Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend IEX Rule 11.190(e) To Expand the Exchange's Existing Anti-Internalization Functionality and Make Conforming and Clarifying Changes to IEX Rule 11.190(e) and Other IEX Rules, 71053-71057 [2019-27731]
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Federal Register / Vol. 84, No. 247 / Thursday, December 26, 2019 / Notices
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
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) 75 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:
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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–
NYSEArca–2019–88 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–NYSEArca–2019–88. 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
75 15
U.S.C. 78s(b)(2)(B).
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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–NYSEArca–2019–88, and
should be submitted on or before
January 16, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.76
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019–27726 Filed 12–23–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87792; File No. SR–
NYSEAMER–2019–38]
71053
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day after
publication of the notice for this
proposed rule change is December 22,
2019. The Commission is extending this
45-day time period.
The Commission finds it appropriate
to designate a longer period within
which to take action on the proposed
rule change so that it has sufficient time
to consider the proposed rule change.
Accordingly, the Commission, pursuant
to Section 19(b)(2) of the Act,5
designates February 5, 2020, as the date
by which the Commission shall either
approve or disapprove, or institute
proceedings to determine whether to
disapprove, the proposed rule change
(File No. SR–NYSEAMER–2019–38).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019–27725 Filed 12–23–19; 8:45 am]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Designation
of a Longer Period for Commission
Action on a Proposed Rule Change To
Allow Certain Flexible Exchange
Equity Options To Be Cash Settled
December 18, 2019.
On October 17, 2019, NYSE American
LLC (‘‘NYSE American’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to amend Rule 903G and 906G
to allow certain flexible exchange
(‘‘FLEX’’) equity options to be cash
settled. The proposed rule change was
published for comment in the Federal
Register on November 7, 2019.3 The
Commission has received no comments
on the proposed rule change.
Section 19(b)(2) of the Act 4 provides
that within 45 days of the publication of
notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding, or as to which the
self-regulatory organization consents,
76 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 87444
(November 1, 2019), 84 FR 60120 (November 7,
2019).
4 15 U.S.C. 78s(b)(2).
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87798; File No. SR–IEX–
2019–14]
Self-Regulatory Organizations;
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend IEX
Rule 11.190(e) To Expand the
Exchange’s Existing AntiInternalization Functionality and Make
Conforming and Clarifying Changes to
IEX Rule 11.190(e) and Other IEX Rules
December 18, 2019.
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 (date),
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.
1 15
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5 Id.
6 17
CFR 200.30–3(a)(31).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 84, No. 247 / Thursday, December 26, 2019 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Pursuant to the provisions of Section
19(b)(1) under the Act,4 and Rule 19b–
4 thereunder,5 IEX is filing with the
Commission a proposed rule change to
amend IEX Rule 11.190(e) to expand the
Exchange’s existing anti-internalization
functionality and make conforming and
clarifying changes to IEX Rule 11.190(e)
and other IEX rules. The Exchange has
designated this rule change as ‘‘noncontroversial’’ under Section 19(b)(3)(A)
of the Act 6 and provided the
Commission with the notice required by
Rule 19b–4(f)(6) thereunder.7
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
Statutory Basis for, the Proposed Rule
Change
1. Purpose
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The Exchange proposes to amend IEX
Rule 11.190(e) to expand its existing
anti-internalization functionality and
make conforming and clarifying changes
to IEX Rule 11.190(e) and other IEX
rules.
IEX currently offers optional antiinternalization functionality to Users 8
that enables a User to prevent two of its
orders from executing against each
other. Users can set anti-internalization
functionality to apply at the market
participant identifier (‘‘MPID’’) or User
4 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
6 15 U.S.C. 78s(b)(3)(A).
7 17 CFR 240.19b–4.
8 Pursuant to IEX Rule 1.160(qq), a User means
any Member or Sponsored Participant who is
authorized to obtain access to the System pursuant
to IEX Rule 11.130. Member is defined in IEX Rule
1.160(s), and Sponsored Participant is defined in
IEX Rule 1.160(ll).
5 17
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level. In order to utilize antiinternalization functionality, a User
adds a unique User-determined ‘‘AntiInternalization Group (‘‘AGID’’)
modifier’’ on a new order message.
When a User designates an active order 9
with an AGID modifier, the order is
prevented from executing against a
resting opposite order designated with
the same AGID modifier and originating
from the same MPID or Exchange User
(referred to in IEX Rule 11.190(e) as a
‘‘group type’’). Instead of executing, the
System 10 cancels the older of the orders
back to the User. Determination of
‘‘older’’ is based upon the time the order
is received by the System, including by
initial order entry, User revision (i.e.,
cancel/replace), or returning to the
System from routing.
As provided in the supplementary
material to IEX Rule 11.190(e), IEX’s
anti-internalization functionality does
not relieve or otherwise modify the duty
of best execution owed to orders
received from public customers. As
such, market participants using the
AGID modifier need to take appropriate
steps to ensure public customer orders
that do not execute because they were
subject to anti-internalization ultimately
receive the same execution price (or
better) than they would have originally
obtained if execution of the order was
not inhibited by anti-internalization.
