Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to the Optional IEX Aggregate Risk Controls Mechanism, 1087-1090 [2018-00157]
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Federal Register / Vol. 83, No. 6 / Tuesday, January 9, 2018 / Notices
II. Rule 601(a)
A. Equity Securities for Which
Transaction Reports Shall Be Required
by the Plan
Not applicable.
B. Reporting Requirements
Not applicable.
C. Manner of Collecting, Processing,
Sequencing, Making Available and
Disseminating Last Sale Information
Not applicable.
D. Manner of Consolidation
Not applicable.
E. Standards and Methods Ensuring
Promptness, Accuracy and
Completeness of Transaction Reports
Not applicable.
F. Rules and Procedures Addressed to
Fraudulent or Manipulative
Dissemination
Not applicable.
G. Terms of Access to Transaction
Reports
Not applicable.
H. Identification of Marketplace of
Execution
Not applicable.
III. Solicitation of Comments
The Commission seeks comment on
the Amendment. In particular, the
Commission seeks comment on, among
other things: (1) Whether the effect on
revenue would be neutral as represented
by the Participants given that there will
be an increase in the professional
subscriber device fee; and (2) whether
the process subscribers must follow and
the requirements that subscribers must
comply with to take advantage of the
MISU Program, are transparent,
objective, and subject to fair and nondiscriminatory application. Interested
persons are invited to submit written
data, views, and arguments concerning
the foregoing, including whether the
proposed Amendment is consistent with
the Act. Comments may be submitted by
any of the following methods:
sradovich on DSK3GMQ082PROD with NOTICES
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 S7–
24–89 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
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and Exchange Commission, 100 F Street
NE, Washington, DC 20549–1090.
All submissions should refer to File
Number File No. S7–24–89. 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
website (https://www.sec.gov/rules/
sro.shtml). Copies of the submission, all
written statements with respect to the
proposed Amendment that are filed
with the Commission, and all written
communications relating to the
proposed Amendment between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room on official business
days between the hours of 10:00 a.m.
and 3:00 p.m. Copies of the Amendment
also will be available for website
viewing and printing at the principal
office of the Plan. 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 S7–24–89 and should be
submitted on or before January 30, 2018.
By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2018–00168 Filed 1–8–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82435; File No. SR–IEX–
2017–44]
Self-Regulatory Organizations;
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Related to the
Optional IEX Aggregate Risk Controls
Mechanism
January 3, 2018.
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 December
22, 2017, the Investors Exchange LLC
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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1087
(‘‘IEX’’ 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 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
Commission a proposed rule change to
amend Rule 11.380 to clarify that the
optional IEX Aggregate Risk Controls
(‘‘ARC’’) mechanism will not cancel
certain orders eligible for execution in
the Opening or Closing Auction after the
applicable Lock-in Time and before the
Opening or Closing Auction match,
respectively.6 The Exchange has
designated this rule change as noncontroversial under Section 19(b)(3)(A)
of the Act 7 and provided the
Commission with the notice required by
Rule 19b–4(f)(6)(iii) thereunder.8 The
text of the proposed rule change is
available at the Exchange’s website at
www.iextrading.com, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of
and basis for the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of these statement may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this proposed rule
change is to amend Rule 11.380 (Risk
4 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
6 See Rules 11.350(c) and (d), governing the IEX
Opening and Closing Auction, respectively.
7 15 U.S.C. 78s(b)(3)(A).
8 17 CFR 240.19b–4(f)(6)(iii).
5 17
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Management) to account for Opening
and Closing Auctions in IEX-listed
securities pursuant to Rule 11.350(c)
and (d), respectively. Rule 11.380,
entitled Risk Management, describes the
optional ARC mechanism that is
designed to assist IEX Members 9 and
clearing firms 10 in their risk
management efforts. IEX does not charge
a fee for use of ARC. ARC can be
configured to provide trading limits
based on the gross notional exposure for
matched and routed trades for a Member
or clearing firm’s broker correspondent
across MPIDs, by MPID, by FIX session
or in combination, per clearing firm
relationship or Member, as applicable.11
Currently, once the gross notional
exposure, as elected and configured by
the Member or clearing firm, has
exceeded the pre-determined limit, IEX
will reject new orders and cancel all
open orders for the applicable MPID(s)
and/or FIX session specified. As
specified in paragraph (a)(2)(A) of Rule
11.380, gross notional exposure is
calculated as the absolute sum of the
notional value of all buy and sell trades:
equal to the value of executed buys plus
the absolute value of executed long sells
plus the absolute value of executed
short sells. There is no netting of buys
and sales in the same symbol or across
symbols. Gross notional exposure resets
for each new trading day.
