Auction that
receive cancelations will have a fiveminute opportunity to re-enter such
orders as Auction Eligible Orders during
the extended Order Acceptance Period.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
IEX does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange believes that the proposed
correction does not impact inter-market
competition in any respect since it is
designed to clarify the Exchange’s
handling of orders when closing with a
Volatility Auction that is extended
beyond Regular Market Hours, without
substantively changing the approved
Rules governing such process.
In addition, the Exchange does not
believe that the proposed changes will
have any impact on intra-market
competition. Specifically, the Exchange
believes that although routable limit
orders with a time-in-force of DAY will
be canceled at the end of Regular Market
Hours when the Exchange is closing
with a Volatility Auction that is
extended beyond Regular Market Hours,
whereas non-routable limit orders with
a time-in-force of DAY will be eligible
to participate in the Auction, Users
intending to trade in the Closing
Auction or the Volatility Auction that
receive cancelations will have a fiveminute opportunity to re-enter such
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Federal Register / Vol. 82, No. 212 / Friday, November 3, 2017 / Notices
orders as Auction Eligible Orders during
the extended Order Acceptance Period.
Similarly, the Exchange believes that
although routable market orders entered
during the Order Acceptance Period
within Regular Market Hours will be
rejected and therefore will not be
eligible to participate in the auction
when the Exchange is closing with a
Volatility Auction, whereas nonroutable market orders entered during
the Order Acceptance Period within
Regular Market Hours will be eligible to
participate in the auction, Users
intending to trade in the Volatility
Auction that are rejected upon entry
will have an opportunity to re-enter
such orders as Auction Eligible Orders
during the entire Order Acceptance
Period. Thus, the Exchange believes that
there will be no material adverse impact
on competition between Members, or to
any individual Member that chooses to
interact with IEX Auctions using
routable orders when the Exchange is
closing with a Volatility Auction that is
extended beyond Regular Market Hours.
Furthermore, the Exchange notes that
Users are free to enter both routable and
non-routable orders on the Exchange,
and therefore can optimize their
interaction with the Exchange to avoid
any unwanted cancelation.
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
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Because the proposed rule change
does not (i) significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 30 and Rule 19b–4(f)(6)
thereunder.31
30 15
U.S.C. 78s(b)(3)(A).
31 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires the Exchange to give the
Commission written notice of the Exchange’s intent
to file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
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A proposed rule change filed under
Rule 19b–4(f)(6) 32 normally does not
become operative for 30 days after the
date of filing. However, pursuant to
Rule 19b–4(f)(6)(iii),33 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
Exchange has asked the Commission to
waive the 30-day operative delay so that
the proposal may become operative
immediately upon filing. The
Commission believes that waiver of the
operative delay is consistent with the
protection of investors and the public
interest because the Exchange’s
proposal does not raise any new or
novel issues. In addition, the
Commission notes that, as described
above, Users whose routable orders are
cancelled pursuant to the proposed rule
will have an opportunity to participate
in the auction when IEX closes with a
Volatility Auction that occurs outside
Regular Market Hours by re-entering
their orders as Auction Eligible Orders
during the extended Order Acceptance
Period. Accordingly, the Commission
hereby waives the 30-day operative
delay requirement and designates the
proposed rule change as operative upon
filing.34
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) of the Act to
determine whether the proposed rule
change 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 (https://www.sec.gov/
rules/sro.shtml); or
CFR 240.19b–4(f)(6).
CFR 240.19b–4(f)(6)(iii).
34 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
IEX–2017–36 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–IEX–2017–36. This file
number should be included in 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 Section, 100 F Street NE.,
Washington, DC 20549–1090. Copies of
the filing will also be available for
inspection and copying at the IEX’s
principal office and on its Internet Web
site at www.iextrading.com. 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–2017–36 and
should be submitted on or before
November 24, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–23928 Filed 11–2–17; 8:45 am]
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[Federal Register Volume 82, Number 212 (Friday, November 3, 2017)]
[Notices]
[Pages 51319-51322]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-23928]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81982; File No. SR-IEX-2017-36]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Clarify
the Eligibility of Market Orders and Limit Orders With a Time-In-Force
of DAY for a Volatility Auction Occurring Outside of Regular Market
Hours
October 30, 2017.