Furthermore, Market Makers 11 and
other Users must not use the AGID
modifier to evade the firm quotation
obligation, as specified in IEX Rule
11.151(b). And the AGID modifier must
be used in a manner consistent with just
and equitable principles of trade.12
Proposal
In order to provide additional
flexibility to Users, the Exchange
proposes to expand the antiinternalization functionality it offers by
adding four additional antiinternalization modifiers, to be referred
to as Anti-Internalization Qualifier
(‘‘AIQ’’) modifiers, each of which would
implement anti-internalization in a
different manner.13 In order to provide
additional clarity, the Exchange also
proposes to restructure the terminology
to identify orders subject to antiinternalization. As proposed, instead of
using the term ‘‘AGID’’ or ‘‘AGID
modifier’’ to identify orders that will not
trade with each other, the Exchange will
introduce the term ‘‘AIQ identifier’’ to
9 See
IEX Rule 1.160(b).
IEX Rule 1.160(nn).
11 See IEX Rule 11.150.
12 See IEX Rule 11.190(e) Supplementary Material
.01–.03.
13 The functionality currently offered by the AGID
modifier will become one of the five AIQ modifiers.
refer to the unique User-supplied
identifier included on an order message
designating the order as subject to antiinternalization. Orders that have the
same AIQ identifier and originate from
the same MPID or Exchange User, as
specified by the User,14 will be part of
the same ‘‘AIQ group.’’ As with the
existing AGID modifier, orders within
the same AIQ group will be prevented
from executing against each other.
In addition, a User can also specify
the type of anti-internalization
functionality to be applied by including
one of the following five AIQ modifiers
on the order message, which specifies
how two orders subject to antiinternalization would interact:
1. Cancel Oldest (‘‘CO’’). An active
order marked with the CO AIQ modifier
will not execute against opposite side
resting interest marked with any AIQ
modifier within the same AIQ group.
The older order will be canceled back to
the originating User. In accordance with
User instructions, the newer order will
be cancelled back to the originating User
or remain on or post to the Order
Book.15 This option is the existing antiinternalization functionality currently
offered by the Exchange, and the default
AIQ modifier.
2. Cancel Newest (‘‘CN’’). An active
order marked with the CN AIQ modifier
will not execute against opposite side
resting interest marked with any AIQ
modifier within the same AIQ group.
The newer order will be cancelled back
to the originating User. The older order
will remain on the Order Book.
3. Cancel Both (‘‘CB’’). An active
order marked with the CB AIQ modifier
will not execute against opposite side
resting interest marked with any AIQ
modifier within the same AIQ group.
The entire size of both orders will be
cancelled back to the originating User.
4. Cancel Smallest (‘‘CS’’). An active
order marked with the CS AIQ modifier
will not execute against opposite side
resting interest marked with any AIQ
modifier within the same AIQ group. If
both orders are equivalent in size, both
orders will be cancelled back to the
originating User. If the orders are not
equivalent in size, the smaller of the two
orders will be cancelled back to the
originating User and the larger order
will remain on or post to the Order
Book.
5. Decrement Larger—Original Order
Quantity (‘‘DLO’’). An active order
marked with the DLO AIQ modifier will
10 See
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14 A Member may elect to enable antiinternalization functionality on an IEX Port Request
Form, designating whether such functionality
should be applied on an MPID or User basis.
15 See IEX Rule 1.160(p).
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not execute against opposite side resting
interest marked with any AIQ modifier
within the same AIQ group. If both
orders are equivalent in size, both
orders will be cancelled back to the
originating User. If the orders are not
equivalent in size, the size of the larger
order will be decremented by the size of
the smaller order, and the smaller order
will be cancelled back to the User.
However, if the order with the newer
timestamp is marked with the DLO AIQ
modifier and the older order is not, and
if the newer order is smaller than the
older order, then both orders will be
canceled back to the originating User. In
addition, routable orders designated
with the DLO AIQ modifier will be
rejected.16
If a User includes an AIQ group
identifier, but not an AIQ modifier on
an order, the Exchange will apply the
default Cancel Oldest AIQ modifier to
the order. If the AIQ modifiers on two
orders within the same AIQ group that
would otherwise execute against each
other are not the same (including
application of the default Cancel Oldest
AIQ modifier), the AIQ modifier on the
order with the newer timestamp will
control the interaction between the two
orders. Determination of ‘‘newer’’ and
‘‘older’’ would be based upon each
order’s timestamp, as specified in IEX
Rule 11.220(a)(1)(C).17
The proposed rule change is designed
to provide additional flexibility to Users
in how they implement self-trade
prevention provided by the Exchange,
and thereby better manage their order
flow and prevent undesirable
executions or the potential for ‘‘wash
sales’’ that may occur as a result of the
speed of trading in today’s marketplace.
Based on informal discussions with
Members, the Exchange believes that the
proposed additional types of antiinternalization functionality will be
useful to Members in implementing
their own compliance controls. And the
additional AIQ functionality may assist
Users in complying with certain rules
and regulations of the Employee
Retirement Income Security Act
(‘‘ERISA’’) that preclude and/or limit
managing broker-dealers of such
accounts from trading as principal with
orders generated for those accounts.
16 Due to technical complexities, the System is
not currently able to apply the DLO AIQ modifier
to routable orders.
