Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing of Proposed Rule Change To Amend IEX Rule 11.510 To Reduce the Outbound Latency That Presently Applies to All Trading Messages Sent From IEX Back to Users of the Exchange, 81982-81987 [2020-27726]
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Federal Register / Vol. 85, No. 243 / Thursday, December 17, 2020 / Notices
19b–4(f)(2) 42 thereunder. At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule 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–
PEARL–2020–33 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–PEARL–2020–33. 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
42 17
CFR 240.19b–4(f)(2).
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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–PEARL–2020–33 and
should be submitted on or before
January 7, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.43
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–27730 Filed 12–16–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90645; File No. SR–IEX–
2020–18]
Self-Regulatory Organizations;
Investors Exchange LLC; Notice of
Filing of Proposed Rule Change To
Amend IEX Rule 11.510 To Reduce the
Outbound Latency That Presently
Applies to All Trading Messages Sent
From IEX Back to Users of the
Exchange
December 11, 2020.
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
9, 2020, the Investors Exchange LLC
(‘‘IEX’’ or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
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 11.510 to reduce the
outbound latency that presently applies
to all trading messages sent from IEX
back to Users 6 of the Exchange to
43 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.
4 15 U.S.C. 78s(b)(1).
5 17 CFR 240.19b–4.
6 See IEX Rule 1.160(qq).
1 15
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include only the actual geographic
distance and related network
connectivity, as well as to make
conforming changes to the outbound
latency that applies to all trading
messages sent from the IEX System 7 to
the System routing logic 8 with respect
to routable orders. 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 amend IEX
Rule 11.510 to reduce the outbound
latency that presently applies to all
trading messages sent from the IEX
System at its primary data center back
to Users of the Exchange to include only
the actual geographic distance and
related network connectivity, as well as
to make conforming changes to the
outbound latency that applies to all
trading messages sent from the IEX
System to the System routing logic with
respect to routable orders.
The Exchange is not proposing to
make any changes to the additional
latency that applies in a symmetrical
manner to all inbound order messages
(i.e., orders, modifications or
cancellations) regardless of whether
such orders are to make or take
liquidity. This additional latency on
inbound order messages, commonly
referred to as the ‘‘IEX Speedbump,’’
continues to be a critical part of the IEX
system and is designed to protect the
interests of investors, brokers, and
market makers that rest orders on IEX.
As described in more detail below,
the additional latencies that are
currently applied to both inbound and
7 See
8 See
E:\FR\FM\17DEN1.SGM
IEX Rule 1.160(nn).
IEX Rule 2.220(a).
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outbound messages between IEX and
Users were put in place for completely
different purposes. In contrast to the
resting order protective design of the
additional inbound latency, the
additional outbound latency was
designed simply to avoid potential
information leakage about an execution
on IEX that could reduce a Member’s 9
ability to access liquidity on other
markets after trading on IEX. As
discussed more fully below, since the
IEX exchange launch in 2016 there have
been significant improvements in
routing technology as well as reductions
in Securities Information Processor
(‘‘SIP’’) market data dissemination
latencies, and as a result the Exchange
believes that the additional outbound
latency is no longer necessary.
The Exchange also notes that no other
national securities exchanges currently
provide for additional latency to
outbound communications. Thus, IEX
does not believe that the proposed
changes raise any new or novel material
issues that have not already been
considered by the Commission in
connection with the operations of other
national securities exchanges, or that
Members could not readily incorporate
into their trading systems.
Background
Connectivity Description
Currently, all Users, which include
Members and Sponsored Participants,10
access IEX through the Exchangeprovided network interface at the IEX
Point-of-Presence 11 or ‘‘POP,’’ located
in Secaucus, New Jersey.12 After
entering through the POP, a User’s
electronic message sent to the System
traverses the IEX ‘‘coil’’ which is a box
containing approximately 38 miles of
compactly coiled optical fiber cable.
