Self-Regulatory Organizations: Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Add a Corporate Discretionary Peg Order Type and Make Two Minor Non-Substantive Clarifying Changes to the Definition of a Discretionary Peg Order, 50485-50489 [2019-20700]
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Federal Register / Vol. 84, No. 186 / Wednesday, September 25, 2019 / Notices
for the periodic testing of the
performance of the MWCB mechanism,
which would include industry member
participation in such testing. The
extension will also permit the
exchanges to consider enhancements to
the MWCB processes such as
modifications to the Level 3 process.
The Exchange also believes that the
proposed rule change promotes just and
equitable principles of trade in that it
promotes transparency and uniformity
across markets concerning when and
how to halt trading in all stocks as a
result of extraordinary market volatility.
Based on the foregoing, the Exchange
believes the benefits to market
participants from the MWCB under
Article 20, Rule 2 should continue on a
pilot basis because the MWCB will
promote fair and orderly markets, and
protect investors and the public interest.
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 not
necessary or appropriate in furtherance
of the purposes of the Act because the
proposal would ensure the continued,
uninterrupted operation of a consistent
mechanism to halt trading across the
U.S. markets while the Exchange, in
conjunction with the other SROs,
consider and develop rules and
procedures that would allow for the
periodic testing of the performance of
the MWCB mechanism. Furthermore, as
noted above, the extension will permit
the exchanges to consider
enhancements to the MWCB processes
such as modifications to the Level 3
process.
Further, the Exchange understands
that FINRA and other national securities
exchanges will file proposals to extend
their rules regarding the market-wide
circuit breaker pilot. Thus, the proposed
rule change will help to ensure
consistency across market centers
without implicating any competitive
issues.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
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
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burden on competition; and (iii) become
operative prior to 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 12 and Rule 19b–4(f)(6)(iii)
thereunder.13
At any time within 60 days of the
filing of such 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) 14 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–
NYSECHX–2019–09 on the subject line.
Paper Comments
• Send paper comments in triplicate
to: Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSECHX–2019–09. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
12 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
14 15 U.S.C. 78s(b)(2)(B).
13 17
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amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSECHX–2019–09 and
should be submitted on or before
October 16, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019–20696 Filed 9–24–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87019; File No. SR–IEX–
2019–10]
Self-Regulatory Organizations:
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Add a
Corporate Discretionary Peg Order
Type and Make Two Minor NonSubstantive Clarifying Changes to the
Definition of a Discretionary Peg Order
September 19, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 13, 2019, 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
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 84, No. 186 / Wednesday, September 25, 2019 / Notices
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 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 Act,5 and Rule 19b–
4 thereunder,6 IEX is filing with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
to add an additional Discretionary Peg
order type (a ‘‘Corporate Discretionary
Peg’’ or ‘‘C-Peg’’ order) that pegs to the
less aggressive of (i.e., the lower of) the
Midpoint Price,7 the consolidated last
sale price, or the order’s limit price, if
any. The Exchange is also proposing to
make two non-substantive, clarifying
changes to the definition of a
Discretionary Peg order. The Exchange
has designated this rule change as ‘‘noncontroversial’’ under Section 19(b)(3)(A)
of the Act 8 and provided the
Commission with the notice required by
Rule 19b–4(f)(6) thereunder.9 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
filing is to amend IEX Rule 11.190 to
add a new type of Discretionary Peg
order type, a C-Peg order. As set forth
in proposed Rule 11.190(b)(16), a C-Peg
order is a non-displayed, pegged, buy
order that upon entry into the System,10
the price of the order is automatically
adjusted to be equal to the less
aggressive of (i.e., the lower of) the
Midpoint Price, the consolidated last
sale price, or the order’s limit price, if
any. Furthermore, when unexecuted
shares of a C-Peg order are posted to the
Order Book,11 consistent with the
discretionary functionality of the order
type, the price of the order is
automatically adjusted by the System to
be equal to and ranked at the less
aggressive of one minimum price
variant (‘‘MPV’’) 12 less than the NBB,13
the consolidated last sale price, or the
order’s limit price, if any (the order’s
‘‘resting price’’).
In order to meet the limit price of
active orders on the Order Book, a C-Peg
order will exercise the least amount of
price discretion necessary from the
C-Peg order’s resting price to its
discretionary price (i.e., the less
aggressive of the Midpoint Price,
consolidated last sale price, or the C-Peg
order’s limit price, if any), except during
periods of quote instability as defined in
Rule 11.190(g), when a C-Peg order is
only eligible to trade at its resting price,
as discussed further below. When
exercising price discretion, a C-Peg
order maintains time priority at its
resting price and is prioritized behind
any non-displayed interest at the
discretionary price for the duration of
that book processing action. If multiple
C-Peg orders are exercising price
discretion during the same book
processing action, they maintain their
relative time priority at the
discretionary price. In the event the
NBB becomes locked or crossed, C-Peg
orders resting on or posting to the Order
Book are priced one (1) MPV less
aggressive than the locking or crossing
price.14
10 See
Rule 1.160(nn).
Rule 1.160(p).
12 See Rule 11.210.
13 The term ‘‘NBB’’ means the national best bid,
as set forth in Rule 600(b) of Regulation NMS under
the Act, determined as set forth in IEX Rule
11.410(b).
14 See Rule 11.190(h)(3)(C)(ii) and (D)(ii)
regarding how Discretionary Peg orders behave in
locked and crossed markets.
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11 See
3 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
5 15 U.S.C. 78s(b)(1).
6 17 CFR 240.19b–4.
7 See Rule 1.160(t).
8 15 U.S.C. 78s(b)(3)(A).
9 17 CFR 240.19b–4.
4 17
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Pursuant to Rule 11.190(g), the
Exchange utilizes real time relative
quoting activity of certain Protected
Quotations 15 and a proprietary
mathematical calculation (the ‘‘quote
instability calculation’’) to assess the
probability of an imminent change to
the current Protected NBB to a lower
price (‘‘quote instability factor’’).16
When the quoting activity meets
predefined criteria and the quote
instability factor calculated is greater
than the Exchange’s defined quote
instability threshold, the System treats
the quote as unstable and the crumbling
quote indicator (‘‘CQI’’) is on at that
price level for two milliseconds, or until
the CQI triggers again. During all other
times, the quote is considered stable,
and the CQI is off. The System
independently assesses the stability of
the Protected NBB and Protected NBO
for each security.