17 Existing rule text in IEX Rule 11.190(e)
provides that ‘‘older’’ is based upon the time the
order is received by the System, including by initial
order entry, User revision (i.e., cancel/replace), or
returning to the System from routing. The Exchange
proposes to describe the concept of ‘‘older’’ as well
as ‘‘newer’’ with reference to an order’s timestamp
in order to provide more clarity. No substantive
change is proposed.
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The Exchange notes that, as with the
current anti-internalization
functionality offered by IEX, use of the
proposed new AIQ modifiers will not
alleviate, or otherwise exempt, Users
from their best execution obligations. As
such, market participants using the AIQ
modifiers will continue to be obligated
to take appropriate steps to ensure that
customer orders that do not execute
because they were subject to antiinternalization ultimately receive the
same price, or a better price, than they
would have received had execution of
the orders not been inhibited by antiinternalization.18 Further, as with
current rule provisions, Market Makers
and other Users may not use AIQ
functionality to evade the firm quote
obligation, as specified in IEX Rule
11.151(b), and the AIQ functionality
must be used in a manner consistent
with just and equitable principles of
trade.19 For these reasons, the Exchange
believes the proposed new AIQ
modifiers offer Users enhanced order
processing functionality that may
prevent potentially undesirable
executions without negatively
impacting broker-dealer best execution
obligations.
IEX also proposes to make several
conforming and clarifying changes to
IEX Rule 11.190(e) and other IEX rules,
as described below:
• Change the rule title of IEX Rule
11.190(e) from ‘‘Anti-Internalization
Group Identifier (‘‘AGID’’) Modifier’’ to
‘‘Anti-Internalization (‘‘AIQ’’)
Functionality’’ to reflect the expanded
new functionality.
• Add a new subparagraph (2) of IEX
Rule 11.190(e) to set forth the five AIQ
modifiers to be offered by IEX, as
described above, and renumber existing
subparagraphs (2)–(5) as (3)–(6).
• Replace references to the ‘‘group
type’’ with the term AIQ group in IEX
Rule 11.190(e).
• Revise the text of subparagraph (5)
of IEX Rule 11.190(e) (previously
subparagraph (4)) regarding
compatibility of Book Recheck and
treatment of an active order that has
been invited to Recheck against the
Order Book to reflect the new AIQ
modifiers. Previously, the subparagraph
stated that if the active order that has
been invited to Recheck against the
Order Book is older than a resting order
subject to anti-internalization, the active
order will be cancelled in accordance
with the existing anti-internalization
functionality that cancels the older
18 See Supplementary Material .01 to IEX Rule
11.190(e).
19 See Supplementary Material .02 and .03 to IEX
Rule 11.190(e).
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71055
order. As proposed, the subparagraph
clarifies that the active order will be
treated as older or newer based upon its
timestamp. As set forth in the new IEX
Rule 11.190(e), the AIQ modifier on the
newer of the two orders will control the
interaction between the two orders
subject to anti-internalization.
• Replace the references to the ‘‘AGID
modifier’’ with references to the ‘‘AIQ
functionality’’ in Supplementary
Materials .01–.03 to IEX Rule 11.190(e).
• Replace all references to ‘‘AGID
modifiers’’ with ‘‘AIQ modifiers’’ in IEX
Rules 11.231(b)(1), 11.350(c)(2)(C),
11.350(d)(2)(C), 11.350(e)(2)(D),
11.350(f)(2)(F), and 11.350(f)(3)(B)(iii).
• Revise the rule text in Rule
11.151(b) (‘‘Market Maker Obligations’’)
that refers to quotations that are
‘‘designated with an AGID modifier
which is the same as that of an active
opposite side order and originating from
the same group type’’ to quotations that
are ‘‘part of the same AIQ group’’ and
replace ‘‘AGID modifiers’’ with ‘‘AIQ
functionality’’ in the last sentence.
Replace the text in Rule 11.220(7)
(‘‘Priority of Orders—AntiInternalization’’) that refers to orders
‘‘entered under the same AGID
modifier’’ with ‘‘that are part of the
same AIQ group’’. In addition, IEX
proposes to add language referencing
IEX Rule 11.190(e) to specify that orders
subject to anti-internalization that are
part of the same AIQ group will not
execute against each other as set forth in
IEX Rule 11.190(e).
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,20 in general, and
furthers the objectives of Section
6(b)(5),21 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 the addition of
four new AIQ modifiers will provide
Exchange Users with additional
flexibility with respect to how they
implement self-trade protections
provided by IEX. Users that prefer the
20 15
21 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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current anti-internalization
functionality offered by the Exchange
can continue to use it without any
modification (i.e., if the User does not
specify the AIQ modifier for two orders
subject to anti-internalization, the
Exchange will cancel the older of the
two orders, as is currently done for
orders using the AGID modifier). And
Users that prefer to implement antiinternalization in a different manner
would be provided with the proposed
new functionality that may better
support their trading strategies.