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 October 19, 2017, the Investors Exchange LLC (``IEX'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I
and II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
(a)[sic] 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 Commission a proposed rule change to clarify the
eligibility of market orders and limit orders with a time-in-force of
DAY \6\ for a Volatility Auction \7\ occurring outside of Regular
Market Hours.\8\ The Exchange has designated this rule change as ``non-
controversial'' under Section 19(b)(3)(A) of the Act \9\ and provided
the Commission with the notice required by Rule 19b-4(f)(6)
thereunder.\10\
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\4\ 15 U.S.C. 78s(b)(1).
\5\ 17 CRF 240.19b-4.
\6\ See Rule 11.190(c)(3).
\7\ See Rule 11.350(f).
\8\ See Rule 1.160(gg).
\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 240.19b-4.
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The text of the proposed rule change is available at the Exchange's
Web site at www.iextrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
[[Page 51320]]
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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to clarify the
eligibility of market orders and limit orders with a time-in-force of
DAY for a Volatility Auction occurring outside of Regular Market Hours.
On August 4, 2017, the Commission approved a proposed rule change filed
by the Exchange to adopt rules governing auctions in IEX-listed
securities, including a Volatility Auction process to resume trading
after a Limit Up-Limit Down trading pause in an IEX-listed
security.\11\ The Exchange intends on launching a listings program for
corporate issuers in the fourth quarter of 2017.
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\11\ See Securities Exchange Act Release No. 81316 (August 4,
2017), 82 FR 37474 (August 10, 2017).
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Pursuant to Rule 11.350(f), the Exchange will conduct a Volatility
Auction to resume trading following a Limit Up-Limit Down trading pause
in an IEX-listed security pursuant to IEX Rule 11.280(e). Furthermore,
pursuant to Rule 11.350(f)(3), when an IEX-listed security is paused
pursuant to IEX Rule 11.280(e) at or after the Closing Auction Lock-in
Time,\12\ or the Order Acceptance Period \13\ of a Volatility Auction
for a security paused before the Closing Auction Lock-in Time pursuant
to IEX Rule 11.280(e) would otherwise be extended by the Exchange to a
time after the Closing Auction Lock-in Time, no Closing Auction for the
security will occur. Instead, the Exchange will conduct a Volatility
Auction at the end of Regular Market Hours to determine the IEX
Official Closing Price for the security.
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\12\ See Rule 11.350(a)(22).
\13\ See Rule 11.350(a)(29)(C).
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When the Exchange is closing with a Volatility Auction pursuant to
Rule 11.350(f)(3), Users may begin entering Auction Eligible Orders at
the beginning of the Order Acceptance Period for participation in the
Volatility Auction. Furthermore, Market-On-Close (``MOC'') \14\ and
Limit-On-Close (``LOC'') \15\ orders queued for the Closing Auction
will be incorporated into the Auction Book \16\ for the Volatility
Auction. Moreover, non-displayed interest with a time-in-force of DAY
and pegged orders are immediately canceled, in order to allow Users to
re-enter such interest as Auction Eligible Orders.\17\ In contrast to
the Closing Auction, there are no ``lock-in'' or ``lock-out''
restrictions on order entry, modification, or cancellation leading up
to the Volatility Auction.
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\14\ See Rule 11.350(a)(24).
\15\ See Rule 11.350(a)(20).
\16\ See Rule 11.350(a)(1).
\17\ See Rule 11.350(a)(2).