As proposed, when the CQI is on,
resting C-Peg orders will not exercise
price discretion to meet the limit price
of an active (i.e., taking) order. However,
C-Peg orders are eligible for execution at
their resting price when the CQI is on,
if at or below the consolidated last sale
price and the order’s limit price (if any).
Therefore, when IEX determines the
quote to be unstable, C-Peg orders are
protected from trading more
aggressively at a price that appears to be
unstable, and thus imminently stale,
between the order’s resting price and
the Midpoint Price.
Further, C-Peg orders will not be
executable until at least one
consolidated last sale trade in the
security has occurred on the current
day.17
Otherwise, C-Peg orders would
operate in the same manner as
Discretionary Peg (‘‘D-Peg’’) orders.
Specifically, both C-Peg and D-Peg
orders:
• May have any TIF described in Rule
11.190(c) and as described in Rule
11.190(a)(3).
• Are not eligible for routing pursuant
to Rule 11.230(b) and (c)(2).
• May not be ISOs, as defined in Rule
11.190(b)(12).
• May be submitted with a limit price
or without a limit price.
15 Pursuant to Rule 11.190(g), only the Protected
Quotations of the New York Stock Exchange,
Nasdaq Stock Market, NYSE Arca, Nasdaq BX, Cboe
BZX Exchange, Cboe BYX Exchange, Cboe EDGX
Exchange, and Cboe EDGA Exchange are considered
in the calculation.
16 Rule 11.190(g) also applies to quote instability
involving sell orders, but because C-Peg orders are
always buy orders, this rule filing only addresses
the applicability of Rule 11.190(g) to buy orders.
17 See infra discussion on Members’ compliance
obligations with respect to the safe harbor of Rule
10b–18 of the Exchange Act. 17 CFR 240.10b–18.
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• Are eligible to trade during the
Regular Market Session. If a C-Peg or DPeg order is submitted pre-market with
a TIF of DAY, the order will be queued
by the System until the start of the
Regular Market Session (and in the case
of a C-Peg, until after at least one last
sale eligible trade in the security has
occurred).
• May be a MQTY, as defined in Rule
11.190(b)(11).
• Are always non-displayed.
• May be an odd lot, round lot, or
mixed lot.
• Are eligible to be invited by the
System to Recheck the Order Book to
trade against interest resting at the
Midpoint Price as described in Rule
11.230(a)(4)(D).
The Exchange believes that a C-Peg
order can assist Members handling an
issuer’s (and/or its affiliated
purchasers’) repurchases (or
‘‘buybacks’’) of an issuer’s common
stock in managing compliance with
certain aspects of the ‘‘safe harbor’’
under Rule 10b–18 of the Act (‘‘Rule
10b–18’’).18 Rule 10b–18 provides an
issuer (and its affiliated purchasers)
with a ‘‘safe harbor’’ from liability for
manipulation under Sections 9(a)(2) of
the Act 19 and Rule 10b–5 under the
Act 20 in connection with the issuer’s
buyback of its common stock in the
market. For the safe harbor to apply,
buybacks by or on behalf of the issuer
must comply with four specific
provisions with respect to the manner,
time, price, and volume of the
repurchases, and not be made as ‘‘part
of a plan or scheme to evade the federal
securities laws.’’ 21
Although the Rule 10b–18 safe harbor
conditions apply directly to issuers (and
their affiliated purchasers), issuers
retain broker-dealers to conduct
18 See 17 CFR 240.10b–18. Use of a C-Peg order
is merely a tool to assist Members (and issuers and
their affiliated purchasers) with compliance with
specified aspects of the Rule 10b–18 safe harbor.
Use of a C-Peg order would not guarantee that such
order meets all of the requirements of the safe
harbor conditions, and Members submitting C-Peg
orders on behalf of issuers and their affiliated
purchasers remain fully responsible for all aspects
of compliance with the Rule 10b–18 safe harbor. In
addition, issuers and their affiliated purchasers, if
relying on the safe harbor for buybacks, remain
fully responsible for all aspects of their compliance
with the safe harbor conditions. IEX also notes that
this rule change proposal is unrelated to a petition
for rulemaking that IEX submitted in 2018 seeking
a modification of the pricing safe harbor condition
to include executions priced at the midpoint of the
NBBO. See Petition for Rulemaking from John
Ramsay on behalf of IEX (March 27, 2018) (Petition
Number 4–722).
19 15 U.S.C. 78i(a)(2).
20 17 CFR 240.10b–5.
21 See Securities Exchange Act Release No. 48766
(November 10, 2003), 68 FR 64952, 64954
(November 17, 2003) (‘‘Adopting Release’’).
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buybacks on their behalf subject to the
relevant conditions of Rule 10b–18. A CPeg order may assist IEX’s broker-dealer
Members conducting buybacks on
behalf of an issuer (or their affiliated
purchasers) with their efforts to comply
with two aspects of the price and timing
conditions of the Rule 10b–18 safe
harbor for securities traded on IEX as
described below.22
First, a C-Peg order may assist
Members’ compliance with the price
condition because a C-Peg order will not
trade above the last transaction price
reported in the consolidated system
(i.e., the ‘‘consolidated last sale
price’’ 23). The Member handling the
order must separately manage
compliance with whether the
transaction meets the independence test
since Exchange functionality will not
validate whether the consolidated last
sale price was an ‘‘independent’’
transaction with respect to the issuer.24
A C-Peg order will also not peg to the
highest independent bid, even if higher
than the consolidated last sale price,
notwithstanding that the price test of
the Rule 10b–18 safe harbor would
permit a trade at such a price. Second,
a C-Peg order may assist Members’
compliance with the first aspect of the
timing condition of the Rule 10b–18 safe
harbor because a C-Peg order will not
execute until after the first trade in the
22 The price condition provides that the Rule
10b–18 purchases must be effected at a purchase
price that ‘‘[d]oes not exceed the highest
independent bid or the last independent transaction
price, whichever is higher, quoted or reported in
the consolidated system at the time the Rule 10b–
18 purchase is effected.’’ The timing conditions
provide that any stock repurchases not be the
‘‘opening (regular way) purchase reported in the
consolidated system,’’ not be made within 10 or 30
minutes of the market close (depending upon the
volume or public float value of the stock), and only
trade after market close if they meet certain criteria.