As noted in the Purpose section, IEX
believes that providing Users with more
flexibility and control over the
interactions of their orders will better
prevent undesirable executions or the
potential for ‘‘wash sales’’ that may
occur as a result of the speed of trading
in today’s marketplace. And the
additional AIQ functionality may better
assist Users in complying with certain
ERISA rules and regulations that
preclude and/or limit managing brokerdealers of such accounts from trading as
principal with orders generated for
those accounts.
Further, the Exchange believes that
providing enhanced AIQ functionality
may streamline certain regulatory
functions by reducing false positive
results that may occur on wash trading
surveillance reports when two orders in
the same AIQ group are executed,
notwithstanding that the transaction
may not constitute a wash trade.22
The Exchange also believes that it is
consistent with the Act to provide that
the Cancel Oldest AIQ modifier is the
default modifier if a User does not
include an AIQ modifier on an order
subject to anti-internalization because
such functionality is less complex than
the other AIQ modifiers since it simply
cancels the older order. The Cancel
Oldest AIQ modifier is also identical to
the current functionality, and therefore
the Exchange believes that a User that
fails to include a specific modifier
would most likely expect the cancel
oldest functionality to apply.
Additionally, the Exchange believes
that it is consistent with the Act for the
AIQ modifier on the newer order to
control the interaction between two
orders subject to anti-internalization
that would otherwise execute, since the
newer order would likely represent the
User’s more current trading objective.
Further, the Exchange believes that
the proposed conforming and clarifying
rule changes, as discussed in the
Purpose section, are consistent with the
protection of investors and the public
interest because they will simply
conform terminology and provide
clarity and consistency on how the
Exchange’s anti-internalization
functionality works.
Finally, the Exchange notes that the
proposed additional anti-internalization
functionality is substantially similar to
the anti-internalization interactions
offered by other national securities
exchanges.23 Consequently, the
Exchange does not believe that the
proposed rule change raises any new or
novel issues not already considered by
the Commission.
22 For example, the Exchange believes that
transactions that originate from unrelated
algorithms or from separate and distinct trading
strategies within the same firm would generally be
considered bona fide self-trades.
23 See, e.g., Cboe BZX Exchange, Inc. (‘‘Cboe
BZX’’) Equities Rule 11.9(f); Cboe BYX Exchange,
Inc. (‘‘Cboe BYX’’) Equities Rule 11.9(f); CBOE
EDGA, Inc. (‘‘EDGA’’) Rule 11.10(d); CBOE EDGX,
Inc. (‘‘EDGX’’) Rule 21.1(g).
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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 offering
additional anti-internalization
functionality may enhance its ability to
compete with other exchanges that offer
such additional functionality. Further,
the proposed rule change is designed to
enhance the anti-internalization
functionality offered to Users by
providing additional flexibility over the
manner in which their orders subject to
anti-internalization controls interact,
while assisting Users with compliance
with the securities laws that prohibit
wash trading as well as ERISA
requirements. The Exchange also notes
that the proposed new functionality,
like the current anti-internalization
functionality, is completely optional
and Users can determine on an orderby-order, MPID, or User basis whether
to apply anti-internalization protections
to orders submitted to the Exchange.
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.
As described above, competing
exchanges have similar antiinternalization functionality. Moreover,
there is no barrier to other national
securities exchanges adopting similar
anti-internalization protections.
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 Users will
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continue to be eligible to use the
Exchange’s anti-internalization
functionality. While not every User
engages in a business that might involve
risks of self-matching against its own
orders, for the Users that do face that
risk, the proposed additional antiinternalization functionality will help
the User with its own compliance with
the securities laws and ERISA. Further,
implementation of anti-internalization
functionality impacts only a User’s
orders, and not the orders of other
Members.
Finally, the proposed conforming and
clarifying rule changes, as discussed in
the Purpose section, are not designed to
address any competitive issue, but
rather to conform terminology and
provide clarity and consistency on the
operation of the Exchange’s antiinternalization functionality.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
An IEX employee exchanged informal
email messages responding to a Member
that had inquired as to whether IEX
would be expanding the types of AIQ
functionality available. The email
messages discussed the additional AIQ
functionality that is the subject of this
proposed rule change. The Member
provided feedback that was supportive
of the proposed rule change.
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) 24 of the Act and
Rule 19b–4(f)(6) 25 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.
The Exchange believes that the
proposed rule change meets the criteria
of subparagraph (f)(6) of Rule 19b–4 26
because, as discussed above, the
additional functionality is based on
similar rules of other exchange.27 Thus,
IEX does not believe that the proposed
changes raise any new or novel material
24 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
26 17 CFR 240.19b–4(f)(6).
27 See supra note 23.
25 17
E:\FR\FM\26DEN1.SGM
26DEN1
Federal Register / Vol. 84, No. 247 / Thursday, December 26, 2019 / Notices
issues that have not already been
considered by the Commission in
connection with existing antiinternalization functionality offered by
IEX and other national securities
exchanges. Accordingly, the Exchange
has designated this rule filing as noncontroversial under Section 19(b)(3)(A)
of the Act 28 and paragraph (f)(6) of Rule
19b–4 thereunder.29
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) 30 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:
khammond on DSKJM1Z7X2PROD 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 SR–
IEX–2019–14 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–2019–14. 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–2019–14 and should
be submitted on or before January 16,
2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019–27731 Filed 12–23–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87791; File No. SR–
NYSEArca–2019–77]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To List and Trade Shares
of the AdvisorShares Pure US
Cannabis ETF Under NYSE Arca Rule
8.600–E
December 18, 2019.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on December
13, 2019, NYSE Arca, Inc. (‘‘NYSE
Arca’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
31 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
28 15
U.S.C. 78s(b)(3)(A).
