Self-Regulatory Organizations: Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Transaction Fees Pursuant to IEX Rule 15.110 Concerning D-Limit Orders, 63616-63620 [R1-2020-21403]
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Federal Register / Vol. 85, No. 196 / Thursday, October 8, 2020 / Notices
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–CBOE–2020–071 and
should be submitted on or before
October 29, 2020.
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause for
approving the proposed rule change, as
amended by Amendment No. 1, prior to
the 30th day after the date of
publication of notice in the Federal
Register. Amendment No. 1 provided
additional detail and clarity on a few
points without materially changing the
proposal or the proposed rule text.22
The Commission notes that Amendment
No. 1 does not change the substance of
the proposed rule change as it was
initially filed, but merely adds detail to
a few select items of the proposal
regarding their intended scope. These
points of clarification add helpful detail
to support the proposal without
materially altering it. Accordingly, the
Commission finds good cause for
approving the proposed rule change, as
amended, on an accelerated basis,
pursuant to Section 19(b)(2) of the
Act.23
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VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,24 that the
proposed rule change, as modified by
Amendment No. 1 (SR–CBOE–2020–
071), be, and hereby is, approved on an
accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
J. Matthew DeLesDernier,
Assistant Secretary.
BILLING CODE 8011–01–P
in conjunction with the full launch of DLimit trading on October 1, 2020.6
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.
SECURITIES AND EXCHANGE
COMMISSION
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2020–22251 Filed 10–7–20; 8:45 am]
[Release No. 34–89967; File No. SR–IEX–
2020–14]
Self-Regulatory Organizations:
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Related to
Transaction Fees Pursuant to IEX Rule
15.110 Concerning D-Limit Orders
September 23, 2020.
Editorial Note: Notice document 2020–
21403, which published Tuesday, September
29, 2020, was incorrect. We are republishing
it here in its entirety.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 11, 2020, the Investors
Exchange LLC (‘‘IEX’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. 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,3 and Rule 19b–
4 thereunder,4 IEX is filing with the
Commission a proposed rule change to
modify its Fee Schedule, pursuant to
IEX Rule 15.110(a) and (c), to establish
fees for the execution of Discretionary
Limit (‘‘D-Limit’’) orders, including
pricing incentives for certain D-Limit,
Discretionary Peg (‘‘D-Peg’’), and
Midpoint Peg (‘‘M-Peg’’) order
executions. Changes to the Fee Schedule
pursuant to this proposal are effective
upon filing,5 and will be implemented
25 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(1).
4 17 CFR 240.19b–4.
5 15 U.S.C. 78s(b)(3)(A)(ii).
1 15
22 See supra note 4 for a description of
Amendment No. 1.
23 15 U.S.C. 78s(b)(2).
24 Id.
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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 statements 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 modify its
Fee Schedule, pursuant to IEX Rule
15.110(a) and (c), to establish fees for
the execution of Discretionary Limit
(‘‘D-Limit’’) orders, including pricing
incentives for certain D-Limit,
Discretionary Peg (‘‘D-Peg’’) and
Midpoint Peg (‘‘M-Peg’’) order
executions. Changes to the Fee
Schedule, as proposed, will be
implemented in conjunction with the
full launch of D-Limit trading on
October 1, 2020.7
D-Limit Overview
The D-Limit order type was approved
by the Commission on August 26,
2020,8 and is designed to protect
liquidity providers from potential
adverse selection by latency arbitrage
trading strategies in a fair and
nondiscriminatory manner.9 A D-Limit
order may be a displayed or nondisplayed limit order that upon entry
6 See IEX Trading Alert #2020–024 (Discretionary
Limit (D-Limit) Order Type Launch) issued on
August 28, 2020, available at https://
iextrading.com/alerts/#/121. All D-Limit, D-Peg,
and M-Peg executions that occur prior to October
1, 2020 will be subject to the fee schedule in effect
prior to October 1, 2020.
7 See supra note 6.
8 See Securities Exchange Act Release No. 89686
(August 26, 2020), 85 FR 54438 (September 1, 2020)
(SR–IEX–2019–15) (‘‘D-Limit Approval Order’’).
9 See Securities Exchange Act Release No. 87814
(December 20, 2019), 84 FR 71997, 71998
(December 30, 2019) (SR–IEX–2019–15) (‘‘D-Limit
Proposal’’).
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and when posting to the Order Book 10
is priced to be equal to and ranked at
the order’s limit price, but will be
adjusted to a less-aggressive price
during periods of quote instability, as
defined in IEX Rule 11.190(g).11
Otherwise, a D-Limit order operates in
the same manner as either a displayed
or non-displayed limit order, as
applicable.12
Proposed D-Limit Fees
As proposed, liquidity taking D-Limit
orders will be subject to the same
transaction fees as other displayed or
non-displayed orders.13 However, in
order to incentivize the entry of
liquidity providing D-Limit orders, IEX
proposes to establish pricing incentives,
including free executions of certain
liquidity providing D-Limit orders and
discounted execution fees for certain
liquidity providing D-Peg and M-Peg
orders.
Specifically, as proposed, any
Member 14 that enters a D-Limit order
that provides liquidity, with the
exception of executions of such orders
at a price below $1.00 per share, will be
entitled to free executions and certain
reduced transaction fees (in lieu of the
fees otherwise specified and unless a
lower fee applies) 15 as described below:
• A D-Limit order that provides liquidity
and is executed at a price at or above $1.00
per share results in a free execution.
• D-Peg and M-Peg orders that provide
liquidity and execute at a price at or above
$1.00 per share will be subject to a discount
of $0.0002 per share from the fee that would
otherwise be charged for the number of
shares of such orders executed up to the
number of shares of D-Limit orders that
provided liquidity and executed at a price at
or above $1.00 per share during such time
period by the same Member, measured on a
monthly basis.
• IEX will aggregate all of a Member’s
MPIDs to calculate each Member’s D-Peg, MPeg, and D-Limit liquidity providing orders
on a monthly basis. In addition, a Member
may request that the Exchange aggregate its
activity with activity of such Member’s
affiliated Members. A Member requesting
aggregation of affiliate activity is required to
certify to the Exchange the affiliate status of
Members whose activity it seeks to aggregate
10 See
IEX Rule 1.160(p).
IEX Rules 11.190(b)(7) and 11.190(g).
12 See IEX Rule 11.190(b)(7).
13 Generally, IEX currently charges $.0003 per
share for any displayed orders that execute
(whether they add or remove liquidity) and $.0009
per share for any non-displayed orders that execute
(whether they add or remove liquidity). If the shares
execute for less than $1.00 per share, the Exchange
charges 0.30% of the total dollar value of the
transaction. See IEX Fee Schedule, https://
iextrading.com/trading/fees/.
14 See IEX Rule 1.160(s).
15 See IEX Fee Schedule, https://iextrading.com/
trading/fees/.