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 Opening and
Closing Auction processes that establish
IEX Official Opening and Closing Prices
for each trading day.12
Pursuant to Rule 11.350(c)(1), the
Exchange allows Users to submit orders
eligible for execution in the Opening
Auction at the beginning of the PreMarket Session,13 which begins at 8:00
a.m.14 Any orders designated for the
Opening Auction Book are queued until
9 See
Rule 11.160(s).
described in Rule 11.250(a), a clearing firm
is an IEX Member that is a member of a registered
clearing agency. Pursuant to IEX Rule 2.160(c)(4) an
IEX Member must be a member of a registered
clearing agency or clear transactions executed on
the Exchange through another Member that is a
member of a registered clearing agency.
11 In the case of a Member that is subject to ARC
limits set by its clearing firm, the Member will be
advised of such limits by IEX. In the event a
Member that is subject to ARC limits set by its
clearing firm also elects to set ARC limits for its
own trading, the Exchange will apply both such
limits with a lower limit(s) being applicable.
12 See Securities Exchange Act Release No. 81316
(August 4, 2017), 82 FR 37474 (August 10, 2017)
(SR–IEX–2017–10). See also Rules 11.350(a)(12)
and (10), respectively.
13 See Rule 1.160(z).
14 All times are in Eastern Time.
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10 As
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9:30 a.m. at which time they will be
eligible to be executed in the Opening
Auction. Pursuant to Rule
11.350(a)(1)(A), orders on the Opening
Auction Book would include MOO
orders,15 LOO orders,16 market orders
with a time-in-force of DAY,17 and limit
orders with a time-in-force of DAY or
GTX.18 In addition to orders on the
Opening Auction Book, limit orders on
the Continuous Book 19 with a time-inforce of SYS or GTT are eligible to
execute in the Opening Auction (‘‘Premarket Continuous Book’’).20
Pursuant to Rule 11.350(c)(1)(B),
beginning at the Opening Auction Lockin Time 21 (i.e., 9:28 a.m.), the Opening
Auction will be subject to certain ‘‘lockin’’ and ‘‘lock-out’’ restrictions.
Specifically, Users may enter, cancel, or
modify Auction Eligible Orders until the
Opening Auction Lock-in Time, at
which time orders on the Opening
Auction Book can no longer be canceled
or modified before the Opening Auction
match. After the Opening Auction Lockin Time, the Exchange will begin to
reject Hyper-aggressive Auction Orders
upon entry. Pursuant to Rule
11.350(a)(8), Hyper-aggressive Auction
Orders include market and MOO orders,
as well as LOO and limit orders with a
time in-force of DAY or GTX with a
limit price more aggressive than the
latest Opening/Closing Auction Collar 22
calculated by the System (i.e., buy (sell)
orders priced above (below) the latest
upper (lower) threshold of the Opening/
Closing Auction Collar calculated by the
System). However, LOO orders and
limit orders with a time-in-force of DAY
or GTX will continue to be accepted
until the Opening Auction Lock-out
Time 23 (i.e., 9:29:50 a.m., ten (10)
seconds prior to the Opening Auction
match) so long as they are not Hyperaggressive Auction Orders. Restricting
orders on the Opening Auction Book
from cancelation or modification (i.e.,
locking them in) and rejecting HyperAggressive Auction Orders, while still
allowing Users to enter reasonably
priced LOO and limit orders with a time
in-force of DAY or GTX is designed to
allow Users to continue to express
interest for the auction and offset
imbalances via orders designated for the
Auction Book in the minutes leading up
to the auction match, while minimizing
15 See
Rule 11.350(a)(25).
Rule 11.350(a)(21).
17 See Rule 11.190(a)(2)(E)(iii).
18 See Rule 11.190(a)(1)(E)(iii) and (v).
19 See Rule 11.350(a)(4).
20 See Rule 11.190(a)(1)(E)(iv) and (vi).
21 See Rule 11.350(a)(22).
22 See Rule 11.350(a)(27).
23 See Rule 11.350(a)(23).
16 See
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the increase of imbalances or large price
swings resulting from the cancellation
of auction eligible orders or the entry of
aggressively priced orders to the
Auction Book during the last two
minutes of the auction process.