17 CFR 240.10b–18(b)(3)(i) and (b)(2).
23 The consolidated last sale price is only based
on round or mixed lot transactions reported to the
applicable securities information processor (i.e., the
Consolidated Trade Association or Unlisted Trading
Privileges Plans) which is consistent with the term
as used in the price safe harbor condition. Since
2013, odd-lot transactions have been reported to the
consolidated tape, but are not included in
calculations of last sale prices. See Securities
Exchange Act. Rel. No. 70793 (Oct. 31, 2013), 78 FR
66788 (November 6, 2013) (S7–24–89) and
Securities Exchange Act. Rel. No. 70794 (Oct. 31,
2013), 78 FR 66789 (November 6, 2013) (SR–CTA–
2013–05).
24 IEX notes the Adopting Release includes
discussion that the term ‘‘independent’’ would only
include a transaction not effected by or on behalf
of the issuer (or any of its affiliated purchasers). For
example, the Adopting Release states that the ‘‘price
condition is intended to prevent the issuer from
leading the market for the security through its
repurchases by limiting the issuer to bidding for or
buying its security at a price that is no higher than
the highest independent published bid or last
independent transaction price.’’ Adopting Release,
68 FR at 64854.
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50487
stock is reported to the consolidated
tape that day.
Further, use of a C-Peg order will not
guarantee that Members meet all
requirements of the Rule 10b–18 safe
harbor, specifically that the issuer: (i)
Use only one broker-dealer on any
single day; (ii) not conduct repurchases
at certain times prior to the close of a
trading day; and (iii) not exceed certain
purchase volume requirements.
Additionally, issuers and their affiliated
purchasers, if relying on the safe harbor
for buybacks, remain fully responsible
for their compliance with all of the safe
harbor conditions.
Based on informal discussions with
several Members, IEX believes there is
significant interest in a Discretionary
Peg order type that will assist Members
with their compliance with the pricing
and one of the timing conditions of Rule
10b–18, while providing the benefits of
a Discretionary Peg order, namely the
opportunity to execute issuer buybacks
at the Midpoint Price (if at or lower than
the last consolidated sale price) with
protection from execution at a
potentially stale price.
The Exchange notes that this
proposed rule change is based on IEX’s
current D-Peg order type and has new
features that are substantially similar to
New York Stock Exchange (‘‘NYSE’’)
Rules 7.31(i)(4) (Last Sale Peg Modifier)
and 13(f)(4)(B) (Buy Minus Zero Plus)
with several minor differences.25
Specifically, the NYSE Last Sale Peg
Modifier order pegs to the lower of the
last consolidated sale price, the limit
price of the order, or the Protected Best
Offer,26 as opposed to a C-Peg which
pegs to the lower of the Midpoint Price,
the consolidated last sale price, or the
order’s limit price, if any. Also, a Last
Sale Peg Modifier order will be rejected
if there is no last consolidated sale price
(i.e., the stock has not yet traded that
day),27 but a C-Peg will wait to execute
until there is an initial transaction in the
stock and then will be marketable.
Comparing the NYSE Buy Minus Zero
Plus order to the C-Peg, a Buy Minus
Zero Plus order can only be a limit order
that trades at a price equal to or lower
than the last consolidated sale price of
the stock, as opposed to a C-Peg order
which can be submitted with or without
a limit price, and the C-Peg’s resting
price will shift as the spread shifts.
The C-Peg order type is also distinct
from the NYSE Last Sale Peg and Buy
25 See Securities Exchange Act Release No. 85649
(April 15, 2019), 84 FR 16549 (April 19, 2019) (SR–
NYSE–2019–16) and Securities Exchange Act
Release No. 78679 (August 25, 2016), 81 FR 60080
(August 31, 2016) (SR–NYSE–2016–59).
26 See NYSE Rule 7.31(i)(4).
27 Id.
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Federal Register / Vol. 84, No. 186 / Wednesday, September 25, 2019 / Notices
6(b)(5),30 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities,
and to remove impediments to and
perfect the mechanism of a free and
Housekeeping Changes to Rule
open market and a national market
11.190(b)(10)
system, and, in general, to protect
The Exchange is also proposing to
investors and the public interest.
make two non-substantive, clarifying
Specifically, the Exchange believes that
changes to the definition of a
the proposed rule change is consistent
28
Discretionary Peg order. Specifically,
the Exchange proposes to add text at the with the protection of investors and the
public interest because it is designed to
end of the clause about how a
increase competition among execution
Discretionary Peg order behaves during
periods of quote instability to explicitly venues for issuer buyback order flow,
with the benefits of a Discretionary Peg
state that the order is only eligible to
order, as described in the Purpose
trade at its resting price. While the
section. While issuer buyback orders are
Exchange believes that the existing text
conducted on IEX today, the Exchange
clearly provides by implication that
believes that providing an order type
during periods of quote instability a
that may assist Members’ compliance
Discretionary Peg order is only eligible
with aspects of the Rule 10b–18 safe
to trade at its resting price, the
harbor will provide additional
additional text will provide more
incentives for Members (as well as
fulsome clarity. The proposed new text
is underlined below:
issuers and their affiliated purchasers)
to conduct buybacks on IEX.