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11 See
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prior to receiving approval for aggregation
and inform the Exchange immediately of any
event that causes an entity to cease being an
affiliate. The Exchange shall review available
information regarding the entities and
reserves the right to request additional
information to verify the affiliate status of an
entity.16 The Exchange shall approve a
request unless it determines that the
certification is not accurate.17
The proposed fees are designed to
provide a narrowly tailored incentive
for Members to utilize a new and
innovative order type. IEX understands
that Members seeking to utilize the new
D-Limit order type may need to modify
and test their trading strategies and
order entry systems in order to do so,
and the proposed fees are designed to
provide a meaningful economic
incentive for such efforts.
IEX believes that offering free
executions for specified D-Limit orders,
as well as a discount for qualifying DPeg and M-Peg orders, will provide a
meaningful incentive to Members to
adopt the use of D-Limit orders. IEX
operates in a highly competitive
environment in which a large number of
national securities exchanges and other
venues offer markets for the execution
of equities transactions, and in which
market participants can readily direct
order flow to other venues. Accordingly,
IEX believes that it is important to
provide meaningful incentives for the
adoption of D-Limit orders to
demonstrate the value of the order type
in protecting against certain types of
latency arbitrage and thereby result in
increasing use of the order type.
D-Peg and M-Peg order types are
widely used and have achieved
significant adoption by a diverse group
of IEX Members. Consequently, IEX
believes that combining free executions
for certain liquidity providing D-Limit
orders with discounted executions for
certain liquidity providing D-Peg and
16 For example, the Exchange would review a
Member’s Form BD in FINRA’s Central Registration
Depository (‘‘CRD’’) to verify that the Member(s) for
which it seeks aggregation pursuant to the proposed
rule is under 75% common ownership or control
of the requesting Member.
17 If two or more Members become affiliated on
or prior to the sixteenth day of a month and submit
the required request for aggregation on or prior to
the twenty-second day of the month, an approval
of the request by the Exchange shall be deemed to
be effective as of the first day of that month. If two
or more Members become affiliated after the
sixteenth day of a month or submit a request for
aggregation after the twenty-second day of the
month, an approval of the request by the Exchange
shall be deemed to be effective as of the first day
of the next calendar month. For purposes of
applying the fees and discounts proposed herein,
references to Member shall include the Member and
any of its affiliates that have been approved for
aggregation, and the term ‘‘affiliate’’ shall mean any
Member under 75% common ownership or control
of that Member.
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63617
M-Peg orders, as described above, will
effectively augment the incentive value
provision of free D-Limit liquidity
providing executions for orders
executed at or above $1.00.
IEX believes that providing pricing
incentives to liquidity providing orders
will best incentivize the adoption of DLimit orders. While a D-Limit order can
take liquidity upon entry, IEX believes
that its commercial success will be
based on Members having favorable
experiences as liquidity adders,
particularly for displayed liquidity
providing D-Limit orders. As the
Commission noted in the D-Limit
Approval Order:
[E]xchange functionality that protects
resting displayed orders against adverse
selection resulting from latency arbitrage will
improve the execution quality experienced
by market participants that post displayed
liquidity and are affected by such adverse
selection. This improved execution quality
could encourage more displayed liquidity,
which in turn, would contribute to fair and
orderly markets and support the public price
discovery process. Specifically, if sufficiently
protected against being ‘‘picked off’’ when
the conditions for latency arbitrage are
present, long term investors will no longer
experience those relatively poor executions
and thus will have less incentive to avoid
posting displayed orders on exchanges.18
IEX believes that targeting fee
incentives to liquidity adders will
enable Members to see for themselves
the benefits of using the innovative DLimit order type, while adding to the
pool of displayed (as well as nondisplayed) liquidity from which all
market participants will benefit.
Specifically, IEX believes that the
proposed fees are a narrowly tailored
approach that is designed to increase
liquidity on IEX, which would benefit
investors in securities traded on IEX.
Specifically, to the extent Members post
more displayed D-Limit orders on IEX,
price discovery would be enhanced
drawing more natural trading interest to
the public markets, which would
deepen liquidity and dampen the
impact of shocks from liquidity
demand. The Exchange notes that other
exchanges offer a diverse range of feebased incentives to their members for
trading activity that they believe
incentivizes liquidity adding orders,
and thereby improves market quality.19
18 See D-Limit Approval Order, supra note 8,
54443.
19 Notably, several exchanges pay rebates to
Members for liquidity adding orders, which means
the exchanges actually pay Members to add
liquidity. See, e.g., New York Stock Exchange Price
List as of August 20, 2020 (offering free execution
for liquidity adding orders, with rebates ranging
from $0.0000 to $0.0030 per share executed),
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Importantly, the Exchange is not
proposing to offer a rebate, in that the
proposed fee reduction will not be
greater than the fee charged for
executions on the Exchange. The
Exchange will offer a discount to the
fees charged for qualifying orders, but
such discounts will not result in any net
payments to Members for the execution
of such orders. The proposed fees are
designed to provide an alternative feebased incentive to Members to utilize a
new order type on IEX.
Finally, IEX notes that the affiliate
aggregation for purposes of applying DLimit fees and discounts is similar to
pricing structures in place at other
exchanges. For example, the New York
Stock Exchange, Inc. (‘‘NYSE’’) pricing
rules provide that ‘‘[f]or purposes of
applying any provision of the Price List
where the charge assessed, or credit
provided, by the Exchange depends
upon the volume of a member
organization’s activity, a member
organization may request that the
Exchange aggregate its eligible activity
with the eligible activity of its
affiliates.’’ The NYSE Price List also
includes provisions regarding
aggregation requests, and the timing
thereof, that are substantially similar to
those proposed in this rule change.
Nasdaq Stock Market (‘‘Nasdaq’’)
pricing rules contain virtually identical
provisions.20
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2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,21 in general, and
furthers the objectives of Section
6(b)(4) 22 of the Act, in particular, in that
it is designed to provide for the
equitable allocation of reasonable fees
among IEX members and persons using
its facilities. Additionally, IEX believes
that the proposed fees are consistent
with the investor protection objectives
of Section 6(b)(5) 23 of the Act, in
particular, in that they are 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
https://www.nyse.com/publicdocs/nyse/markets/
nyse/NYSE_Price_List.pdf; and Nasdaq Equity 7
Pricing Schedule (offering free execution for
liquidity adding orders, with rebates ranging from
$0.00005 to $0.0033 per share executed). See
https://listingcenter.nasdaq.com/rulebook/nasdaq/
rules/nasdaq-equity-7.
20 See NYSE’s Price List, available at: https://
www.nyse.com/publicdocs/nyse/markets/nyse/
NYSE_Price_List.pdf; see also Nasdaq Equities 7
Pricing Schedule, Section 127.
21 15 U.S.C. 78f(b).