Similarly, pursuant to Rule
11.350(d)(1), the Exchange allows Users
to submit orders eligible for execution
in the Closing Auction at the beginning
of the Pre-Market Session, which begins
at 8:00 a.m. Any orders designated for
the Closing Auction Book are queued
until 4:00 p.m. (or such earlier time as
the Regular Market Session 24 ends on
days that IEX is subject to an early
closing) at which time they will be
eligible to be executed in the Closing
Auction. Pursuant to Rule
11.350(a)(1)(B), orders on the Closing
Auction Book would include MOC
orders 25 and LOC orders.26 In addition
to orders on the Closing Auction Book,
all limit and pegged orders resting on
the Continuous Book 27 with a time-inforce of DAY, GTX, GTT, or SYS are
eligible for execution in the Closing
Auction, (‘‘Regular-Market Continuous
Book’’).28
Pursuant to Rule 11.350(d)(1)(B),
beginning at the Closing Auction Lockin Time 29 (i.e., 3:50 p.m., or 10 minutes
prior to the end of the Regular Market
Session on days that IEX is subject to an
early closing), the Closing Auction will
be subject to certain ‘‘lock-in’’ and
‘‘lock-out’’ restrictions. Specifically,
Users may enter, cancel, or modify
Auction Eligible Orders until the
Closing Auction Lock-in Time, at which
time orders on the Closing Auction
Book can no longer be canceled or
modified, except that between the
Closing Auction Lock-in Time and five
minutes before the Closing Auction
match (e.g., 3:55 p.m.), LOC and MOC
orders can be canceled only if the
participant requests that IEX correct a
legitimate error in the order (e.g., side,
size, symbol, price, or duplication of an
order). LOC and MOC orders cannot be
canceled or modified at or after five
minutes before the Closing Auction
match (e.g., 3:55 p.m.) for any reason.
After the Closing Auction Lock-in Time,
the Exchange will begin to reject Hyperaggressive Auction Orders upon entry.
24 See
Rule 1.160(gg).
Rule 11.350(a)(24).
26 See Rule 11.350(a)(20).
27 See Rule 11.350(a)(4).
28 The following types of orders are not eligible
for execution in the Closing Auction: Market orders
(except MOC orders) and orders with a time-inforce of IOC or FOK, because Market orders entered
during the Regular Market Session and orders
marked IOC or FOK do not rest on the Continuous
Book, and therefore are not eligible for the Closing
Auction.
29 See Rule 11.350(a)(22).
25 See
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Pursuant to Rule 11.350(a)(8)(B), Hyperaggressive Auction Orders include MOC
orders, and LOC orders with a limit
price more aggressive than the latest
Opening/Closing Auction Collar
calculated by the System (i.e., buy
orders priced above the latest upper
auction collar threshold and sell orders
priced below the latest lower auction
collar threshold calculated by the
System). However, LOC orders will
continue to be accepted until the
Closing Auction Lock-out Time 30 (i.e.,
3:59:50 p.m., ten (10) seconds prior to
the Closing Auction match) so long as
they are not Hyper-aggressive Auction
Orders. As with the Opening Auction,
restricting orders on the Closing
Auction Book from cancelation or
modification (i.e., locking them in) and
rejecting Hyper-Aggressive Auction
Orders, while still allowing Users to
enter reasonably priced LOC orders is
designed to allow Users to continue to
express interest for the auction and
offset imbalances via orders designated
for the Auction Book in the minutes
leading up to the auction match, while
minimizing the increase of imbalances
or large price swings resulting from
aggressively priced orders in the
Auction Book during the last ten
minutes of the auction process.
IEX proposes to amend Rule 11.380 to
clarify that the ARC mechanism will not
cancel orders eligible for execution in
the Opening or Closing Auction after the
applicable Lock-in Time and before the
match. Specifically, the Exchange
propose to add paragraph (3) to Rule
11.380(a), to provide that,
notwithstanding subparagraphs (1) and
(2) regarding ARC, after the Opening
(Closing) Auction Lock-in Time and
before the Opening (Closing) Auction
match, if a Member exceeds its predetermined ARC limit as configured by
the Member or their clearing firm, IEX
will not cancel such Member’s orders if
they are on the Opening (Closing)
Auction Book (‘‘Locked-in Orders’’).31
Any unexecuted portion of Locked-in
Orders will be canceled immediately
after the Opening or Closing Auction
match.32 The proposed rule change is
30 See
Rule 11.350(a)(23).
Exchange notes that if a Member’s ARC
limit is breached after the Opening Auction LockIn Time, any MOC or LOC orders on the Closing
Auction Book will be canceled, along with all Premarket Continuous Book orders.
32 The Exchange notes the proposed change is not
applicable to IPO, Halt, or Volatility Auctions,
because their respective auction processes do not
have ‘‘Lock-in’’ or ‘‘Lock-out’’ provisions, and
instead include automatic extensions to allow price
discovery to continue when there is a market order
imbalance, or a security experiences price volatility
leading into the auction match. See Rules 11.350(e)
and (f).
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31 The
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designed to ensure fair and orderly
execution of the Opening and Closing
Auctions, consistent with fair and
orderly markets, the protection of
investors, and the public interest.
Specifically, the Exchange believes that
to the extent a Member has breached its
pre-determined gross notional exposure
limit after the Lock-in Time for the
Opening or Closing Auction, and such
Member has Locked-in Orders on the
Opening or Closing Auction Book
(which, as discussed above, are not
eligible for modification or cancelation
pursuant to Rules 11.350(c) and (d),
respectively), ARC’s cancelation of such
interest could significantly disrupt the
price discovery process by generating or
exacerbating an order imbalance, or
causing large price swings in the
minutes leading into the auction match.