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At the end of Regular Market Hours, the Exchange will attempt to
conduct the Volatility Closing auction using all Auction Eligible
Orders. However, if there is a market order imbalance (i.e., one or
more market order shares will not be executed in the auction), or the
auction match price is outside of the Volatility Auction Collar \18\
(either resulting in an ``Impermissible Price'' \19\), the Order
Acceptance Period is automatically extended for five minutes, and the
Volatility Auction Collar is expanded in the direction of the
Impermissible Price.\20\ Similarly, if the Indicative Clearing Price
differs by the greater of five percent (5%) or fifty cents ($0.50) from
any of the previous fifteen (15) Indicative Clearing Price
disseminations, the Order Acceptance period will be extended for an
additional five-minute period.\21\ Pursuant to Supplemental Material
.03 of Rule 11.350(a), if a Volatility Auction originally scheduled to
occur during Regular Market Hours receives an automatic extension which
causes the auction to occur outside of Regular Market Hours, limit
orders with a time-in-force of DAY, and market orders which were
submitted during the Order Acceptance Period within Regular Market
Hours are included in the Volatility Auction, and are only canceled by
the System after the auction match, or if the auction is extended to
the end of Post-Market Hours.\22\
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\18\ See Rule 11.350(a)(31).
\19\ See Rule 11.350(a)(17).
\20\ See Rule 11.350(f)(3)(B)(ii)(d). See also Rule
11.350(f)(2)(D) regarding the process for incremental extensions of
the Order Acceptance Period.
\21\ See Rule 11.350(f)(3)(B)(ii)(e).
\22\ See Rule 1.160(aa).
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Proposed Clarifications
During development and testing of the functionality for Volatility
Auctions, the Exchange identified a minor ambiguity in Supplemental
Material .03 of Rule 11.350(a) regarding the eligibility of market
orders and limit orders with a time-in-force of DAY when closing with a
Volatility Auction outside of Regular Market Hours. Specifically,
Supplemental Material .03 does not distinguish between routable and
non-routable orders. Thus, the Exchange proposes to clarify that only
non-routable limit orders with a time-in-force of DAY, and non-routable
market orders which were submitted during the Order Acceptance Period
within Regular Market Hours, are included in the Volatility Auction.
The Exchange's routing logic is one of numerous distributed components
that together make up the Exchange's System, but is separate and
distinct from the order book logic that is responsible for conducting
the Volatility Auction match; however, the Exchange did not explicitly
make this important distinction between such processes in the current
Supplemental Material .03. Furthermore, the interactions between the
routing logic and the order book are optimized for continuous trading,
and the archetypal Opening, Closing, IPO, Halt, and Volatility
Auctions, but supporting the extended expiration of routable orders
with a time-in-force of DAY when the Exchange is closing with a
Volatility Auction that is extended beyond Regular Market Hours
requires complex technology changes that raise risks to the System.
Accordingly, in the interest of investor protection and the public
interest, the Exchange is proposing to instead clarify that such
routable orders will not be included in the Volatility Auction, and
will instead be canceled at the end of Regular Market Hours in
accordance with their standard expiry instructions.\23\
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\23\ Notably, based on an analysis conducted by the Exchange of
trading activity year to date, there have been only ten (10) cases
where a trading pause was in effect during the final ten (10)
minutes of the trading day, eight (8) of which occurred on fully
electronic markets causing such primary listing market to close the
security using an auction equivalent to the IEX Volatility Auction,
but in none of the eight cases was there an extension of such
auction that pushed the auction match beyond Regular Market Hours.
Thus, the Exchange believes this scenario to be an extremely rare
edge case.
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The Exchange notes that Users intending to trade in a Volatility
Auction which is extended that receive cancelations at the end of
Regular Market Hours on routable orders with a time-in-force of DAY
when the Exchange is closing with a Volatility Auction that is extended
beyond
[[Page 51321]]
Regular Market Hours will have a five-minute opportunity to re-enter
such orders as Auction Eligible Orders during the extended Order
Acceptance Period. Thus, the Exchange believes that there will be no
material adverse impact to Users that choose to interact with IEX
Auctions using routable orders when the Exchange is closing with a
Volatility Auction that is extended beyond Regular Market Hours.