22 15 U.S.C. 78f(b)(4).
23 15 U.S.C. 78f(b)(5).
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transactions in securities; to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest; and are not designed to
permit unfair discrimination between
customers, brokers, or dealers.
The Exchange believes that the
proposed fees are consistent with the
Act because they would be available to
all Members on a fair, equal and
nondiscriminatory basis. All Members,
regardless of their technological
sophistication, can enter D-Limit
liquidity providing orders priced to
execute at or above $1.00.24 Similarly,
all Members, regardless of their
technological sophistication, can enter
liquidity providing D-Peg and M-Peg
orders priced to execute at or above
$1.00. Thus, all Members are able to
benefit from the proposed fees on a fair,
equal and nondiscriminatory basis.
The proposed fees take a narrowly
tailored approach, designed to
maximize participation for the launch of
D-Limit by incentivizing the entry of
certain displayed and non-displayed
liquidity adding D-Limit orders. As
noted in the Purpose section, IEX
understands that Members seeking to
utilize the D-Limit order type may need
to modify and test their trading
strategies and order entry systems in
order to do so, and the proposed fees are
designed to provide a meaningful
economic incentive for such efforts.
As discussed in the Purpose section,
IEX believes that the proposed fees are
narrowly tailored to incentivize
Members to enter liquidity providing DLimit, D-Peg and M-Peg orders on IEX
that execute at or above $1.00, which
would have several benefits to investors
in securities traded on IEX. First, to the
extent Members post more displayed DLimit orders on IEX, price discovery
would be enhanced potentially drawing
more natural trading interest to the
public markets, which would deepen
liquidity and dampen the impact of
shocks from liquidity demand. Second,
incentivizing the entry of both
displayed and non-displayed liquidity
adding orders should deepen the
Exchange’s liquidity pool and
contribute to public price discovery,
consistent with the goal of enhancing
market quality. Third, to the extent that
the proposed fees incentivize additional
liquidity providing D-Peg and M-Peg
orders that execute at the Midpoint
24 See D-Limit Approval Order, supra note 8,
54450 (‘‘Because IEX will reprice all D-Limit orders
without further action from the user, all users will
benefit equally regardless of their technological
capabilities and ability to take action within a
prescribed period.’’)
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Price 25 and at or above $1.00, such
orders will result in benefits to
counterparties, offering price
improvement over the prevailing
national best bid and offer prices.26
Finally, to the extent price discovery is
enhanced and more orders are drawn to
the public markets, orders executed on
IEX will have the benefit of exchange
transparency, regulation, and oversight.
These benefits would generally apply to
all Members, even if a Member elects to
not use the D-Limit order type.
Additionally, IEX notes that it
operates in an increasingly competitive
and fragmented marketplace consisting
of a large number of national securities
exchanges and non-exchange venues
that trade equity securities. As a
relatively small market, IEX believes
that meaningful pricing incentives are
necessary to encourage market
participants to utilize the new D-Limit
order type and address the significant
competitive challenges of attracting
liquidity to the Exchange. While the
Exchange believes that adding liquidity
with a D-Limit order with less risk of
adverse selection should provide an
incentive for Members to use D-Limit,
the Exchange also believes that offering
Members the proposed fees will
enhance such incentive.
The Exchange notes that other
exchanges offer a diverse range of
pricing incentives to their members for
providing certain order flow. For
example, Cboe BZX Exchange, Inc.
offers free executions for orders that
participate in its new Cboe Market
Close, which it describes as a
‘‘competitive pricing structure designed
to incentivize market participants to
direct their [Market-On-Close] orders to
the Cboe Market Close, which the
Exchange believes would facilitate the
execution of those orders . . . .’’ 27 And
several exchanges offer rebate tiers for
liquidity adding orders, which increase
in value as the member increases its
volume of liquidity adding orders.28
25 See
IEX Rule 1.160(t).
IEX Rule 1.160(u).
27 See Securities Exchange Act Release No. 88487
(March 26, 2020), 85 FR 18290 (April 1, 2020) (SR–
CboeBZX–2020–027).
28 See e.g., ‘‘Nasdaq Growth Program,’’ Nasdaq
Equity 7 Section 114 (paying a $0.0025 per share
rebate to a member that adds a daily average of
750,000 or more shares and also increases its
volume of shares traded on Nasdaq in prior months
by 20%; and paying a larger $0.0027 per share
rebate if that member increases its share of liquidity
adding volume by at least 50% versus its August
2016 share of liquidity adding volume); see also
NYSE Arca Equities Fee Schedule, Retail Order
Step-Up Tiers 1–3 (paying rebates ranging from
$0.0035 to $0.0037 per share for retail orders that
provide displayed liquidity with the rebates
increasing as the member submits more retail orders
(both adding and taking) in any given month when
compared to a prior period).
26 See
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Furthermore, several exchanges use
‘‘cross-asset’’ incentives, which offer
pricing incentives to members that
submit different order types to the
exchange.29 Similarly, other exchanges
have fee structures that use trading in
one order type to incentivize trading
either in another order type or more
generally, as well as coupling
requirements of displayed and nondisplayed volume to qualify for
preferential pricing, that are analogous
to IEX’s proposal to provide discounts
to certain D-Peg and M-Peg executions
to incentive the use of D-Limit orders.30
Additionally, other exchanges have fee
structures that incentivize the posting of
non-displayed liquidity adding orders,
which is analogous to how the proposed
fees incentivize non-displayed liquidity
adding M-Peg and D-Peg orders, in
addition to incentivizing liquidity
adding D-Limit orders.31 Finally, maker29 See, e.g., NYSE Arca Equities Fee Schedule,
Cross-Asset Tiers 1–2 (paying rebates of $0.0031 per
share and $0.0030 per share, respectively, for
adding more than 0.30% of consolidated average
daily volume concurrent with an affiliate meeting
certain volume thresholds on the NYSE Arca
Options exchange). See https://www.nyse.com/
publicdocs/nyse/markets/nyse-arca/NYSE_Arca_
Marketplace_Fees.pdf. See also, Cboe BZX
Exchange, Inc. Cross-Asset Tape B Tier (paying a
rebate of $0.0031 per share for adding volume since
February 2015 equal to or greater than 0.06% of
total consolidated volume if the member also has
an options market maker that added options
customer volume equal to or greater than 1.00%),
available at https://markets.cboe.com/us/equities/
membership/fee_schedule/bzx/.
30 See Nasdaq Equities 7 Pricing Schedule,
Section 118 (providing lower fees or higher rebates/
credits for specified levels of volume, either
generally or through the use of a particular order
type if coupled with specified volume in other
specified order types, including several examples of
rebates tied to adding displayed liquidity and nondisplayed liquidity at specified levels of volume).