As described above, IEX rules
explicitly provide that orders eligible for
execution in the Opening or Closing
Auction may not be modified or
cancelled after the applicable Lock-in
Time and before the auction match. In
order to avoid any confusion as to how
the ARC mechanism would operate in
the event that a Member exceeds its predetermined ARC limit (as configured by
the Member or its clearing firm) after the
Opening or Closing Lock-in Time and
before the match, the Exchange believes
that it is appropriate to amend Rule
11.380(a) to clarify that the ARC
mechanism will not cancel such orders.
The Exchange believes that the
Opening and Closing Auctions will
provide a critical price discovery
mechanism that establishes IEX Official
Opening and Closing Prices for IEXlisted securities, and allows market
participants to move in and out of
sizable positions during a single
centralized liquidity event. The
Exchange also notes that the official
closing price of all securities is
generally the data point most closely
scrutinized by investors, securities
analysts, and the financial media, and is
used to value and assess management
fees on mutual funds, hedge funds, and
individual investor portfolios.
Accordingly, the Exchange believes that
Opening and Closing Auctions should
not be disrupted by momentary price
dislocations or the creation or
exacerbation of large imbalances that
can be caused by the cancelation of
Locked-in Orders, and should instead
reflect all available trading interest in a
stable and transparent manner.
The Exchange also believes that ARC,
as described above, provides a useful
risk management tool for Members and
clearing firms. However, the Exchange
notes that use of ARC by a Member does
not automatically constitute compliance
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1089
with IEX rules or SEC rules, nor does it
replace Member-managed risk
management solutions. The Exchange
does not require Members to use ARC,
and Members may use any other
appropriate risk-management tool or
service instead of, or in combination
with, ARC. Furthermore, the Exchange
believes that Members should be aware
of their auction order flow, and clearing
firms should be aware of the auction
order flow of their broker
correspondents, in order to
appropriately manage their risk limits to
account for the fact that Locked-In
Orders cannot be canceled after the
Lock-in Time. Thus, the proposed rule
change is designed to balance the utility
of the optional ARC functionality that is
voluntarily offered by the Exchange free
of charge, and the interests of fair and
orderly markets, the protection of
investors, and the public interest.
Accordingly, the Exchange believes the
proposed rule change strikes an
appropriate balance between these two
goals by continuing to allow Members
and clearing firms to utilize ARC to
assist with risk management, while
protecting the Opening and Closing
Auctions from undue price dislocation
or the creation or exacerbation of large
imbalances by preventing Locked-in
Orders from being canceled after the
Lock-in Time.
2. Statutory Basis
IEX believes that the proposed rule
change is consistent with the provisions
of Sections 6(b) 33 of the Act in general,
and furthers the objectives of Section
6(b)(5) 34 of the Act, in particular, in that
it is designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Specifically, the Exchange believes
that the proposed rule change supports
these objectives in that it is designed to
ensure fair and orderly execution of the
Opening and Closing Auctions, as
described in the Purpose section, by
minimizing the creation or exacerbation
of large imbalances and the resultant
auction price dislocations that can be
caused by the cancelation of Locked-in
Orders after the Lock-in Time and
before the Opening or Closing Auction
match. As discussed in the Purpose
section, while ARC provides a useful
risk management tool for Members and
clearing firms, the proposed rule change
33 15
34 15
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U.S.C. 78f(b)(5).
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Federal Register / Vol. 83, No. 6 / Tuesday, January 9, 2018 / Notices
is designed to balance the utility of the
optional ARC functionality that is
voluntarily offered by the Exchange free
of charge, and the interests of fair and
orderly markets, the protection of
investors, and the public interest. The
Exchange believes the proposed rule
change strikes an appropriate balance
between these two goals by continuing
to allow Members and clearing firms to
utilize ARC to assist with risk
management, while protecting the
Opening and Closing Auctions from
undue price dislocation or the creation
or exacerbation of large imbalances by
preventing Locked-in Orders from being
canceled after the Lock-in Time and
before the Opening or Closing Auction
match.
Furthermore, the Exchange believes
the proposed rule change is consistent
with the protection of investors and the
public interest because it will provide
enhanced clarity on the operation of the
ARC mechanism with respect to orders
eligible for execution in the Opening or
Closing Auction after the Lock-in Time
and before the auction match, thereby
eliminating any potential confusion in
this regard.
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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. To the
contrary, the Exchange believes that the
proposed rule change will increase
intermarket competition because it is
designed to protect the Exchange’s
Opening and Closing Auctions thereby
enhancing its ability to compete in the
market for corporate listings.
The Exchange also does not believe
that the proposal will impose an
intramarket burden on competition
because, notwithstanding the limited
proposed exception for Locked-in
Orders, ARC remains available to all
Members on a fair and equal basis, and
the Exchange continues to provide a
mechanism to enable Members to
manage their risk by preventing trading
that is erroneous or exceeds a Member’s
financial resources, thereby contributing
to the stability of the equities markets.