29 17 CFR 240.19b–4.
30 15 U.S.C. 78s(b)(2)(B).
VerDate Sep<11>2014
16:53 Dec 23, 2019
1 15
Jkt 250001
PO 00000
Frm 00130
Fmt 4703
Sfmt 4703
71057
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of the AdvisorShares Pure
US Cannabis ETF under NYSE Arca
Rule 8.600–E. The proposed change is
available on the Exchange’s website at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade shares (‘‘Shares’’) of the
AdvisorShares Pure US Cannabis ETF
(the ‘‘Fund’’) under NYSE Arca Rule
8.600–E, which provides generic criteria
applicable to the listing and trading of
Managed Fund Shares on the
Exchange.4
AdvisorShares Investments, LLC (the
‘‘Adviser’’) is the investment adviser for
the Fund. AdvisorShares Trust (the
‘‘Trust’’) and the Adviser manage the
Fund’s investments, subject to the
oversight and supervision by the Board
of Trustees (the ‘‘Board’’) of the Trust.5
4 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (the ‘‘1940 Act’’) organized
as an open-end investment company or similar
entity that invests in a portfolio of securities
selected by its investment adviser consistent with
its investment objectives and policies. In contrast,
an open-end investment company that issues
Investment Company Units, listed and traded on
the Exchange under NYSE Arca Rule 5.2–E(j)(3),
seeks to provide investment results that correspond
generally to the price and yield performance of a
specific foreign or domestic stock index, fixed
income securities index or combination thereof.
5 The Trust is registered under the 1940 Act. On
August 19, 2019, the Trust filed with the
Commission Post-Effective Amendment No. 145 to
the Trust’s registration statement on Form N–1A
under the Securities Act of 1933 (15 U.S.C. 77a)
(‘‘Securities Act’’), and under the 1940 Act relating
Continued
E:\FR\FM\26DEN1.SGM
26DEN1
]]>Agencies
[Federal Register Volume 84, Number 247 (Thursday, December 26, 2019)]
[Notices]
[Pages 71053-71057]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27731]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87798; File No. SR-IEX-2019-14]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend IEX
Rule 11.190(e) To Expand the Exchange's Existing Anti-Internalization
Functionality and Make Conforming and Clarifying Changes to IEX Rule
11.190(e) and Other IEX Rules
December 18, 2019.
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 (date), 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
[[Page 71054]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of Section 19(b)(1) under the Act,\4\
and Rule 19b-4 thereunder,\5\ IEX is filing with the Commission a
proposed rule change to amend IEX Rule 11.190(e) to expand the
Exchange's existing anti-internalization functionality and make
conforming and clarifying changes to IEX Rule 11.190(e) and other IEX
rules. The Exchange has designated this rule change as ``non-
controversial'' under Section 19(b)(3)(A) of the Act \6\ and provided
the Commission with the notice required by Rule 19b-4(f)(6)
thereunder.\7\
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(b)(1).
\5\ 17 CFR 240.19b-4.
\6\ 15 U.S.C. 78s(b)(3)(A).
\7\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend IEX Rule 11.190(e) to expand its
existing anti-internalization functionality and make conforming and
clarifying changes to IEX Rule 11.190(e) and other IEX rules.
IEX currently offers optional anti-internalization functionality to
Users \8\ that enables a User to prevent two of its orders from
executing against each other. Users can set anti-internalization
functionality to apply at the market participant identifier (``MPID'')
or User level. In order to utilize anti-internalization functionality,
a User adds a unique User-determined ``Anti-Internalization Group
(``AGID'') modifier'' on a new order message. When a User designates an
active order \9\ with an AGID modifier, the order is prevented from
executing against a resting opposite order designated with the same
AGID modifier and originating from the same MPID or Exchange User
(referred to in IEX Rule 11.190(e) as a ``group type''). Instead of
executing, the System \10\ cancels the older of the orders back to the
User. Determination of ``older'' is based upon the time the order is
received by the System, including by initial order entry, User revision
(i.e., cancel/replace), or returning to the System from routing.
---------------------------------------------------------------------------
\8\ Pursuant to IEX Rule 1.160(qq), a User means any Member or
Sponsored Participant who is authorized to obtain access to the
System pursuant to IEX Rule 11.130. Member is defined in IEX Rule
1.160(s), and Sponsored Participant is defined in IEX Rule
1.160(ll).
\9\ See IEX Rule 1.160(b).
\10\ See IEX Rule 1.160(nn).