. . . In order to meet the limit price of active
orders on the Order Book, a Discretionary Peg
Further, IEX believes that the
order will exercise the least amount of price
proposal is consistent with the
discretion necessary from the Discretionary
protection of investors and the public
Peg order’s resting price to its discretionary
interest in that the C-Peg order type may
price (defined as the less aggressive of the
assist Members in their compliance with
Midpoint Price or the Discretionary Peg
order’s limit price, if any), except during
Rule 10b–18’s safe harbor conditions
periods of quote instability as defined in
when conducting issuer buybacks. By
paragraph (g) below when a Discretionary Peg increasing the likelihood that an issuer’s
order is only eligible to trade at its resting
stock buybacks will execute at or near
price. . . .
the Midpoint Price and decreasing the
The Exchange also proposes to delete
likelihood that the order will be
the extraneous word ‘‘that’’ from Rule
executed at a stale price, IEX believes
11.190(b)(10)(F), as specified below
that the C-Peg order type may assist
with the deletion in brackets. The
Members and the issuers (and affiliated
proposed deletion merely corrects a
purchasers) for whom they trade with
typographical error and has no impact
their compliance with the federal
on the meaning of the rule text.
securities laws while also helping foster
Is eligible to trade only during the Regular
enhanced execution quality for an issuer
Market Session. As provided in IEX Rule
conducting a stock buyback.
11.190(a)(3)(D), any pegged order marked
In addition, as noted in the Purpose
with a TIF of DAY that is submitted to the
section, a C-Peg order will function very
System before the opening of the Regular
Market Session will be queued by the System similarly to a Discretionary Peg buy
until the start of the Regular Market Session;
order, except that a C-Peg order will not
any pegged order [that] which is marked with execute at a price higher than the
a TIF other than DAY will be rejected when
consolidated last sale price for the
submitted to the System during the Presecurity. Further, the proposed C-Peg
Market Session. Any pegged order submitted
order type contains new functionality
into the System after the closing of the
that is substantially similar to existing
Regular Market Session will be rejected.
NYSE order types, as described in the
2. Statutory Basis
Purpose section.31 Thus, IEX does not
believe
that the proposed changes raise
The Exchange believes that the
proposed rule change is consistent with any new or novel material issues that
Section 6(b) of the Act,29 in general, and have not already been considered by the
Commission in connection with existing
furthers the objectives of Section
jbell on DSK3GLQ082PROD with NOTICES
Minus Plus order types because it is a
type of Discretionary Peg order, which
means that it will exercise the minimum
amount of price discretion between its
resting price and discretionary price
when seeking to execute at or near the
Midpoint Price, except during periods
of quote instability.
28 Rule
30 15
29 15
11.190(b)(10).
U.S.C. 78f(b).
31 See
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18:25 Sep 24, 2019
Jkt 247001
PO 00000
U.S.C. 78f(b)(5).
supra note 21 [sic].
Frm 00118
Fmt 4703
Sfmt 4703
order types offered by the IEX and other
national securities exchanges.32
Also, the Exchange believes that
providing for potential execution of
issuer buybacks at or near the Midpoint
Price may facilitate Members’
compliance with their best execution
obligations when acting as an agent on
behalf of an issuer.33 Specifically, as
noted in FINRA Regulatory Notice 15–
46 (Guidance on Best Execution
Obligations in Equity, Options and
Fixed Income Markets), when
conducting its review of execution
quality in any security, a firm should
consider, among other things, whether it
could obtain midpoint price
improvement on one venue versus less
price improvement on another venue.34
Further, the Exchange does not
believe that the proposed rule change
raises any concerns regarding unfair
competition. All Members would be
eligible to use a C-Peg order type,
regardless of whether the Member is
conducting an issuer buyback. While
not every Member conducts a business
involving representation of issuer
buyback orders, there is no restriction
on any Member conducting such
activity.
Finally, the Exchange believes that
the proposed nonsubstantive clarifying
changes to Rule 11.190(b)(10) are
consistent with the protection of
investors and the public interest
because they will have no impact on the
functionality of Discretionary Peg
orders, but rather simply provide
additional clarity on how Discretionary
Peg orders operate.
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. To the
contrary, IEX believes that introducing
the C-Peg order type would continue to
enhance competition and execution
quality for Members conducting an
issuer buyback among execution
venues, by providing an order type that
may assist Members with their
compliance with the pricing conditions
and one of the timing conditions of Rule
10b–18.
32 See, e.g., Securities Exchange Act Release No.
85351 (March 18, 2019), 84 FR 10871 (March 18,
2019) (SR–IEX–2018–23).
33 All IEX Members that handle customer orders
as agent are required to be FINRA members, and
therefore are subject to FINRA guidance. See 17
CFR 240.15b9–1(a).
34 See FINRA Regulatory Notice 15–46, endnote
25 available at: https://www.finra.org/sites/default/
files/notice_doc_file_ref/Notice_Regulatory_15–
46.pdf.
E:\FR\FM\25SEN1.SGM
25SEN1
Federal Register / Vol. 84, No. 186 / Wednesday, September 25, 2019 / Notices
The Exchange does not believe that
the proposed rule change will impose
any burden on intermarket competition
that is not necessary or appropriate in
furtherance of the purposes of the Act.
Competing exchanges have and can
continue to adopt similar order types,
subject to the SEC rule change process,
as discussed in the Purpose and
Statutory Basis sections.35 Moreover,
there is no barrier to other national
securities exchange adopting similar
order types.
The Exchange also does not believe
that the proposed rule change will
impose any burden on intramarket
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act. All Members would
be eligible to use a C-Peg order type,
because the use of this particular order
type will be available to any market
participant, not just Members
conducting issuer buybacks. While not
every Member conducts a business
involving representation of issuer
buyback orders, there is no restriction
on any Member conducting such
activity.
Further, the proposed housekeeping
changes to Rule 11.190(b)(10) are not
designed to address any competitive
issue, but rather to provide additional
clarity on the operation of D-Peg orders.
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, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 36 and
subparagraph (f)(6) of Rule 19b–4
thereunder.37
The Exchange believes that the
proposed rule change meets the criteria
35 See
supra note 21 [sic].
U.S.C. 78s(b)(3)(A).