For example, Nasdaq pays a rebate of $0.00295 per
share for adding more than 0.70% of total
consolidated volume (‘‘TCV’’), provided that at least
0.20% of the added TCV was done with midpoint
and midpoint extended life orders, and the member
also removed at least 1.10% of TCV). Similarly,
Nasdaq pays a rebate of $0.0027 per share for
displayed quotes/orders that provide liquidity if the
member also takes and provides specified levels of
consolidated volume and provides a daily average
of at least 800,000 shares of non-displayed liquidity
during the month in question; see also NYSE Arca
Equities Fee Schedule, Limit Non-Displayed Order
Step Up Tier (paying rebates ranging from $0.0004
to $0.0020 per share for meeting certain thresholds
of adding limit non-displayed liquidity and adding
midpoint (non-displayed) liquidity). Similarly,
NYSE Arca pays rebates ranging from $0.0029 to
$0.0031 per share for orders that meet certain
thresholds for adding displayed liquidity, removing
liquidity, and participating in the exchange’s
closing auctions, including additional rebates of
between $0.0010 to $0.0020 per share for adding
liquidity with non-displayed midpoint orders.
31 See Nasdaq Equities 7 Pricing Schedule,
Section 118 (providing rebates of between $0.0005
to $0.0075 per share for adding non-displayed
liquidity at specified levels of volume, provided
that some of the added non-displayed liquidity was
done with various combinations of midpoint and
midpoint extended life orders).
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taker exchanges pay rebates to members
that add liquidity,32 while taker-maker
exchanges pay rebates to members that
take liquidity, in each case to
incentivize such order flow.33
The proposed fees are designed to
provide a simple, non-rebate incentive
to market participants to enter certain
liquidity providing D-Limit orders on
IEX, through free executions and
discounts on certain D-Peg and M-Peg
orders.
The Exchange further believes that the
proposed fees are consistent with the
Act’s requirement that the Exchange
provide for an equitable allocation of
fees because all Members are eligible for
incentive pricing on the same terms and
conditions, and there are no restrictions
on the use of impacted order types.
Additionally, IEX believes that it is
reasonable to incentivize Members to
use certain D-Limit liquidity providing
orders in view of the potential burdens
on those Members that choose to adopt
this new order type and the highly
competitive market in which IEX
operates, which provides myriad
alternatives to Members. Furthermore,
the Exchange believes that the proposed
fees are an equitable allocation of fees
because to the extent the incentive
pricing results in increased liquidity on
IEX, all market participants will benefit,
irrespective of if the market participant
is an IEX Member that submits certain
liquidity adding D-Limit, D-Peg, and MPeg orders. Accordingly, IEX believes
that the proposed fees constitute an
equitable allocation of fees.
Moreover, the Exchange believes that
the proposal to cap the $0.0002 discount
on certain D-Peg and M-Peg orders
executed by a Member (including any
aggregated affiliates) at the number of DLimit liquidity adding shares executed
by that Member in the same month is
reasonable, because the cap is designed
to further incentivize Members to
submit certain liquidity-adding D-Limit
orders. Further, all Members will benefit
from the discount in the same manner
based on the number of qualifying DLimit liquidity adding shares they
execute.
Finally, the Exchange believes that
the proposed aggregation provision is
consistent with the protection of
32 See
supra note 19.
EDGA pays a $0.018 per share rebate for
liquidity taking orders, see https://
markets.cboe.com/us/equities/membership/fee_
schedule/edga/; Cboe BYX pays a $0.005 per share
rebate for liquidity taking orders, see https://
markets.cboe.com/us/equities/membership/fee_
schedule/byx/; and Nasdaq BX pays between
$0.0000 and $0.0030 per share for liquidity taking
orders, see Nasdaq BX Equity 7, https://
listingcenter.nasdaq.com/rulebook/bx/rules/bxequity-7.
33 Cboe
PO 00000
Frm 00120
Fmt 4703
Sfmt 4703
63619
investors and the public interest
because it establishes a clear policy with
respect to affiliate aggregation for fee
purposes that is common among other
exchanges, thereby promoting Members’
understanding of the parameters of the
D-Limit fee and discount structure and
the efficiency of its administration. The
proposed rule is equitable because all
similarly situated members are subject
to the proposed rules equally, and
access to the Exchange is offered on fair
and nondiscriminatory terms.
All Members seeking to aggregate
their activity are subject to the same
reasonable parameters, in accordance
with a standard that recognizes an
affiliation as of the month’s beginning,
or close in time to when the affiliation
occurs, provided the Member submits a
timely request. Moreover, the proposed
billing aggregation language is
reasonable because it establishes a
standard for implementation of
aggregation requests that is easy to
administer and that reflects the need for
the Exchange to review and approve
aggregation requests while avoiding the
complexities associated with proration
of the bills of Members that become
affiliated during the course of a month.
The Exchange believes that this
approach will thus simplify the process
of billing for the Exchange and its
Members and is substantially similar to
aggregation standards adopted by other
exchanges.34
The Exchange also believes that the
proposed rule change avoids disparate
treatment of Members that have divided
their various business activities between
separate legal entities as compared to
Members that operate those business
activities within a single legal entity.
The Exchange further notes that the
aggregation provisions are reasonable
and designed to remove impediments to
and perfect the mechanism of a free and
open market by harmonizing with the
rules across exchanges that govern the
aggregation of certain activity for
purposes of billing. In particular, as
noted above, both Nasdaq and NYSE
have substantially similar rules
governing aggregation of activity for fee
purposes.35 Thus, the Exchange believes
the proposed change does not present
any unique or novel issues under the
Act that have not already been
considered by the Commission.
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
34 See
supra note 20.
35 Id.
E:\FR\FM\08OCN1.SGM
08OCN1
63620
Federal Register / Vol. 85, No. 196 / Thursday, October 8, 2020 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
necessary or appropriate in furtherance
of the purposes of the Act. To the
contrary, IEX believes that the proposed
fees would enhance competition and
execution quality by increasing the
Exchange’s pool of both displayed and
non-displayed liquidity, and to the
extent that displayed liquidity
increases, would contribute to the
public price discovery process.
The Exchange does not believe that
the proposed fees will impose any
burden on intermarket competition that
is not necessary or appropriate in
furtherance of the purposes of the Act
since competing venues use various
pricing structures to incentivize market
participants to add liquidity to their
markets, including but not limited to
paying rebates to liquidity providers.36
The proposed fees are a means of
providing such incentives without the
use of rebates, as described in the
Purpose and Statutory Basis sections.
And, as noted in the Statutory Basis
section, other exchanges have adopted
similar pricing incentives for their
current offerings. Moreover, subject to
the SEC rule filing process, other
exchanges could adopt a similar order
type and fee incentive. Further, the
Exchange operates in a highly
competitive market in which market
participants can easily direct their
orders to competing venues, including
off-exchange venues, if its fees are
viewed as non-competitive.