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.
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has designated this rule
filing as non-controversial under
Section 19(b)(3)(A) 35 of the Act and
Rule 19b–4(f)(6) 36 thereunder. 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, it has
become effective pursuant to Section
19(b)(3)(A) of the Act and Rule 19b–
4(f)(6) 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 shall institute proceedings
under Section 19(b)(2)(B)37 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–2017–44 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–2017–44. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
35 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
37 15 U.S.C. 78s(b)(2)(B).
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of this
filing will also be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–IEX–2017–44 and should
be submitted on or before January 30,
2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.38
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–00157 Filed 1–8–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
32961; 812–14806]
Northern Lights Fund Trust and
AlphaCore Capital, LLC
January 3, 2018.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
AGENCY:
Notice of an application under section
6(c) of the Investment Company Act of
1940 (‘‘Act’’) for an exemption from
section 15(a) of the Act and rule 18f–2
under the Act, as well as from certain
disclosure requirements in rule 20a–1
under the Act, Item 19(a)(3) of Form
N–1A, Items 22(c)(1)(ii), 22(c)(1)(iii),
22(c)(8) and 22(c)(9) of Schedule 14A
under the Securities Exchange Act of
1934, and sections 6–07(2)(a), (b), and
(c) of Regulation S–X (‘‘Disclosure
Requirements’’). The requested
36 17
PO 00000
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Fmt 4703
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E:\FR\FM\09JAN1.SGM
CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 83, Number 6 (Tuesday, January 9, 2018)]
[Notices]
[Pages 1087-1090]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00157]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82435; File No. SR-IEX-2017-44]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Related to
the Optional IEX Aggregate Risk Controls Mechanism
January 3, 2018.
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 December 22, 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,
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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of Section 19(b)(1) under the 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 amend Rule 11.380 to clarify that
the optional IEX Aggregate Risk Controls (``ARC'') mechanism will not
cancel certain orders eligible for execution in the Opening or Closing
Auction after the applicable Lock-in Time and before the Opening or
Closing Auction match, respectively.\6\ The Exchange has designated
this rule change as non-controversial under Section 19(b)(3)(A) of the
Act \7\ and provided the Commission with the notice required by Rule
19b-4(f)(6)(iii) thereunder.\8\ The text of the proposed rule change is
available at the Exchange's website at www.iextrading.com, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
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\4\ 15 U.S.C. 78s(b)(1).
\5\ 17 CFR 240.19b-4.
\6\ See Rules 11.350(c) and (d), governing the IEX Opening and
Closing Auction, respectively.
\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4(f)(6)(iii).
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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 may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this proposed rule change is to amend Rule 11.380
(Risk
[[Page 1088]]
Management) to account for Opening and Closing Auctions in IEX-listed
securities pursuant to Rule 11.350(c) and (d), respectively. Rule
11.380, entitled Risk Management, describes the optional ARC mechanism
that is designed to assist IEX Members \9\ and clearing firms \10\ in
their risk management efforts. IEX does not charge a fee for use of
ARC. ARC can be configured to provide trading limits based on the gross
notional exposure for matched and routed trades for a Member or
clearing firm's broker correspondent across MPIDs, by MPID, by FIX
session or in combination, per clearing firm relationship or Member, as
applicable.\11\ Currently, once the gross notional exposure, as elected
and configured by the Member or clearing firm, has exceeded the pre-
determined limit, IEX will reject new orders and cancel all open orders
for the applicable MPID(s) and/or FIX session specified. As specified
in paragraph (a)(2)(A) of Rule 11.380, gross notional exposure is
calculated as the absolute sum of the notional value of all buy and
sell trades: equal to the value of executed buys plus the absolute
value of executed long sells plus the absolute value of executed short
sells. There is no netting of buys and sales in the same symbol or
across symbols. Gross notional exposure resets for each new trading
day.
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\9\ See Rule 11.160(s).
\10\ As described in Rule 11.250(a), a clearing firm is an IEX
Member that is a member of a registered clearing agency. Pursuant to
IEX Rule 2.160(c)(4) an IEX Member must be a member of a registered
clearing agency or clear transactions executed on the Exchange
through another Member that is a member of a registered clearing
agency.
\11\ In the case of a Member that is subject to ARC limits set
by its clearing firm, the Member will be advised of such limits by
IEX. In the event a Member that is subject to ARC limits set by its
clearing firm also elects to set ARC limits for its own trading, the
Exchange will apply both such limits with a lower limit(s) being
applicable.
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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 Opening and Closing Auction processes that
establish IEX Official Opening and Closing Prices for each trading
day.\12\
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\12\ See Securities Exchange Act Release No. 81316 (August 4,
2017), 82 FR 37474 (August 10, 2017) (SR-IEX-2017-10). See also
Rules 11.350(a)(12) and (10), respectively.