37 17 CFR 240.19b–4(f)(6). In addition, Rule19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its 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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36 15
VerDate Sep<11>2014
18:25 Sep 24, 2019
Jkt 247001
of subparagraph (f)(6) of Rule 19b–4 38
because it may assist Members with
their compliance with the safe harbor of
Rule 10b–18 and is substantially similar
to order types previously approved or
considered by the Commission and as
discussed in the Statutory Basis and
Burden on Competition sections.39
Specifically, the proposed C-Peg order
will function very similarly to a
Discretionary Peg buy order, except that
a C-Peg order will not execute at a price
higher than the consolidated last sale
price for the security.40 Further, the
proposed C-Peg order type contains new
functionality that is substantially
similar to existing NYSE order types, as
described in the Purpose section.41
Thus, IEX does not believe that the
proposed changes raise any new or
novel material issues that have not
already been considered by the
Commission in connection with existing
order types offered by IEX and other
national securities exchanges.
The Exchange will implement the
proposed rule change within 90 days of
filing, subject to the 30-day operative
delay, and provide at least ten (10) days’
notice to Members and market
participants of the implementation
timeline.
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
50489
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–IEX–2019–010. 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 the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–IEX–2019–010 and should
be submitted on or before October 16,
2019.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Jill M. Peterson,
Assistant Secretary.
Electronic Comments
BILLING CODE 8011–01–P
[FR Doc. 2019–20700 Filed 9–24–19; 8:45 am]
• 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–2019–010 on the subject line.
38 17
CFR 240.19b–4(f)(6).
supra notes 21, 28 [sic].
40 See supra note 28 [sic].
41 See supra note 21 [sic].
39 See
PO 00000
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Sfmt 9990
42 17
E:\FR\FM\25SEN1.SGM
CFR 200.30–3(a)(12).
25SEN1
]]>Agencies
[Federal Register Volume 84, Number 186 (Wednesday, September 25, 2019)]
[Notices]
[Pages 50485-50489]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20700]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87019; File No. SR-IEX-2019-10]
Self-Regulatory Organizations: Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Add a
Corporate Discretionary Peg Order Type and Make Two Minor Non-
Substantive Clarifying Changes to the Definition of a Discretionary Peg
Order
September 19, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on September 13, 2019, 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
[[Page 50486]]
by the Exchange. The Exchange filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of Section 19(b)(1) under the Act,\5\
and Rule 19b-4 thereunder,\6\ IEX is filing with the Securities and
Exchange Commission (``Commission'') a proposed rule change to add an
additional Discretionary Peg order type (a ``Corporate Discretionary
Peg'' or ``C-Peg'' order) that pegs to the less aggressive of (i.e.,
the lower of) the Midpoint Price,\7\ the consolidated last sale price,
or the order's limit price, if any. The Exchange is also proposing to
make two non-substantive, clarifying changes to the definition of a
Discretionary Peg order. The Exchange has designated this rule change
as ``non-controversial'' under Section 19(b)(3)(A) of the Act \8\ and
provided the Commission with the notice required by Rule 19b-4(f)(6)
thereunder.\9\ 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.
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78s(b)(1).
\6\ 17 CFR 240.19b-4.
\7\ See Rule 1.160(t).
\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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 filing is to amend IEX Rule
11.190 to add a new type of Discretionary Peg order type, a C-Peg
order. As set forth in proposed Rule 11.190(b)(16), a C-Peg order is a
non-displayed, pegged, buy order that upon entry into the System,\10\
the price of the order is automatically adjusted to be equal to the
less aggressive of (i.e., the lower of) the Midpoint Price, the
consolidated last sale price, or the order's limit price, if any.
Furthermore, when unexecuted shares of a C-Peg order are posted to the
Order Book,\11\ consistent with the discretionary functionality of the
order type, the price of the order is automatically adjusted by the
System to be equal to and ranked at the less aggressive of one minimum
price variant (``MPV'') \12\ less than the NBB,\13\ the consolidated
last sale price, or the order's limit price, if any (the order's
``resting price'').
---------------------------------------------------------------------------
\10\ See Rule 1.160(nn).
\11\ See Rule 1.160(p).
\12\ See Rule 11.210.
\13\ The term ``NBB'' means the national best bid, as set forth
in Rule 600(b) of Regulation NMS under the Act, determined as set
forth in IEX Rule 11.410(b).
---------------------------------------------------------------------------
In order to meet the limit price of active orders on the Order
Book, a C-Peg order will exercise the least amount of price discretion
necessary from the C-Peg order's resting price to its discretionary
price (i.e., the less aggressive of the Midpoint Price, consolidated
last sale price, or the C-Peg order's limit price, if any), except
during periods of quote instability as defined in Rule 11.190(g), when
a C-Peg order is only eligible to trade at its resting price, as
discussed further below. When exercising price discretion, a C-Peg
order maintains time priority at its resting price and is prioritized
behind any non-displayed interest at the discretionary price for the
duration of that book processing action. If multiple C-Peg orders are
exercising price discretion during the same book processing action,
they maintain their relative time priority at the discretionary price.
In the event the NBB becomes locked or crossed, C-Peg orders resting on
or posting to the Order Book are priced one (1) MPV less aggressive
than the locking or crossing price.\14\
---------------------------------------------------------------------------
\14\ See Rule 11.190(h)(3)(C)(ii) and (D)(ii) regarding how
Discretionary Peg orders behave in locked and crossed markets.
---------------------------------------------------------------------------
Pursuant to Rule 11.190(g), the Exchange utilizes real time
relative quoting activity of certain Protected Quotations \15\ and a
proprietary mathematical calculation (the ``quote instability
calculation'') to assess the probability of an imminent change to the
current Protected NBB to a lower price (``quote instability
factor'').\16\ When the quoting activity meets predefined criteria and
the quote instability factor calculated is greater than the Exchange's
defined quote instability threshold, the System treats the quote as
unstable and the crumbling quote indicator (``CQI'') is on at that
price level for two milliseconds, or until the CQI triggers again.
During all other times, the quote is considered stable, and the CQI is
off. The System independently assesses the stability of the Protected
NBB and Protected NBO for each security.
---------------------------------------------------------------------------
\15\ Pursuant to Rule 11.190(g), only the Protected Quotations
of the New York Stock Exchange, Nasdaq Stock Market, NYSE Arca,
Nasdaq BX, Cboe BZX Exchange, Cboe BYX Exchange, Cboe EDGX Exchange,
and Cboe EDGA Exchange are considered in the calculation.