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. While Members
that add liquidity using certain D-Limit
orders (as well as certain D-Peg and MPeg orders) will be subject to different
fees based on this usage, those
differences are not based on the type of
Member entering orders but on whether
the Member chose to submit certain
liquidity providing D-Limit orders. As
noted above, not only can any Member
submit certain liquidity adding D-Limit
orders, but every Member would benefit
from the availability of more liquidity
on the Exchange that the proposed fees
are designed to incentivize
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) 37 of the Act.
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) 38 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
IEX–2020–14 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–2020–14. 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
supra note 19.
VerDate Sep<11>2014
17:48 Oct 07, 2020
38 15
Jkt 253001
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.39
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. R1–2020–21403 Filed 10–7–20; 8:45 am]
BILLING CODE 1301–00–D
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90076; File No. SR–MEMX–
2020–10]
Self-Regulatory Organizations; MEMX
LLC; Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change To Adopt the Initial Fee
Schedule and Other Fees for MEMX
LLC
October 2, 2020.
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 21, 2020, MEMX LLC
(‘‘MEMX’’ 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 Exchange.
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
The Exchange is filing with the
Commission a proposed rule change to
adopt (i) the initial fees and rebates
applicable to Members 3 of the Exchange
39 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Exchange Rule 1.5(p).
1 15
37 15
36 See
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
offices 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–2020–14, and should
be submitted on or before October 20,
2020.
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
U.S.C. 78s(b)(2)(B).
Frm 00121
Fmt 4703
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08OCN1
]]>Agencies
[Federal Register Volume 85, Number 196 (Thursday, October 8, 2020)]
[Notices]
[Pages 63616-63620]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: R1-2020-21403]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89967; File No. SR-IEX-2020-14]
Self-Regulatory Organizations: Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Related to
Transaction Fees Pursuant to IEX Rule 15.110 Concerning D-Limit Orders
September 23, 2020.
Editorial Note: Notice document 2020-21403, which published
Tuesday, September 29, 2020, was incorrect. We are republishing it
here in its entirety.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 11, 2020, the Investors Exchange LLC (``IEX'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. 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.
---------------------------------------------------------------------------
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,\3\
and Rule 19b-4 thereunder,\4\ IEX is filing with the Commission a
proposed rule change to modify its Fee Schedule, pursuant to IEX Rule
15.110(a) and (c), to establish fees for the execution of Discretionary
Limit (``D-Limit'') orders, including pricing incentives for certain D-
Limit, Discretionary Peg (``D-Peg''), and Midpoint Peg (``M-Peg'')
order executions. Changes to the Fee Schedule pursuant to this proposal
are effective upon filing,\5\ and will be implemented in conjunction
with the full launch of D-Limit trading on October 1, 2020.\6\
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78s(b)(1).
\4\ 17 CFR 240.19b-4.
\5\ 15 U.S.C. 78s(b)(3)(A)(ii).
\6\ See IEX Trading Alert #2020-024 (Discretionary Limit (D-
Limit) Order Type Launch) issued on August 28, 2020, available at
https://iextrading.com/alerts/#/121. All D-Limit, D-Peg, and M-Peg
executions that occur prior to October 1, 2020 will be subject to
the fee schedule in effect prior to October 1, 2020.
---------------------------------------------------------------------------
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 statements 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 modify its Fee Schedule, pursuant to IEX
Rule 15.110(a) and (c), to establish fees for the execution of
Discretionary Limit (``D-Limit'') orders, including pricing incentives
for certain D-Limit, Discretionary Peg (``D-Peg'') and Midpoint Peg
(``M-Peg'') order executions. Changes to the Fee Schedule, as proposed,
will be implemented in conjunction with the full launch of D-Limit
trading on October 1, 2020.\7\
---------------------------------------------------------------------------
\7\ See supra note 6.
---------------------------------------------------------------------------
D-Limit Overview
The D-Limit order type was approved by the Commission on August 26,
2020,\8\ and is designed to protect liquidity providers from potential
adverse selection by latency arbitrage trading strategies in a fair and
nondiscriminatory manner.\9\ A D-Limit order may be a displayed or non-
displayed limit order that upon entry
[[Page 63617]]
and when posting to the Order Book \10\ is priced to be equal to and
ranked at the order's limit price, but will be adjusted to a less-
aggressive price during periods of quote instability, as defined in IEX
Rule 11.190(g).\11\ Otherwise, a D-Limit order operates in the same
manner as either a displayed or non-displayed limit order, as
applicable.\12\
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 89686 (August 26,
2020), 85 FR 54438 (September 1, 2020) (SR-IEX-2019-15) (``D-Limit
Approval Order'').
\9\ See Securities Exchange Act Release No. 87814 (December 20,
2019), 84 FR 71997, 71998 (December 30, 2019) (SR-IEX-2019-15) (``D-
Limit Proposal'').
\10\ See IEX Rule 1.160(p).
\11\ See IEX Rules 11.190(b)(7) and 11.190(g).
\12\ See IEX Rule 11.190(b)(7).
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Proposed D-Limit Fees
As proposed, liquidity taking D-Limit orders will be subject to the
same transaction fees as other displayed or non-displayed orders.\13\
However, in order to incentivize the entry of liquidity providing D-
Limit orders, IEX proposes to establish pricing incentives, including
free executions of certain liquidity providing D-Limit orders and
discounted execution fees for certain liquidity providing D-Peg and M-
Peg orders.
---------------------------------------------------------------------------
\13\ Generally, IEX currently charges $.0003 per share for any
displayed orders that execute (whether they add or remove liquidity)
and $.0009 per share for any non-displayed orders that execute
(whether they add or remove liquidity). If the shares execute for
less than $1.00 per share, the Exchange charges 0.30% of the total
dollar value of the transaction. See IEX Fee Schedule, https://iextrading.com/trading/fees/.
---------------------------------------------------------------------------
Specifically, as proposed, any Member \14\ that enters a D-Limit
order that provides liquidity, with the exception of executions of such
orders at a price below $1.00 per share, will be entitled to free
executions and certain reduced transaction fees (in lieu of the fees
otherwise specified and unless a lower fee applies) \15\ as described
below:
---------------------------------------------------------------------------
\14\ See IEX Rule 1.160(s).
\15\ See IEX Fee Schedule, https://iextrading.com/trading/fees/.
A D-Limit order that provides liquidity and is executed
at a price at or above $1.00 per share results in a free execution.
D-Peg and M-Peg orders that provide liquidity and
execute at a price at or above $1.00 per share will be subject to a
discount of $0.0002 per share from the fee that would otherwise be
charged for the number of shares of such orders executed up to the
number of shares of D-Limit orders that provided liquidity and
executed at a price at or above $1.00 per share during such time
period by the same Member, measured on a monthly basis.