In addition to the proposed clarification discussed above, the
Exchange proposes to further clarify that only non-routable market
orders entered during the Order Acceptance Period within Regular Market
Hours are included in the Volatility Auction when the Exchange is
closing with a Volatility Auction that is extended beyond Regular
Market Hours. On September 26, 2017, the Commission noticed an
immediately effective Exchange rule filing to, in part, clarify that in
the event an IEX-listed security is subject to a trading pause, the
Router Constraint Reference Price \24\ is invalid.\25\ Furthermore, the
Exchange clarified that pursuant to Rule 11.190(f)(2)(B), in the
absence of a valid Router Constraint Reference Price, the Exchange will
reject any routable orders for the security. Accordingly, consistent
with Rule 11.190(f)(2)(B), the Exchange proposes to clarify that when
the Exchange is closing with a Volatility Auction, only non-routable
market orders entered during the Order Acceptance Period within Regular
Market Hours will be included in the Volatility Auction, because
routable market orders will be rejected.
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\24\ Rule 11.190(f)(2) sets forth the operation of the IEX
Router Constraint, which prevents an order from routing at prices
more aggressive than the Router Constraint price range. The Order
Collar and Router Constraint price ranges are calculated by applying
the numerical guidelines for clearly erroneous executions to the
Order Collar Reference Price and Router Constraint Reference Price,
respectively.
\25\ See Securities and Exchange Act Release No. 81662
(September 20, 2017), 82 FR 44861 (September 26, 2017) (SR-IEX-2017-
31).
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Lastly, as announced in IEX Trading Alert #2017-015, the Exchange
intends to become a primary listing exchange and support its first IEX-
listed security in November of 2017.\26\ In addition, as part of the
listings initiative, the Exchange is providing a series of industry
wide weekend tests for the Exchange and its Members to exercise the
various technology changes required to support IEX Auctions and
listings functionality.\27\ Accordingly, in order to provide clarity to
Members and other market participants regarding the handling of orders
eligible for participation in the Volatility Auction when the Exchange
is closing with a Volatility Auction, and such auction is extended past
the end of Regular Market Hours, the Exchange is proposing to make the
clarifying changes to Supplemental Material .03 of Rule 11.350(a), as
described above.
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\26\ See IEX Trading Alert #2017-015 (Listings Specifications,
Testing Opportunities, and Timelines), May 31, 2017. See also IEX
Trading Alert #2017-040 (Rescheduled 4th Listing Functionality
Industry Test), September 29, 2017.
\27\ See, e.g., IEX Trading Alert #2017-028 (First Listings
Functionality Industry Test on Saturday, August 26), August 17,
2017; IEX Trading Alert #2017-037 (Second Listings Functionality
Industry Test on Saturday, September 9), September 7, 2017; IEX
Trading Alert #2017-039 (Third Listings Functionality Industry Test
on Saturday, September 23), September 18, 2017; IEX Trading Alert
#2017-040 (Rescheduled 4th Listing Functionality Industry Test),
September 29, 2017.
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2. Statutory Basis
IEX believes that the proposed rule change is consistent with the
provisions of Section 6(b) \28\ of the Act in general, and furthers the
objectives of Section 6(b)(5) of the Act \29\ 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.
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\28\ 15 U.S.C. 78f.
\29\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule clarification does not
alter the substantive functionality governing the process for closing
with a Volatility Auction that is extended beyond Regular Market Hours,
but instead clarifies the Exchanges [sic] handling of orders during
such process, and makes the Exchanges [sic] rules more clear and
complete. The Exchange further believes that the proposed clarifying
rule change is consistent with the protection of investors and the
public interest because the proposed clarifications are designed to
avoid any potential confusion regarding the Exchange's handling of
orders when closing with a Volatility Auction that is extended beyond
Regular Market Hours as IEX continues industry-wide testing to exercise
the technology changes being made by the Exchange and its Members to
support IEX as a listings market. Additionally, the Exchange believes
it is consistent with the Act to clarify the rule provisions governing
the process for closing with a Volatility Auction that is extended
beyond Regular Market Hours so that IEX's rules are accurate and
descriptive of the System's functionality as approved by the
Commission, and to avoid any potential confusion among Members and
market participants regarding such functionality.