\16\ Rule 11.190(g) also applies to quote instability involving
sell orders, but because C-Peg orders are always buy orders, this
rule filing only addresses the applicability of Rule 11.190(g) to
buy orders.
---------------------------------------------------------------------------
As proposed, when the CQI is on, resting C-Peg orders will not
exercise price discretion to meet the limit price of an active (i.e.,
taking) order. However, C-Peg orders are eligible for execution at
their resting price when the CQI is on, if at or below the consolidated
last sale price and the order's limit price (if any). Therefore, when
IEX determines the quote to be unstable, C-Peg orders are protected
from trading more aggressively at a price that appears to be unstable,
and thus imminently stale, between the order's resting price and the
Midpoint Price.
Further, C-Peg orders will not be executable until at least one
consolidated last sale trade in the security has occurred on the
current day.\17\
---------------------------------------------------------------------------
\17\ See infra discussion on Members' compliance obligations
with respect to the safe harbor of Rule 10b-18 of the Exchange Act.
17 CFR 240.10b-18.
---------------------------------------------------------------------------
Otherwise, C-Peg orders would operate in the same manner as
Discretionary Peg (``D-Peg'') orders. Specifically, both C-Peg and D-
Peg orders:
May have any TIF described in Rule 11.190(c) and as
described in Rule 11.190(a)(3).
Are not eligible for routing pursuant to Rule 11.230(b)
and (c)(2).
May not be ISOs, as defined in Rule 11.190(b)(12).
May be submitted with a limit price or without a limit
price.
[[Page 50487]]
Are eligible to trade during the Regular Market Session.
If a C-Peg or D-Peg order is submitted pre-market with a TIF of DAY,
the order will be queued by the System until the start of the Regular
Market Session (and in the case of a C-Peg, until after at least one
last sale eligible trade in the security has occurred).
May be a MQTY, as defined in Rule 11.190(b)(11).
Are always non-displayed.
May be an odd lot, round lot, or mixed lot.
Are eligible to be invited by the System to Recheck the
Order Book to trade against interest resting at the Midpoint Price as
described in Rule 11.230(a)(4)(D).
The Exchange believes that a C-Peg order can assist Members
handling an issuer's (and/or its affiliated purchasers') repurchases
(or ``buybacks'') of an issuer's common stock in managing compliance
with certain aspects of the ``safe harbor'' under Rule 10b-18 of the
Act (``Rule 10b-18'').\18\ Rule 10b-18 provides an issuer (and its
affiliated purchasers) with a ``safe harbor'' from liability for
manipulation under Sections 9(a)(2) of the Act \19\ and Rule 10b-5
under the Act \20\ in connection with the issuer's buyback of its
common stock in the market. For the safe harbor to apply, buybacks by
or on behalf of the issuer must comply with four specific provisions
with respect to the manner, time, price, and volume of the repurchases,
and not be made as ``part of a plan or scheme to evade the federal
securities laws.'' \21\
---------------------------------------------------------------------------
\18\ See 17 CFR 240.10b-18. Use of a C-Peg order is merely a
tool to assist Members (and issuers and their affiliated purchasers)
with compliance with specified aspects of the Rule 10b-18 safe
harbor. Use of a C-Peg order would not guarantee that such order
meets all of the requirements of the safe harbor conditions, and
Members submitting C-Peg orders on behalf of issuers and their
affiliated purchasers remain fully responsible for all aspects of
compliance with the Rule 10b-18 safe harbor. In addition, issuers
and their affiliated purchasers, if relying on the safe harbor for
buybacks, remain fully responsible for all aspects of their
compliance with the safe harbor conditions. IEX also notes that this
rule change proposal is unrelated to a petition for rulemaking that
IEX submitted in 2018 seeking a modification of the pricing safe
harbor condition to include executions priced at the midpoint of the
NBBO. See Petition for Rulemaking from John Ramsay on behalf of IEX
(March 27, 2018) (Petition Number 4-722).
\19\ 15 U.S.C. 78i(a)(2).
\20\ 17 CFR 240.10b-5.
\21\ See Securities Exchange Act Release No. 48766 (November 10,
2003), 68 FR 64952, 64954 (November 17, 2003) (``Adopting
Release'').
---------------------------------------------------------------------------
Although the Rule 10b-18 safe harbor conditions apply directly to
issuers (and their affiliated purchasers), issuers retain broker-
dealers to conduct buybacks on their behalf subject to the relevant
conditions of Rule 10b-18. A C-Peg order may assist IEX's broker-dealer
Members conducting buybacks on behalf of an issuer (or their affiliated
purchasers) with their efforts to comply with two aspects of the price
and timing conditions of the Rule 10b-18 safe harbor for securities
traded on IEX as described below.\22\
---------------------------------------------------------------------------
\22\ The price condition provides that the Rule 10b-18 purchases
must be effected at a purchase price that ``[d]oes not exceed the
highest independent bid or the last independent transaction price,
whichever is higher, quoted or reported in the consolidated system
at the time the Rule 10b-18 purchase is effected.'' The timing
conditions provide that any stock repurchases not be the ``opening
(regular way) purchase reported in the consolidated system,'' not be
made within 10 or 30 minutes of the market close (depending upon the
volume or public float value of the stock), and only trade after
market close if they meet certain criteria. 17 CFR 240.10b-
18(b)(3)(i) and (b)(2).
---------------------------------------------------------------------------
First, a C-Peg order may assist Members' compliance with the price
condition because a C-Peg order will not trade above the last
transaction price reported in the consolidated system (i.e., the
``consolidated last sale price'' \23\). The Member handling the order
must separately manage compliance with whether the transaction meets
the independence test since Exchange functionality will not validate
whether the consolidated last sale price was an ``independent''
transaction with respect to the issuer.\24\ A C-Peg order will also not
peg to the highest independent bid, even if higher than the
consolidated last sale price, notwithstanding that the price test of
the Rule 10b-18 safe harbor would permit a trade at such a price.