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Pursuant to Rule 11.350(c)(1), the Exchange allows Users to submit
orders eligible for execution in the Opening Auction at the beginning
of the Pre-Market Session,\13\ which begins at 8:00 a.m.\14\ Any orders
designated for the Opening Auction Book are queued until 9:30 a.m. at
which time they will be eligible to be executed in the Opening Auction.
Pursuant to Rule 11.350(a)(1)(A), orders on the Opening Auction Book
would include MOO orders,\15\ LOO orders,\16\ market orders with a
time-in-force of DAY,\17\ and limit orders with a time-in-force of DAY
or GTX.\18\ In addition to orders on the Opening Auction Book, limit
orders on the Continuous Book \19\ with a time-in-force of SYS or GTT
are eligible to execute in the Opening Auction (``Pre-market Continuous
Book'').\20\
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\13\ See Rule 1.160(z).
\14\ All times are in Eastern Time.
\15\ See Rule 11.350(a)(25).
\16\ See Rule 11.350(a)(21).
\17\ See Rule 11.190(a)(2)(E)(iii).
\18\ See Rule 11.190(a)(1)(E)(iii) and (v).
\19\ See Rule 11.350(a)(4).
\20\ See Rule 11.190(a)(1)(E)(iv) and (vi).
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Pursuant to Rule 11.350(c)(1)(B), beginning at the Opening Auction
Lock-in Time \21\ (i.e., 9:28 a.m.), the Opening Auction will be
subject to certain ``lock-in'' and ``lock-out'' restrictions.
Specifically, Users may enter, cancel, or modify Auction Eligible
Orders until the Opening Auction Lock-in Time, at which time orders on
the Opening Auction Book can no longer be canceled or modified before
the Opening Auction match. After the Opening Auction Lock-in Time, the
Exchange will begin to reject Hyper-aggressive Auction Orders upon
entry. Pursuant to Rule 11.350(a)(8), Hyper-aggressive Auction Orders
include market and MOO orders, as well as LOO and limit orders with a
time in-force of DAY or GTX with a limit price more aggressive than the
latest Opening/Closing Auction Collar \22\ calculated by the System
(i.e., buy (sell) orders priced above (below) the latest upper (lower)
threshold of the Opening/Closing Auction Collar calculated by the
System). However, LOO orders and limit orders with a time-in-force of
DAY or GTX will continue to be accepted until the Opening Auction Lock-
out Time \23\ (i.e., 9:29:50 a.m., ten (10) seconds prior to the
Opening Auction match) so long as they are not Hyper-aggressive Auction
Orders. Restricting orders on the Opening Auction Book from cancelation
or modification (i.e., locking them in) and rejecting Hyper-Aggressive
Auction Orders, while still allowing Users to enter reasonably priced
LOO and limit orders with a time in-force of DAY or GTX is designed to
allow Users to continue to express interest for the auction and offset
imbalances via orders designated for the Auction Book in the minutes
leading up to the auction match, while minimizing the increase of
imbalances or large price swings resulting from the cancellation of
auction eligible orders or the entry of aggressively priced orders to
the Auction Book during the last two minutes of the auction process.
---------------------------------------------------------------------------
\21\ See Rule 11.350(a)(22).
\22\ See Rule 11.350(a)(27).
\23\ See Rule 11.350(a)(23).
---------------------------------------------------------------------------
Similarly, pursuant to Rule 11.350(d)(1), the Exchange allows Users
to submit orders eligible for execution in the Closing Auction at the
beginning of the Pre-Market Session, which begins at 8:00 a.m. Any
orders designated for the Closing Auction Book are queued until 4:00
p.m. (or such earlier time as the Regular Market Session \24\ ends on
days that IEX is subject to an early closing) at which time they will
be eligible to be executed in the Closing Auction. Pursuant to Rule
11.350(a)(1)(B), orders on the Closing Auction Book would include MOC
orders \25\ and LOC orders.\26\ In addition to orders on the Closing
Auction Book, all limit and pegged orders resting on the Continuous
Book \27\ with a time-in-force of DAY, GTX, GTT, or SYS are eligible
for execution in the Closing Auction, (``Regular-Market Continuous
Book'').\28\
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\24\ See Rule 1.160(gg).
\25\ See Rule 11.350(a)(24).
\26\ See Rule 11.350(a)(20).
\27\ See Rule 11.350(a)(4).
\28\ The following types of orders are not eligible for
execution in the Closing Auction: Market orders (except MOC orders)
and orders with a time-in-force of IOC or FOK, because Market orders
entered during the Regular Market Session and orders marked IOC or
FOK do not rest on the Continuous Book, and therefore are not
eligible for the Closing Auction.