IEX will aggregate all of a Member's MPIDs to calculate
each Member's D-Peg, M-Peg, and D-Limit liquidity providing orders
on a monthly basis. In addition, a Member may request that the
Exchange aggregate its activity with activity of such Member's
affiliated Members. A Member requesting aggregation of affiliate
activity is required to certify to the Exchange the affiliate status
of Members whose activity it seeks to aggregate prior to receiving
approval for aggregation and inform the Exchange immediately of any
event that causes an entity to cease being an affiliate. The
Exchange shall review available information regarding the entities
and reserves the right to request additional information to verify
the affiliate status of an entity.\16\ The Exchange shall approve a
request unless it determines that the certification is not
accurate.\17\
---------------------------------------------------------------------------
\16\ For example, the Exchange would review a Member's Form BD
in FINRA's Central Registration Depository (``CRD'') to verify that
the Member(s) for which it seeks aggregation pursuant to the
proposed rule is under 75% common ownership or control of the
requesting Member.
\17\ If two or more Members become affiliated on or prior to the
sixteenth day of a month and submit the required request for
aggregation on or prior to the twenty-second day of the month, an
approval of the request by the Exchange shall be deemed to be
effective as of the first day of that month. If two or more Members
become affiliated after the sixteenth day of a month or submit a
request for aggregation after the twenty-second day of the month, an
approval of the request by the Exchange shall be deemed to be
effective as of the first day of the next calendar month. For
purposes of applying the fees and discounts proposed herein,
references to Member shall include the Member and any of its
affiliates that have been approved for aggregation, and the term
``affiliate'' shall mean any Member under 75% common ownership or
control of that Member.
The proposed fees are designed to provide a narrowly tailored
incentive for Members to utilize a new and innovative order type. IEX
understands that Members seeking to utilize the new D-Limit order type
may need to modify and test their trading strategies and order entry
systems in order to do so, and the proposed fees are designed to
provide a meaningful economic incentive for such efforts.
IEX believes that offering free executions for specified D-Limit
orders, as well as a discount for qualifying D-Peg and M-Peg orders,
will provide a meaningful incentive to Members to adopt the use of D-
Limit orders. IEX operates in a highly competitive environment in which
a large number of national securities exchanges and other venues offer
markets for the execution of equities transactions, and in which market
participants can readily direct order flow to other venues.
Accordingly, IEX believes that it is important to provide meaningful
incentives for the adoption of D-Limit orders to demonstrate the value
of the order type in protecting against certain types of latency
arbitrage and thereby result in increasing use of the order type.
D-Peg and M-Peg order types are widely used and have achieved
significant adoption by a diverse group of IEX Members. Consequently,
IEX believes that combining free executions for certain liquidity
providing D-Limit orders with discounted executions for certain
liquidity providing D-Peg and M-Peg orders, as described above, will
effectively augment the incentive value provision of free D-Limit
liquidity providing executions for orders executed at or above $1.00.
IEX believes that providing pricing incentives to liquidity
providing orders will best incentivize the adoption of D-Limit orders.
While a D-Limit order can take liquidity upon entry, IEX believes that
its commercial success will be based on Members having favorable
experiences as liquidity adders, particularly for displayed liquidity
providing D-Limit orders. As the Commission noted in the D-Limit
Approval Order:
[E]xchange functionality that protects resting displayed orders
against adverse selection resulting from latency arbitrage will
improve the execution quality experienced by market participants
that post displayed liquidity and are affected by such adverse
selection. This improved execution quality could encourage more
displayed liquidity, which in turn, would contribute to fair and
orderly markets and support the public price discovery process.
Specifically, if sufficiently protected against being ``picked off''
when the conditions for latency arbitrage are present, long term
investors will no longer experience those relatively poor executions
and thus will have less incentive to avoid posting displayed orders
on exchanges.\18\
---------------------------------------------------------------------------
\18\ See D-Limit Approval Order, supra note 8, 54443.
IEX believes that targeting fee incentives to liquidity adders will
enable Members to see for themselves the benefits of using the
innovative D-Limit order type, while adding to the pool of displayed
(as well as non-displayed) liquidity from which all market participants
will benefit.
Specifically, IEX believes that the proposed fees are a narrowly
tailored approach that is designed to increase liquidity on IEX, which
would benefit investors in securities traded on IEX. Specifically, to
the extent Members post more displayed D-Limit orders on IEX, price
discovery would be enhanced drawing more natural trading interest to
the public markets, which would deepen liquidity and dampen the impact
of shocks from liquidity demand. The Exchange notes that other
exchanges offer a diverse range of fee-based incentives to their
members for trading activity that they believe incentivizes liquidity
adding orders, and thereby improves market quality.\19\
---------------------------------------------------------------------------
\19\ Notably, several exchanges pay rebates to Members for
liquidity adding orders, which means the exchanges actually pay
Members to add liquidity. See, e.g., New York Stock Exchange Price
List as of August 20, 2020 (offering free execution for liquidity
adding orders, with rebates ranging from $0.0000 to $0.0030 per
share executed), https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf; and Nasdaq Equity 7 Pricing Schedule (offering
free execution for liquidity adding orders, with rebates ranging
from $0.00005 to $0.0033 per share executed). See https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/nasdaq-equity-7.
---------------------------------------------------------------------------
[[Page 63618]]
Importantly, the Exchange is not proposing to offer a rebate, in
that the proposed fee reduction will not be greater than the fee
charged for executions on the Exchange. The Exchange will offer a
discount to the fees charged for qualifying orders, but such discounts
will not result in any net payments to Members for the execution of
such orders. The proposed fees are designed to provide an alternative
fee-based incentive to Members to utilize a new order type on IEX.
Finally, IEX notes that the affiliate aggregation for purposes of
applying D-Limit fees and discounts is similar to pricing structures in
place at other exchanges. For example, the New York Stock Exchange,
Inc. (``NYSE'') pricing rules provide that ``[f]or purposes of applying
any provision of the Price List where the charge assessed, or credit
provided, by the Exchange depends upon the volume of a member
organization's activity, a member organization may request that the
Exchange aggregate its eligible activity with the eligible activity of
its affiliates.'' The NYSE Price List also includes provisions
regarding aggregation requests, and the timing thereof, that are
substantially similar to those proposed in this rule change. Nasdaq
Stock Market (``Nasdaq'') pricing rules contain virtually identical
provisions.\20\
---------------------------------------------------------------------------
\20\ See NYSE's Price List, available at: https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf; see also Nasdaq
Equities 7 Pricing Schedule, Section 127.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\21\ in general, and furthers the
objectives of Section 6(b)(4) \22\ of the Act, in particular, in that
it is designed to provide for the equitable allocation of reasonable
fees among IEX members and persons using its facilities. Additionally,
IEX believes that the proposed fees are consistent with the investor
protection objectives of Section 6(b)(5) \23\ of the Act, in
particular, in that they are 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; 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; and are not designed to permit unfair discrimination
between customers, brokers, or dealers.