Second, a C-Peg order may assist Members' compliance with the first
aspect of the timing condition of the Rule 10b-18 safe harbor because a
C-Peg order will not execute until after the first trade in the stock
is reported to the consolidated tape that day.
---------------------------------------------------------------------------
\23\ The consolidated last sale price is only based on round or
mixed lot transactions reported to the applicable securities
information processor (i.e., the Consolidated Trade Association or
Unlisted Trading Privileges Plans) which is consistent with the term
as used in the price safe harbor condition. Since 2013, odd-lot
transactions have been reported to the consolidated tape, but are
not included in calculations of last sale prices. See Securities
Exchange Act. Rel. No. 70793 (Oct. 31, 2013), 78 FR 66788 (November
6, 2013) (S7-24-89) and Securities Exchange Act. Rel. No. 70794
(Oct. 31, 2013), 78 FR 66789 (November 6, 2013) (SR-CTA-2013-05).
\24\ IEX notes the Adopting Release includes discussion that the
term ``independent'' would only include a transaction not effected
by or on behalf of the issuer (or any of its affiliated purchasers).
For example, the Adopting Release states that the ``price condition
is intended to prevent the issuer from leading the market for the
security through its repurchases by limiting the issuer to bidding
for or buying its security at a price that is no higher than the
highest independent published bid or last independent transaction
price.'' Adopting Release, 68 FR at 64854.
---------------------------------------------------------------------------
Further, use of a C-Peg order will not guarantee that Members meet
all requirements of the Rule 10b-18 safe harbor, specifically that the
issuer: (i) Use only one broker-dealer on any single day; (ii) not
conduct repurchases at certain times prior to the close of a trading
day; and (iii) not exceed certain purchase volume requirements.
Additionally, issuers and their affiliated purchasers, if relying on
the safe harbor for buybacks, remain fully responsible for their
compliance with all of the safe harbor conditions.
Based on informal discussions with several Members, IEX believes
there is significant interest in a Discretionary Peg order type that
will assist Members with their compliance with the pricing and one of
the timing conditions of Rule 10b-18, while providing the benefits of a
Discretionary Peg order, namely the opportunity to execute issuer
buybacks at the Midpoint Price (if at or lower than the last
consolidated sale price) with protection from execution at a
potentially stale price.
The Exchange notes that this proposed rule change is based on IEX's
current D-Peg order type and has new features that are substantially
similar to New York Stock Exchange (``NYSE'') Rules 7.31(i)(4) (Last
Sale Peg Modifier) and 13(f)(4)(B) (Buy Minus Zero Plus) with several
minor differences.\25\ Specifically, the NYSE Last Sale Peg Modifier
order pegs to the lower of the last consolidated sale price, the limit
price of the order, or the Protected Best Offer,\26\ as opposed to a C-
Peg which pegs to the lower of the Midpoint Price, the consolidated
last sale price, or the order's limit price, if any. Also, a Last Sale
Peg Modifier order will be rejected if there is no last consolidated
sale price (i.e., the stock has not yet traded that day),\27\ but a C-
Peg will wait to execute until there is an initial transaction in the
stock and then will be marketable.
---------------------------------------------------------------------------
\25\ See Securities Exchange Act Release No. 85649 (April 15,
2019), 84 FR 16549 (April 19, 2019) (SR-NYSE-2019-16) and Securities
Exchange Act Release No. 78679 (August 25, 2016), 81 FR 60080
(August 31, 2016) (SR-NYSE-2016-59).
\26\ See NYSE Rule 7.31(i)(4).
\27\ Id.
---------------------------------------------------------------------------
Comparing the NYSE Buy Minus Zero Plus order to the C-Peg, a Buy
Minus Zero Plus order can only be a limit order that trades at a price
equal to or lower than the last consolidated sale price of the stock,
as opposed to a C-Peg order which can be submitted with or without a
limit price, and the C-Peg's resting price will shift as the spread
shifts.
The C-Peg order type is also distinct from the NYSE Last Sale Peg
and Buy
[[Page 50488]]
Minus Plus order types because it is a type of Discretionary Peg order,
which means that it will exercise the minimum amount of price
discretion between its resting price and discretionary price when
seeking to execute at or near the Midpoint Price, except during periods
of quote instability.
Housekeeping Changes to Rule 11.190(b)(10)
The Exchange is also proposing to make two non-substantive,
clarifying changes to the definition of a Discretionary Peg order.\28\
Specifically, the Exchange proposes to add text at the end of the
clause about how a Discretionary Peg order behaves during periods of
quote instability to explicitly state that the order is only eligible
to trade at its resting price. While the Exchange believes that the
existing text clearly provides by implication that during periods of
quote instability a Discretionary Peg order is only eligible to trade
at its resting price, the additional text will provide more fulsome
clarity. The proposed new text is underlined below:
---------------------------------------------------------------------------
\28\ Rule 11.190(b)(10).
. . . In order to meet the limit price of active orders on the Order
Book, a Discretionary Peg order will exercise the least amount of
price discretion necessary from the Discretionary Peg order's
resting price to its discretionary price (defined as the less
aggressive of the Midpoint Price or the Discretionary Peg order's
limit price, if any), except during periods of quote instability as
defined in paragraph (g) below when a Discretionary Peg order is
---------------------------------------------------------------------------
only eligible to trade at its resting price. . . .
The Exchange also proposes to delete the extraneous word ``that''
from Rule 11.190(b)(10)(F), as specified below with the deletion in
brackets. The proposed deletion merely corrects a typographical error
and has no impact on the meaning of the rule text.
Is eligible to trade only during the Regular Market Session. As
provided in IEX Rule 11.190(a)(3)(D), any pegged order marked with a
TIF of DAY that is submitted to the System before the opening of the
Regular Market Session will be queued by the System until the start
of the Regular Market Session; any pegged order [that] which is
marked with a TIF other than DAY will be rejected when submitted to
the System during the Pre-Market Session. Any pegged order submitted
into the System after the closing of the Regular Market Session will
be rejected.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\29\ in general, and furthers the
objectives of Section 6(b)(5),\30\ in particular, in that it is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, and 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 is consistent with the
protection of investors and the public interest because it is designed
to increase competition among execution venues for issuer buyback order
flow, with the benefits of a Discretionary Peg order, as described in
the Purpose section. While issuer buyback orders are conducted on IEX
today, the Exchange believes that providing an order type that may
assist Members' compliance with aspects of the Rule 10b-18 safe harbor
will provide additional incentives for Members (as well as issuers and
their affiliated purchasers) to conduct buybacks on IEX.