---------------------------------------------------------------------------
As provided in the supplementary material to IEX Rule 11.190(e),
IEX's anti-internalization functionality does not relieve or otherwise
modify the duty of best execution owed to orders received from public
customers. As such, market participants using the AGID modifier need to
take appropriate steps to ensure public customer orders that do not
execute because they were subject to anti-internalization ultimately
receive the same execution price (or better) than they would have
originally obtained if execution of the order was not inhibited by
anti-internalization. Furthermore, Market Makers \11\ and other Users
must not use the AGID modifier to evade the firm quotation obligation,
as specified in IEX Rule 11.151(b). And the AGID modifier must be used
in a manner consistent with just and equitable principles of trade.\12\
---------------------------------------------------------------------------
\11\ See IEX Rule 11.150.
\12\ See IEX Rule 11.190(e) Supplementary Material .01-.03.
---------------------------------------------------------------------------
Proposal
In order to provide additional flexibility to Users, the Exchange
proposes to expand the anti-internalization functionality it offers by
adding four additional anti-internalization modifiers, to be referred
to as Anti-Internalization Qualifier (``AIQ'') modifiers, each of which
would implement anti-internalization in a different manner.\13\ In
order to provide additional clarity, the Exchange also proposes to
restructure the terminology to identify orders subject to anti-
internalization. As proposed, instead of using the term ``AGID'' or
``AGID modifier'' to identify orders that will not trade with each
other, the Exchange will introduce the term ``AIQ identifier'' to refer
to the unique User-supplied identifier included on an order message
designating the order as subject to anti-internalization. Orders that
have the same AIQ identifier and originate from the same MPID or
Exchange User, as specified by the User,\14\ will be part of the same
``AIQ group.'' As with the existing AGID modifier, orders within the
same AIQ group will be prevented from executing against each other.
---------------------------------------------------------------------------
\13\ The functionality currently offered by the AGID modifier
will become one of the five AIQ modifiers.
\14\ A Member may elect to enable anti-internalization
functionality on an IEX Port Request Form, designating whether such
functionality should be applied on an MPID or User basis.
---------------------------------------------------------------------------
In addition, a User can also specify the type of anti-
internalization functionality to be applied by including one of the
following five AIQ modifiers on the order message, which specifies how
two orders subject to anti-internalization would interact:
1. Cancel Oldest (``CO''). An active order marked with the CO AIQ
modifier will not execute against opposite side resting interest marked
with any AIQ modifier within the same AIQ group. The older order will
be canceled back to the originating User. In accordance with User
instructions, the newer order will be cancelled back to the originating
User or remain on or post to the Order Book.\15\ This option is the
existing anti-internalization functionality currently offered by the
Exchange, and the default AIQ modifier.
---------------------------------------------------------------------------
\15\ See IEX Rule 1.160(p).
---------------------------------------------------------------------------
2. Cancel Newest (``CN''). An active order marked with the CN AIQ
modifier will not execute against opposite side resting interest marked
with any AIQ modifier within the same AIQ group. The newer order will
be cancelled back to the originating User. The older order will remain
on the Order Book.
3. Cancel Both (``CB''). An active order marked with the CB AIQ
modifier will not execute against opposite side resting interest marked
with any AIQ modifier within the same AIQ group. The entire size of
both orders will be cancelled back to the originating User.
4. Cancel Smallest (``CS''). An active order marked with the CS AIQ
modifier will not execute against opposite side resting interest marked
with any AIQ modifier within the same AIQ group. If both orders are
equivalent in size, both orders will be cancelled back to the
originating User. If the orders are not equivalent in size, the smaller
of the two orders will be cancelled back to the originating User and
the larger order will remain on or post to the Order Book.
5. Decrement Larger--Original Order Quantity (``DLO''). An active
order marked with the DLO AIQ modifier will
[[Page 71055]]
not execute against opposite side resting interest marked with any AIQ
modifier within the same AIQ group. If both orders are equivalent in
size, both orders will be cancelled back to the originating User. If
the orders are not equivalent in size, the size of the larger order
will be decremented by the size of the smaller order, and the smaller
order will be cancelled back to the User. However, if the order with
the newer timestamp is marked with the DLO AIQ modifier and the older
order is not, and if the newer order is smaller than the older order,
then both orders will be canceled back to the originating User. In
addition, routable orders designated with the DLO AIQ modifier will be
rejected.\16\
---------------------------------------------------------------------------
\16\ Due to technical complexities, the System is not currently
able to apply the DLO AIQ modifier to routable orders.
---------------------------------------------------------------------------
If a User includes an AIQ group identifier, but not an AIQ modifier
on an order, the Exchange will apply the default Cancel Oldest AIQ
modifier to the order. If the AIQ modifiers on two orders within the
same AIQ group that would otherwise execute against each other are not
the same (including application of the default Cancel Oldest AIQ
modifier), the AIQ modifier on the order with the newer timestamp will
control the interaction between the two orders. Determination of
``newer'' and ``older'' would be based upon each order's timestamp, as
specified in IEX Rule 11.220(a)(1)(C).\17\
---------------------------------------------------------------------------
\17\ Existing rule text in IEX Rule 11.190(e) provides that
``older'' is based upon the time the order is received by the
System, including by initial order entry, User revision (i.e.,
cancel/replace), or returning to the System from routing. The
Exchange proposes to describe the concept of ``older'' as well as
``newer'' with reference to an order's timestamp in order to provide
more clarity. No substantive change is proposed.