---------------------------------------------------------------------------
Pursuant to Rule 11.350(d)(1)(B), beginning at the Closing Auction
Lock-in Time \29\ (i.e., 3:50 p.m., or 10 minutes prior to the end of
the Regular Market Session on days that IEX is subject to an early
closing), the Closing Auction will be subject to certain ``lock-in''
and ``lock-out'' restrictions. Specifically, Users may enter, cancel,
or modify Auction Eligible Orders until the Closing Auction Lock-in
Time, at which time orders on the Closing Auction Book can no longer be
canceled or modified, except that between the Closing Auction Lock-in
Time and five minutes before the Closing Auction match (e.g., 3:55
p.m.), LOC and MOC orders can be canceled only if the participant
requests that IEX correct a legitimate error in the order (e.g., side,
size, symbol, price, or duplication of an order). LOC and MOC orders
cannot be canceled or modified at or after five minutes before the
Closing Auction match (e.g., 3:55 p.m.) for any reason. After the
Closing Auction Lock-in Time, the Exchange will begin to reject Hyper-
aggressive Auction Orders upon entry.
[[Page 1089]]
Pursuant to Rule 11.350(a)(8)(B), Hyper-aggressive Auction Orders
include MOC orders, and LOC orders with a limit price more aggressive
than the latest Opening/Closing Auction Collar calculated by the System
(i.e., buy orders priced above the latest upper auction collar
threshold and sell orders priced below the latest lower auction collar
threshold calculated by the System). However, LOC orders will continue
to be accepted until the Closing Auction Lock-out Time \30\ (i.e.,
3:59:50 p.m., ten (10) seconds prior to the Closing Auction match) so
long as they are not Hyper-aggressive Auction Orders. As with the
Opening Auction, restricting orders on the Closing Auction Book from
cancelation or modification (i.e., locking them in) and rejecting
Hyper-Aggressive Auction Orders, while still allowing Users to enter
reasonably priced LOC orders is designed to allow Users to continue to
express interest for the auction and offset imbalances via orders
designated for the Auction Book in the minutes leading up to the
auction match, while minimizing the increase of imbalances or large
price swings resulting from aggressively priced orders in the Auction
Book during the last ten minutes of the auction process.
---------------------------------------------------------------------------
\29\ See Rule 11.350(a)(22).
\30\ See Rule 11.350(a)(23).
---------------------------------------------------------------------------
IEX proposes to amend Rule 11.380 to clarify that the ARC mechanism
will not cancel orders eligible for execution in the Opening or Closing
Auction after the applicable Lock-in Time and before the match.
Specifically, the Exchange propose to add paragraph (3) to Rule
11.380(a), to provide that, notwithstanding subparagraphs (1) and (2)
regarding ARC, after the Opening (Closing) Auction Lock-in Time and
before the Opening (Closing) Auction match, if a Member exceeds its
pre-determined ARC limit as configured by the Member or their clearing
firm, IEX will not cancel such Member's orders if they are on the
Opening (Closing) Auction Book (``Locked-in Orders'').\31\ Any
unexecuted portion of Locked-in Orders will be canceled immediately
after the Opening or Closing Auction match.\32\ The proposed rule
change is designed to ensure fair and orderly execution of the Opening
and Closing Auctions, consistent with fair and orderly markets, the
protection of investors, and the public interest. Specifically, the
Exchange believes that to the extent a Member has breached its pre-
determined gross notional exposure limit after the Lock-in Time for the
Opening or Closing Auction, and such Member has Locked-in Orders on the
Opening or Closing Auction Book (which, as discussed above, are not
eligible for modification or cancelation pursuant to Rules 11.350(c)
and (d), respectively), ARC's cancelation of such interest could
significantly disrupt the price discovery process by generating or
exacerbating an order imbalance, or causing large price swings in the
minutes leading into the auction match.
---------------------------------------------------------------------------
\31\ The Exchange notes that if a Member's ARC limit is breached
after the Opening Auction Lock-In Time, any MOC or LOC orders on the
Closing Auction Book will be canceled, along with all Pre-market
Continuous Book orders.
\32\ The Exchange notes the proposed change is not applicable to
IPO, Halt, or Volatility Auctions, because their respective auction
processes do not have ``Lock-in'' or ``Lock-out'' provisions, and
instead include automatic extensions to allow price discovery to
continue when there is a market order imbalance, or a security
experiences price volatility leading into the auction match. See
Rules 11.350(e) and (f).
---------------------------------------------------------------------------
As described above, IEX rules explicitly provide that orders
eligible for execution in the Opening or Closing Auction may not be
modified or cancelled after the applicable Lock-in Time and before the
auction match. In order to avoid any confusion as to how the ARC
mechanism would operate in the event that a Member exceeds its pre-
determined ARC limit (as configured by the Member or its clearing firm)
after the Opening or Closing Lock-in Time and before the match, the
Exchange believes that it is appropriate to amend Rule 11.380(a) to
clarify that the ARC mechanism will not cancel such orders.