---------------------------------------------------------------------------
\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(4).
\23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed fees are consistent with
the Act because they would be available to all Members on a fair, equal
and nondiscriminatory basis. All Members, regardless of their
technological sophistication, can enter D-Limit liquidity providing
orders priced to execute at or above $1.00.\24\ Similarly, all Members,
regardless of their technological sophistication, can enter liquidity
providing D-Peg and M-Peg orders priced to execute at or above $1.00.
Thus, all Members are able to benefit from the proposed fees on a fair,
equal and nondiscriminatory basis.
---------------------------------------------------------------------------
\24\ See D-Limit Approval Order, supra note 8, 54450 (``Because
IEX will reprice all D-Limit orders without further action from the
user, all users will benefit equally regardless of their
technological capabilities and ability to take action within a
prescribed period.'')
---------------------------------------------------------------------------
The proposed fees take a narrowly tailored approach, designed to
maximize participation for the launch of D-Limit by incentivizing the
entry of certain displayed and non-displayed liquidity adding D-Limit
orders. As noted in the Purpose section, IEX understands that Members
seeking to utilize the D-Limit order type may need to modify and test
their trading strategies and order entry systems in order to do so, and
the proposed fees are designed to provide a meaningful economic
incentive for such efforts.
As discussed in the Purpose section, IEX believes that the proposed
fees are narrowly tailored to incentivize Members to enter liquidity
providing D-Limit, D-Peg and M-Peg orders on IEX that execute at or
above $1.00, which would have several benefits to investors in
securities traded on IEX. First, to the extent Members post more
displayed D-Limit orders on IEX, price discovery would be enhanced
potentially drawing more natural trading interest to the public
markets, which would deepen liquidity and dampen the impact of shocks
from liquidity demand. Second, incentivizing the entry of both
displayed and non-displayed liquidity adding orders should deepen the
Exchange's liquidity pool and contribute to public price discovery,
consistent with the goal of enhancing market quality. Third, to the
extent that the proposed fees incentivize additional liquidity
providing D-Peg and M-Peg orders that execute at the Midpoint Price
\25\ and at or above $1.00, such orders will result in benefits to
counterparties, offering price improvement over the prevailing national
best bid and offer prices.\26\ Finally, to the extent price discovery
is enhanced and more orders are drawn to the public markets, orders
executed on IEX will have the benefit of exchange transparency,
regulation, and oversight. These benefits would generally apply to all
Members, even if a Member elects to not use the D-Limit order type.
---------------------------------------------------------------------------
\25\ See IEX Rule 1.160(t).
\26\ See IEX Rule 1.160(u).
---------------------------------------------------------------------------
Additionally, IEX notes that it operates in an increasingly
competitive and fragmented marketplace consisting of a large number of
national securities exchanges and non-exchange venues that trade equity
securities. As a relatively small market, IEX believes that meaningful
pricing incentives are necessary to encourage market participants to
utilize the new D-Limit order type and address the significant
competitive challenges of attracting liquidity to the Exchange. While
the Exchange believes that adding liquidity with a D-Limit order with
less risk of adverse selection should provide an incentive for Members
to use D-Limit, the Exchange also believes that offering Members the
proposed fees will enhance such incentive.
The Exchange notes that other exchanges offer a diverse range of
pricing incentives to their members for providing certain order flow.
For example, Cboe BZX Exchange, Inc. offers free executions for orders
that participate in its new Cboe Market Close, which it describes as a
``competitive pricing structure designed to incentivize market
participants to direct their [Market-On-Close] orders to the Cboe
Market Close, which the Exchange believes would facilitate the
execution of those orders . . . .'' \27\ And several exchanges offer
rebate tiers for liquidity adding orders, which increase in value as
the member increases its volume of liquidity adding orders.\28\
[[Page 63619]]
Furthermore, several exchanges use ``cross-asset'' incentives, which
offer pricing incentives to members that submit different order types
to the exchange.\29\ Similarly, other exchanges have fee structures
that use trading in one order type to incentivize trading either in
another order type or more generally, as well as coupling requirements
of displayed and non-displayed volume to qualify for preferential
pricing, that are analogous to IEX's proposal to provide discounts to
certain D-Peg and M-Peg executions to incentive the use of D-Limit
orders.\30\ Additionally, other exchanges have fee structures that
incentivize the posting of non-displayed liquidity adding orders, which
is analogous to how the proposed fees incentivize non-displayed
liquidity adding M-Peg and D-Peg orders, in addition to incentivizing
liquidity adding D-Limit orders.\31\ Finally, maker-taker exchanges pay
rebates to members that add liquidity,\32\ while taker-maker exchanges
pay rebates to members that take liquidity, in each case to incentivize
such order flow.\33\
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\27\ See Securities Exchange Act Release No. 88487 (March 26,
2020), 85 FR 18290 (April 1, 2020) (SR-CboeBZX-2020-027).
\28\ See e.g., ``Nasdaq Growth Program,'' Nasdaq Equity 7
Section 114 (paying a $0.0025 per share rebate to a member that adds
a daily average of 750,000 or more shares and also increases its
volume of shares traded on Nasdaq in prior months by 20%; and paying
a larger $0.0027 per share rebate if that member increases its share
of liquidity adding volume by at least 50% versus its August 2016
share of liquidity adding volume); see also NYSE Arca Equities Fee
Schedule, Retail Order Step-Up Tiers 1-3 (paying rebates ranging
from $0.0035 to $0.0037 per share for retail orders that provide
displayed liquidity with the rebates increasing as the member
submits more retail orders (both adding and taking) in any given
month when compared to a prior period).
\29\ See, e.g., NYSE Arca Equities Fee Schedule, Cross-Asset
Tiers 1-2 (paying rebates of $0.0031 per share and $0.0030 per
share, respectively, for adding more than 0.30% of consolidated
average daily volume concurrent with an affiliate meeting certain
volume thresholds on the NYSE Arca Options exchange). See https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/NYSE_Arca_Marketplace_Fees.pdf. See also, Cboe BZX Exchange, Inc.
Cross-Asset Tape B Tier (paying a rebate of $0.0031 per share for
adding volume since February 2015 equal to or greater than 0.06% of
total consolidated volume if the member also has an options market
maker that added options customer volume equal to or greater than
1.00%), available at https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/.