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\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(b)(5).
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Further, IEX believes that the proposal is consistent with the
protection of investors and the public interest in that the C-Peg order
type may assist Members in their compliance with Rule 10b-18's safe
harbor conditions when conducting issuer buybacks. By increasing the
likelihood that an issuer's stock buybacks will execute at or near the
Midpoint Price and decreasing the likelihood that the order will be
executed at a stale price, IEX believes that the C-Peg order type may
assist Members and the issuers (and affiliated purchasers) for whom
they trade with their compliance with the federal securities laws while
also helping foster enhanced execution quality for an issuer conducting
a stock buyback.
In addition, as noted in the Purpose section, a C-Peg order will
function very similarly to a Discretionary Peg buy order, except that a
C-Peg order will not execute at a price higher than the consolidated
last sale price for the security. Further, the proposed C-Peg order
type contains new functionality that is substantially similar to
existing NYSE order types, as described in the Purpose section.\31\
Thus, IEX does not believe that the proposed changes raise any new or
novel material issues that have not already been considered by the
Commission in connection with existing order types offered by the IEX
and other national securities exchanges.\32\
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\31\ See supra note 21 [sic].
\32\ See, e.g., Securities Exchange Act Release No. 85351 (March
18, 2019), 84 FR 10871 (March 18, 2019) (SR-IEX-2018-23).
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Also, the Exchange believes that providing for potential execution
of issuer buybacks at or near the Midpoint Price may facilitate
Members' compliance with their best execution obligations when acting
as an agent on behalf of an issuer.\33\ Specifically, as noted in FINRA
Regulatory Notice 15-46 (Guidance on Best Execution Obligations in
Equity, Options and Fixed Income Markets), when conducting its review
of execution quality in any security, a firm should consider, among
other things, whether it could obtain midpoint price improvement on one
venue versus less price improvement on another venue.\34\
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\33\ All IEX Members that handle customer orders as agent are
required to be FINRA members, and therefore are subject to FINRA
guidance. See 17 CFR 240.15b9-1(a).
\34\ See FINRA Regulatory Notice 15-46, endnote 25 available at:
https://www.finra.org/sites/default/files/notice_doc_file_ref/Notice_Regulatory_15-46.pdf.
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Further, the Exchange does not believe that the proposed rule
change raises any concerns regarding unfair competition. All Members
would be eligible to use a C-Peg order type, regardless of whether the
Member is conducting an issuer buyback. While not every Member conducts
a business involving representation of issuer buyback orders, there is
no restriction on any Member conducting such activity.
Finally, the Exchange believes that the proposed nonsubstantive
clarifying changes to Rule 11.190(b)(10) are consistent with the
protection of investors and the public interest because they will have
no impact on the functionality of Discretionary Peg orders, but rather
simply provide additional clarity on how Discretionary Peg orders
operate.
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. To the contrary, IEX
believes that introducing the C-Peg order type would continue to
enhance competition and execution quality for Members conducting an
issuer buyback among execution venues, by providing an order type that
may assist Members with their compliance with the pricing conditions
and one of the timing conditions of Rule 10b-18.
[[Page 50489]]
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. Competing
exchanges have and can continue to adopt similar order types, subject
to the SEC rule change process, as discussed in the Purpose and
Statutory Basis sections.\35\ Moreover, there is no barrier to other
national securities exchange adopting similar order types.
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\35\ See supra note 21 [sic].
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The Exchange also does not believe that the proposed rule change
will impose any burden on intramarket competition that is not necessary
or appropriate in furtherance of the purposes of the Act. All Members
would be eligible to use a C-Peg order type, because the use of this
particular order type will be available to any market participant, not
just Members conducting issuer buybacks. While not every Member
conducts a business involving representation of issuer buyback orders,
there is no restriction on any Member conducting such activity.
Further, the proposed housekeeping changes to Rule 11.190(b)(10)
are not designed to address any competitive issue, but rather to
provide additional clarity on the operation of D-Peg orders.
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, it has become effective pursuant to Section
19(b)(3)(A) of the Act \36\ and subparagraph (f)(6) of Rule 19b-4
thereunder.\37\
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\36\ 15 U.S.C. 78s(b)(3)(A).
\37\ 17 CFR 240.19b-4(f)(6). In addition, Rule19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its 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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The Exchange believes that the proposed rule change meets the
criteria of subparagraph (f)(6) of Rule 19b-4 \38\ because it may
assist Members with their compliance with the safe harbor of Rule 10b-
18 and is substantially similar to order types previously approved or
considered by the Commission and as discussed in the Statutory Basis
and Burden on Competition sections.\39\ Specifically, the proposed C-
Peg order will function very similarly to a Discretionary Peg buy
order, except that a C-Peg order will not execute at a price higher
than the consolidated last sale price for the security.\40\ Further,
the proposed C-Peg order type contains new functionality that is
substantially similar to existing NYSE order types, as described in the
Purpose section.\41\ Thus, IEX does not believe that the proposed
changes raise any new or novel material issues that have not already
been considered by the Commission in connection with existing order
types offered by IEX and other national securities exchanges.
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\38\ 17 CFR 240.19b-4(f)(6).
\39\ See supra notes 21, 28 [sic].
\40\ See supra note 28 [sic].
\41\ See supra note 21 [sic].
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The Exchange will implement the proposed rule change within 90 days
of filing, subject to the 30-day operative delay, and provide at least
ten (10) days' notice to Members and market participants of the
implementation timeline.
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:
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-2019-010 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-IEX-2019-010. 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 the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-IEX-2019-010 and should be submitted on
or before October 16, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
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\42\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-20700 Filed 9-24-19; 8:45 am]
BILLING CODE 8011-01-P