The Exchange believes that the Opening and Closing Auctions will
provide a critical price discovery mechanism that establishes IEX
Official Opening and Closing Prices for IEX-listed securities, and
allows market participants to move in and out of sizable positions
during a single centralized liquidity event. The Exchange also notes
that the official closing price of all securities is generally the data
point most closely scrutinized by investors, securities analysts, and
the financial media, and is used to value and assess management fees on
mutual funds, hedge funds, and individual investor portfolios.
Accordingly, the Exchange believes that Opening and Closing Auctions
should not be disrupted by momentary price dislocations or the creation
or exacerbation of large imbalances that can be caused by the
cancelation of Locked-in Orders, and should instead reflect all
available trading interest in a stable and transparent manner.
The Exchange also believes that ARC, as described above, provides a
useful risk management tool for Members and clearing firms. However,
the Exchange notes that use of ARC by a Member does not automatically
constitute compliance with IEX rules or SEC rules, nor does it replace
Member-managed risk management solutions. The Exchange does not require
Members to use ARC, and Members may use any other appropriate risk-
management tool or service instead of, or in combination with, ARC.
Furthermore, the Exchange believes that Members should be aware of
their auction order flow, and clearing firms should be aware of the
auction order flow of their broker correspondents, in order to
appropriately manage their risk limits to account for the fact that
Locked-In Orders cannot be canceled after the Lock-in Time. Thus, the
proposed rule change is designed to balance the utility of the optional
ARC functionality that is voluntarily offered by the Exchange free of
charge, and the interests of fair and orderly markets, the protection
of investors, and the public interest. Accordingly, the Exchange
believes the proposed rule change strikes an appropriate balance
between these two goals by continuing to allow Members and clearing
firms to utilize ARC to assist with risk management, while protecting
the Opening and Closing Auctions from undue price dislocation or the
creation or exacerbation of large imbalances by preventing Locked-in
Orders from being canceled after the Lock-in Time.
2. Statutory Basis
IEX believes that the proposed rule change is consistent with the
provisions of Sections 6(b) \33\ of the Act in general, and furthers
the objectives of Section 6(b)(5) \34\ of the Act, in particular, in
that it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest.
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\33\ 15 U.S.C. 78f.
\34\ 15 U.S.C. 78f(b)(5).
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Specifically, the Exchange believes that the proposed rule change
supports these objectives in that it is designed to ensure fair and
orderly execution of the Opening and Closing Auctions, as described in
the Purpose section, by minimizing the creation or exacerbation of
large imbalances and the resultant auction price dislocations that can
be caused by the cancelation of Locked-in Orders after the Lock-in Time
and before the Opening or Closing Auction match. As discussed in the
Purpose section, while ARC provides a useful risk management tool for
Members and clearing firms, the proposed rule change
[[Page 1090]]
is designed to balance the utility of the optional ARC functionality
that is voluntarily offered by the Exchange free of charge, and the
interests of fair and orderly markets, the protection of investors, and
the public interest. The Exchange believes the proposed rule change
strikes an appropriate balance between these two goals by continuing to
allow Members and clearing firms to utilize ARC to assist with risk
management, while protecting the Opening and Closing Auctions from
undue price dislocation or the creation or exacerbation of large
imbalances by preventing Locked-in Orders from being canceled after the
Lock-in Time and before the Opening or Closing Auction match.
Furthermore, the Exchange believes the proposed rule change is
consistent with the protection of investors and the public interest
because it will provide enhanced clarity on the operation of the ARC
mechanism with respect to orders eligible for execution in the Opening
or Closing Auction after the Lock-in Time and before the auction match,
thereby eliminating any potential confusion in this regard.
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. To the contrary, the Exchange
believes that the proposed rule change will increase intermarket
competition because it is designed to protect the Exchange's Opening
and Closing Auctions thereby enhancing its ability to compete in the
market for corporate listings.
The Exchange also does not believe that the proposal will impose an
intramarket burden on competition because, notwithstanding the limited
proposed exception for Locked-in Orders, ARC remains available to all
Members on a fair and equal basis, and the Exchange continues to
provide a mechanism to enable Members to manage their risk by
preventing trading that is erroneous or exceeds a Member's financial
resources, thereby contributing to the stability of the equities
markets.
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 Exchange has designated this rule filing as non-controversial
under Section 19(b)(3)(A) \35\ of the Act and Rule 19b-4(f)(6) \36\
thereunder. 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, it has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6) thereunder.
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\35\ 15 U.S.C. 78s(b)(3)(A).
\36\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
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)\37\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\37\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
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 [email protected]. Please include
File Number SR-IEX-2017-44 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-2017-44. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of this filing will also be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-IEX-2017-44 and should be submitted on
or before January 30, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00157 Filed 1-8-18; 8:45 am]
BILLING CODE 8011-01-P