Lastly, as discussed above, the Exchange believes that providing
Users the proposed clarification regarding the Exchange's order
handling is consistent with the protection of investors and the public
interest, because supporting the extended expiration of routable orders
with a time-in-force of DAY when the Exchange is closing with a
Volatility Auction that is extended beyond Regular Market Hours
requires complex technology changes that raise potential risks to the
System. Accordingly, the Exchange is proposing to clarify the handling
of such orders, rather than increase the technical complexities within
the System that raise risks to Exchange operations, Members, and their
investor clients.
The Exchange also believes that the proposed rule change would not
result in unfair discrimination, since all Members can enter routable
or non-routable orders. Moreover, as discussed in the Burden on
Competition section, Users intending to trade in the Closing Auction or
the Volatility Auction that receive cancelations will have a five-
minute opportunity to re-enter such orders as Auction Eligible Orders
during the extended Order Acceptance Period.
B. Self-Regulatory Organization's Statement on Burden on Competition
IEX does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange believes that the
proposed correction does not impact inter-market competition in any
respect since it is designed to clarify the Exchange's handling of
orders when closing with a Volatility Auction that is extended beyond
Regular Market Hours, without substantively changing the approved Rules
governing such process.
In addition, the Exchange does not believe that the proposed
changes will have any impact on intra-market competition. Specifically,
the Exchange believes that although routable limit orders with a time-
in-force of DAY will be canceled at the end of Regular Market Hours
when the Exchange is closing with a Volatility Auction that is extended
beyond Regular Market Hours, whereas non-routable limit orders with a
time-in-force of DAY will be eligible to participate in the Auction,
Users intending to trade in the Closing Auction or the Volatility
Auction that receive cancelations will have a five-minute opportunity
to re-enter such
[[Page 51322]]
orders as Auction Eligible Orders during the extended Order Acceptance
Period.
Similarly, the Exchange believes that although routable market
orders entered during the Order Acceptance Period within Regular Market
Hours will be rejected and therefore will not be eligible to
participate in the auction when the Exchange is closing with a
Volatility Auction, whereas non-routable market orders entered during
the Order Acceptance Period within Regular Market Hours will be
eligible to participate in the auction, Users intending to trade in the
Volatility Auction that are rejected upon entry will have an
opportunity to re-enter such orders as Auction Eligible Orders during
the entire Order Acceptance Period. Thus, the Exchange believes that
there will be no material adverse impact on competition between
Members, or to any individual Member that chooses to interact with IEX
Auctions using routable orders when the Exchange is closing with a
Volatility Auction that is extended beyond Regular Market Hours.
Furthermore, the Exchange notes that Users are free to enter both
routable and non-routable orders on the Exchange, and therefore can
optimize their interaction with the Exchange to avoid any unwanted
cancelation.
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 proposed rule change does not (i) significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate if consistent with the protection of investors
and the public interest, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \30\ and Rule 19b-4(f)(6)
thereunder.\31\
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\30\ 15 U.S.C. 78s(b)(3)(A).
\31\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \32\ normally
does not become operative for 30 days after the date of filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\33\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Commission believes
that waiver of the operative delay is consistent with the protection of
investors and the public interest because the Exchange's proposal does
not raise any new or novel issues. In addition, the Commission notes
that, as described above, Users whose routable orders are cancelled
pursuant to the proposed rule will have an opportunity to participate
in the auction when IEX closes with a Volatility Auction that occurs
outside Regular Market Hours by re-entering their orders as Auction
Eligible Orders during the extended Order Acceptance Period.
Accordingly, the Commission hereby waives the 30-day operative delay
requirement and designates the proposed rule change as operative upon
filing.\34\
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\32\ 17 CFR 240.19b-4(f)(6).
\33\ 17 CFR 240.19b-4(f)(6)(iii).
\34\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) of the Act to determine whether the proposed rule
change 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-IEX-2017-36 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-IEX-2017-36. This file
number should be included in 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 Section, 100 F Street
NE., Washington, DC 20549-1090. Copies of the filing will also be
available for inspection and copying at the IEX's principal office and
on its Internet Web site at www.iextrading.com. 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-2017-36 and should be submitted on
or before November 24, 2017.
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\35\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-23928 Filed 11-2-17; 8:45 am]
BILLING CODE 8011-01-P