---------------------------------------------------------------------------
The proposed rule change is designed to provide additional
flexibility to Users in how they implement self-trade prevention
provided by the Exchange, and thereby better manage their order flow
and prevent undesirable executions or the potential for ``wash sales''
that may occur as a result of the speed of trading in today's
marketplace. Based on informal discussions with Members, the Exchange
believes that the proposed additional types of anti-internalization
functionality will be useful to Members in implementing their own
compliance controls. And the additional AIQ functionality may assist
Users in complying with certain rules and regulations of the Employee
Retirement Income Security Act (``ERISA'') that preclude and/or limit
managing broker-dealers of such accounts from trading as principal with
orders generated for those accounts.
The Exchange notes that, as with the current anti-internalization
functionality offered by IEX, use of the proposed new AIQ modifiers
will not alleviate, or otherwise exempt, Users from their best
execution obligations. As such, market participants using the AIQ
modifiers will continue to be obligated to take appropriate steps to
ensure that customer orders that do not execute because they were
subject to anti-internalization ultimately receive the same price, or a
better price, than they would have received had execution of the orders
not been inhibited by anti-internalization.\18\ Further, as with
current rule provisions, Market Makers and other Users may not use AIQ
functionality to evade the firm quote obligation, as specified in IEX
Rule 11.151(b), and the AIQ functionality must be used in a manner
consistent with just and equitable principles of trade.\19\ For these
reasons, the Exchange believes the proposed new AIQ modifiers offer
Users enhanced order processing functionality that may prevent
potentially undesirable executions without negatively impacting broker-
dealer best execution obligations.
---------------------------------------------------------------------------
\18\ See Supplementary Material .01 to IEX Rule 11.190(e).
\19\ See Supplementary Material .02 and .03 to IEX Rule
11.190(e).
---------------------------------------------------------------------------
IEX also proposes to make several conforming and clarifying changes
to IEX Rule 11.190(e) and other IEX rules, as described below:
Change the rule title of IEX Rule 11.190(e) from ``Anti-
Internalization Group Identifier (``AGID'') Modifier'' to ``Anti-
Internalization (``AIQ'') Functionality'' to reflect the expanded new
functionality.
Add a new subparagraph (2) of IEX Rule 11.190(e) to set
forth the five AIQ modifiers to be offered by IEX, as described above,
and renumber existing subparagraphs (2)-(5) as (3)-(6).
Replace references to the ``group type'' with the term AIQ
group in IEX Rule 11.190(e).
Revise the text of subparagraph (5) of IEX Rule 11.190(e)
(previously subparagraph (4)) regarding compatibility of Book Recheck
and treatment of an active order that has been invited to Recheck
against the Order Book to reflect the new AIQ modifiers. Previously,
the subparagraph stated that if the active order that has been invited
to Recheck against the Order Book is older than a resting order subject
to anti-internalization, the active order will be cancelled in
accordance with the existing anti-internalization functionality that
cancels the older order. As proposed, the subparagraph clarifies that
the active order will be treated as older or newer based upon its
timestamp. As set forth in the new IEX Rule 11.190(e), the AIQ modifier
on the newer of the two orders will control the interaction between the
two orders subject to anti-internalization.
Replace the references to the ``AGID modifier'' with
references to the ``AIQ functionality'' in Supplementary Materials
.01-.03 to IEX Rule 11.190(e).
Replace all references to ``AGID modifiers'' with ``AIQ
modifiers'' in IEX Rules 11.231(b)(1), 11.350(c)(2)(C),
11.350(d)(2)(C), 11.350(e)(2)(D), 11.350(f)(2)(F), and
11.350(f)(3)(B)(iii).
Revise the rule text in Rule 11.151(b) (``Market Maker
Obligations'') that refers to quotations that are ``designated with an
AGID modifier which is the same as that of an active opposite side
order and originating from the same group type'' to quotations that are
``part of the same AIQ group'' and replace ``AGID modifiers'' with
``AIQ functionality'' in the last sentence.
Replace the text in Rule 11.220(7) (``Priority of Orders--Anti-
Internalization'') that refers to orders ``entered under the same AGID
modifier'' with ``that are part of the same AIQ group''. In addition,
IEX proposes to add language referencing IEX Rule 11.190(e) to specify
that orders subject to anti-internalization that are part of the same
AIQ group will not execute against each other as set forth in IEX Rule
11.190(e).
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\20\ in general, and furthers the
objectives of Section 6(b)(5),\21\ 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 the addition of
four new AIQ modifiers will provide Exchange Users with additional
flexibility with respect to how they implement self-trade protections
provided by IEX. Users that prefer the
[[Page 71056]]
current anti-internalization functionality offered by the Exchange can
continue to use it without any modification (i.e., if the User does not
specify the AIQ modifier for two orders subject to anti-
internalization, the Exchange will cancel the older of the two orders,
as is currently done for orders using the AGID modifier). And Users
that prefer to implement anti-internalization in a different manner
would be provided with the proposed new functionality that may better
support their trading strategies.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
As noted in the Purpose section, IEX believes that providing Users
with more flexibility and control over the interactions of their orders
will better prevent undesirable executions or the potential for ``wash
sales'' that may occur as a result of the speed of trading in today's
marketplace. And the additional AIQ functionality may better assist
Users in complying with certain ERISA rules and regulations that
preclude and/or limit managing broker-dealers of such accounts from
trading as principal with orders generated for those accounts.