\30\ See Nasdaq Equities 7 Pricing Schedule, Section 118
(providing lower fees or higher rebates/credits for specified levels
of volume, either generally or through the use of a particular order
type if coupled with specified volume in other specified order
types, including several examples of rebates tied to adding
displayed liquidity and non-displayed liquidity at specified levels
of volume). For example, Nasdaq pays a rebate of $0.00295 per share
for adding more than 0.70% of total consolidated volume (``TCV''),
provided that at least 0.20% of the added TCV was done with midpoint
and midpoint extended life orders, and the member also removed at
least 1.10% of TCV). Similarly, Nasdaq pays a rebate of $0.0027 per
share for displayed quotes/orders that provide liquidity if the
member also takes and provides specified levels of consolidated
volume and provides a daily average of at least 800,000 shares of
non-displayed liquidity during the month in question; see also NYSE
Arca Equities Fee Schedule, Limit Non-Displayed Order Step Up Tier
(paying rebates ranging from $0.0004 to $0.0020 per share for
meeting certain thresholds of adding limit non-displayed liquidity
and adding midpoint (non-displayed) liquidity). Similarly, NYSE Arca
pays rebates ranging from $0.0029 to $0.0031 per share for orders
that meet certain thresholds for adding displayed liquidity,
removing liquidity, and participating in the exchange's closing
auctions, including additional rebates of between $0.0010 to $0.0020
per share for adding liquidity with non-displayed midpoint orders.
\31\ See Nasdaq Equities 7 Pricing Schedule, Section 118
(providing rebates of between $0.0005 to $0.0075 per share for
adding non-displayed liquidity at specified levels of volume,
provided that some of the added non-displayed liquidity was done
with various combinations of midpoint and midpoint extended life
orders).
\32\ See supra note 19.
\33\ Cboe EDGA pays a $0.018 per share rebate for liquidity
taking orders, see https://markets.cboe.com/us/equities/membership/fee_schedule/edga/; Cboe BYX pays a $0.005 per share rebate for
liquidity taking orders, see https://markets.cboe.com/us/equities/membership/fee_schedule/byx/; and Nasdaq BX pays between $0.0000 and
$0.0030 per share for liquidity taking orders, see Nasdaq BX Equity
7, https://listingcenter.nasdaq.com/rulebook/bx/rules/bx-equity-7.
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The proposed fees are designed to provide a simple, non-rebate
incentive to market participants to enter certain liquidity providing
D-Limit orders on IEX, through free executions and discounts on certain
D-Peg and M-Peg orders.
The Exchange further believes that the proposed fees are consistent
with the Act's requirement that the Exchange provide for an equitable
allocation of fees because all Members are eligible for incentive
pricing on the same terms and conditions, and there are no restrictions
on the use of impacted order types. Additionally, IEX believes that it
is reasonable to incentivize Members to use certain D-Limit liquidity
providing orders in view of the potential burdens on those Members that
choose to adopt this new order type and the highly competitive market
in which IEX operates, which provides myriad alternatives to Members.
Furthermore, the Exchange believes that the proposed fees are an
equitable allocation of fees because to the extent the incentive
pricing results in increased liquidity on IEX, all market participants
will benefit, irrespective of if the market participant is an IEX
Member that submits certain liquidity adding D-Limit, D-Peg, and M-Peg
orders. Accordingly, IEX believes that the proposed fees constitute an
equitable allocation of fees.
Moreover, the Exchange believes that the proposal to cap the
$0.0002 discount on certain D-Peg and M-Peg orders executed by a Member
(including any aggregated affiliates) at the number of D-Limit
liquidity adding shares executed by that Member in the same month is
reasonable, because the cap is designed to further incentivize Members
to submit certain liquidity-adding D-Limit orders. Further, all Members
will benefit from the discount in the same manner based on the number
of qualifying D-Limit liquidity adding shares they execute.
Finally, the Exchange believes that the proposed aggregation
provision is consistent with the protection of investors and the public
interest because it establishes a clear policy with respect to
affiliate aggregation for fee purposes that is common among other
exchanges, thereby promoting Members' understanding of the parameters
of the D-Limit fee and discount structure and the efficiency of its
administration. The proposed rule is equitable because all similarly
situated members are subject to the proposed rules equally, and access
to the Exchange is offered on fair and nondiscriminatory terms.
All Members seeking to aggregate their activity are subject to the
same reasonable parameters, in accordance with a standard that
recognizes an affiliation as of the month's beginning, or close in time
to when the affiliation occurs, provided the Member submits a timely
request. Moreover, the proposed billing aggregation language is
reasonable because it establishes a standard for implementation of
aggregation requests that is easy to administer and that reflects the
need for the Exchange to review and approve aggregation requests while
avoiding the complexities associated with proration of the bills of
Members that become affiliated during the course of a month. The
Exchange believes that this approach will thus simplify the process of
billing for the Exchange and its Members and is substantially similar
to aggregation standards adopted by other exchanges.\34\
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\34\ See supra note 20.
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The Exchange also believes that the proposed rule change avoids
disparate treatment of Members that have divided their various business
activities between separate legal entities as compared to Members that
operate those business activities within a single legal entity. The
Exchange further notes that the aggregation provisions are reasonable
and designed to remove impediments to and perfect the mechanism of a
free and open market by harmonizing with the rules across exchanges
that govern the aggregation of certain activity for purposes of
billing. In particular, as noted above, both Nasdaq and NYSE have
substantially similar rules governing aggregation of activity for fee
purposes.\35\ Thus, the Exchange believes the proposed change does not
present any unique or novel issues under the Act that have not already
been considered by the Commission.
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\35\ Id.
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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
[[Page 63620]]
necessary or appropriate in furtherance of the purposes of the Act. To
the contrary, IEX believes that the proposed fees would enhance
competition and execution quality by increasing the Exchange's pool of
both displayed and non-displayed liquidity, and to the extent that
displayed liquidity increases, would contribute to the public price
discovery process.
The Exchange does not believe that the proposed fees will impose
any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act since competing
venues use various pricing structures to incentivize market
participants to add liquidity to their markets, including but not
limited to paying rebates to liquidity providers.\36\ The proposed fees
are a means of providing such incentives without the use of rebates, as
described in the Purpose and Statutory Basis sections. And, as noted in
the Statutory Basis section, other exchanges have adopted similar
pricing incentives for their current offerings. Moreover, subject to
the SEC rule filing process, other exchanges could adopt a similar
order type and fee incentive. Further, the Exchange operates in a
highly competitive market in which market participants can easily
direct their orders to competing venues, including off-exchange venues,
if its fees are viewed as non-competitive.
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\36\ See supra note 19.
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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. While Members
that add liquidity using certain D-Limit orders (as well as certain D-
Peg and M-Peg orders) will be subject to different fees based on this
usage, those differences are not based on the type of Member entering
orders but on whether the Member chose to submit certain liquidity
providing D-Limit orders. As noted above, not only can any Member
submit certain liquidity adding D-Limit orders, but every Member would
benefit from the availability of more liquidity on the Exchange that
the proposed fees are designed to incentivize
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) \37\ of the Act.
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\37\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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) \38\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\38\ 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-2020-14 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-2020-14. 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 offices 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-2020-14, and should be submitted on
or before October 20, 2020.
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\39\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. R1-2020-21403 Filed 10-7-20; 8:45 am]
BILLING CODE 1301-00-D