Further, the Exchange believes that providing enhanced AIQ
functionality may streamline certain regulatory functions by reducing
false positive results that may occur on wash trading surveillance
reports when two orders in the same AIQ group are executed,
notwithstanding that the transaction may not constitute a wash
trade.\22\
---------------------------------------------------------------------------
\22\ For example, the Exchange believes that transactions that
originate from unrelated algorithms or from separate and distinct
trading strategies within the same firm would generally be
considered bona fide self-trades.
---------------------------------------------------------------------------
The Exchange also believes that it is consistent with the Act to
provide that the Cancel Oldest AIQ modifier is the default modifier if
a User does not include an AIQ modifier on an order subject to anti-
internalization because such functionality is less complex than the
other AIQ modifiers since it simply cancels the older order. The Cancel
Oldest AIQ modifier is also identical to the current functionality, and
therefore the Exchange believes that a User that fails to include a
specific modifier would most likely expect the cancel oldest
functionality to apply.
Additionally, the Exchange believes that it is consistent with the
Act for the AIQ modifier on the newer order to control the interaction
between two orders subject to anti-internalization that would otherwise
execute, since the newer order would likely represent the User's more
current trading objective.
Further, the Exchange believes that the proposed conforming and
clarifying rule changes, as discussed in the Purpose section, are
consistent with the protection of investors and the public interest
because they will simply conform terminology and provide clarity and
consistency on how the Exchange's anti-internalization functionality
works.
Finally, the Exchange notes that the proposed additional anti-
internalization functionality is substantially similar to the anti-
internalization interactions offered by other national securities
exchanges.\23\ Consequently, the Exchange does not believe that the
proposed rule change raises any new or novel issues not already
considered by the Commission.
---------------------------------------------------------------------------
\23\ See, e.g., Cboe BZX Exchange, Inc. (``Cboe BZX'') Equities
Rule 11.9(f); Cboe BYX Exchange, Inc. (``Cboe BYX'') Equities Rule
11.9(f); CBOE EDGA, Inc. (``EDGA'') Rule 11.10(d); CBOE EDGX, Inc.
(``EDGX'') Rule 21.1(g).
---------------------------------------------------------------------------
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 offering additional anti-internalization functionality
may enhance its ability to compete with other exchanges that offer such
additional functionality. Further, the proposed rule change is designed
to enhance the anti-internalization functionality offered to Users by
providing additional flexibility over the manner in which their orders
subject to anti-internalization controls interact, while assisting
Users with compliance with the securities laws that prohibit wash
trading as well as ERISA requirements. The Exchange also notes that the
proposed new functionality, like the current anti-internalization
functionality, is completely optional and Users can determine on an
order-by-order, MPID, or User basis whether to apply anti-
internalization protections to orders submitted to the Exchange.
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. As described
above, competing exchanges have similar anti-internalization
functionality. Moreover, there is no barrier to other national
securities exchanges adopting similar anti-internalization protections.
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 Users
will continue to be eligible to use the Exchange's anti-internalization
functionality. While not every User engages in a business that might
involve risks of self-matching against its own orders, for the Users
that do face that risk, the proposed additional anti-internalization
functionality will help the User with its own compliance with the
securities laws and ERISA. Further, implementation of anti-
internalization functionality impacts only a User's orders, and not the
orders of other Members.
Finally, the proposed conforming and clarifying rule changes, as
discussed in the Purpose section, are not designed to address any
competitive issue, but rather to conform terminology and provide
clarity and consistency on the operation of the Exchange's anti-
internalization functionality.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
An IEX employee exchanged informal email messages responding to a
Member that had inquired as to whether IEX would be expanding the types
of AIQ functionality available. The email messages discussed the
additional AIQ functionality that is the subject of this proposed rule
change. The Member provided feedback that was supportive of the
proposed rule change.
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) \24\ of the Act and Rule 19b-4(f)(6) \25\
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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\24\ 15 U.S.C. 78s(b)(3)(A).
\25\ 17 CFR 240.19b-4(f)(6).
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The Exchange believes that the proposed rule change meets the
criteria of subparagraph (f)(6) of Rule 19b-4 \26\ because, as
discussed above, the additional functionality is based on similar rules
of other exchange.\27\ Thus, IEX does not believe that the proposed
changes raise any new or novel material
[[Page 71057]]
issues that have not already been considered by the Commission in
connection with existing anti-internalization functionality offered by
IEX and other national securities exchanges. Accordingly, the Exchange
has designated this rule filing as non-controversial under Section
19(b)(3)(A) of the Act \28\ and paragraph (f)(6) of Rule 19b-4
thereunder.\29\
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\26\ 17 CFR 240.19b-4(f)(6).
\27\ See supra note 23.
\28\ 15 U.S.C. 78s(b)(3)(A).
\29\ 17 CFR 240.19b-4.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \30\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\30\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-IEX-2019-14 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-2019-14. 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-2019-14 and should be submitted on
or before January 16, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-27731 Filed 12-23-19; 8:45 am]
BILLING CODE 8011-01-P