After exiting the coil, the User’s message
travels an additional geographic or
physical distance to the System, located
at the Exchange’s primary data center in
Weehawken, New Jersey. The time
required for a message to traverse the
coil combined with the physical
distance (and related networking) to the
System equates to an equivalent 350
microseconds of latency, referred to
herein as the ‘‘inbound latency.’’ 13 All
inbound messages (e.g., orders to buy or
sell and any modification to a
previously sent open order) from any
9 See
IEX Rule 1.160(s).
IEX Rule 1.160(ll).
11 A Point-of-Presence is the location at which
customers of an exchange (or other technological
system) can connect to the exchange.
12 Please see discussion infra with respect to the
connectivity infrastructure applicable to routable
orders.
13 See IEX Rule 11.510(b)(1).
10 See
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User traverse this connectivity
infrastructure, including the coil, in a
symmetrical manner regardless of the
type of message or whether the User is
seeking to buy, sell, make or take
liquidity.
Separately, all outbound messages
from IEX back to a User (e.g.,
confirmations of an execution that
occurred on IEX), as well as messages
from IEX’s TOPS, DEEP and DROP data
products 14 (collectively ‘‘Data
Products’’), pass through the
communication infrastructure in
reverse, referred to herein as the
‘‘outbound latency.’’ 15
Other incoming and outgoing
messages to and from IEX are not
subject to either the inbound or
outbound latency. Instead, they are sent
and received directly to and from the
System, subject only to the latencies
inherent in the geographic distances
that the messages travel. These other
messages include (i) incoming
proprietary market data from other
national securities exchanges and
market data from the SIPs and (ii)
outgoing messages to the SIPs (to
disseminate IEX’s quotation and last
sale/execution information), the
National Securities Clearing Corporation
(to transmit executed transactions) and
other national securities exchanges (to
route orders for potential execution on
such exchanges). In addition, all IEX
Order Book 16 processing and order
executions on the IEX Order Book occur
within the System and are not subject to
the inbound or outbound connectivity
infrastructure.
IEX’s affiliated broker-dealer, IEX
Services LLC (‘‘IEXS’’), is a Member of
the Exchange and is subject to the same
inbound and outbound latency as other
Members, as described in IEX Rules
2.220 and 11.510. If a User sends a
routable order to the Exchange for
potential execution on IEX, after
traversing the inbound latency
(including the coil) to reach the System,
it is directed to the System routing logic
rather than the IEX matching engine.17
Upon receipt of a routable order, the
System routing logic may route all or a
portion of the order to the IEX Order
Book or to another national securities
exchange. Any such orders routed to the
IEX Order Book by the System routing
logic are subject to an additional 350
14 See
IEX Rule 11.330(a).
IEX Rule 11.510(b)(2). IEX’s backup data
center, in Chicago, Illinois, which only consumes
market data from the SIPs, does not have any
inbound or outbound POP/coil latency, see IEX
Rule 11.510 Supplementary Material .01, and is
therefore unaffected by this proposed rule change.
16 See IEX Rule 1.160(p).
17 See IEX Rule 11.230(b).
15 See
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81983
microsecond inbound latency between
the IEX routing logic and the IEX Order
Book. Similarly, the IEX routing logic
may only receive IEX Data Products
subject to the same 350 microsecond
outbound latency as other data
recipients. These additional inbound
and outbound latency delays place IEXS
in the same position as any Member that
is a third-party routing broker in
reaching the IEX Order Book, receiving
outbound order messages, and receiving
IEX Data Products, i.e., IEXS has no
speed or informational advantage
compared to other Members and data
recipients.
See IEX Rule 11.510 for a complete
description of the manner in which
Participants 18 and Extranet Providers 19
may connect to, access, and interact
with the System including the
applicable latencies.
The Critical Function of the
‘‘Speedbump’’
The IEX Speedbump, which applies
additional latency to inbound order
messages (including modifications and
cancellations), is designed to enable IEX
to more effectively manage and price
orders resting on its book when the
market moves. This is because (as
described above) orders sent to IEX are
delayed by 350 microseconds in
reaching IEX’s matching engine but IEX
does not delay its own receipt of market
data from other national securities
exchanges and the SIPs. This approach
is designed to enable IEX’s matching
engine to timely process price changes
and to price or execute orders on the
IEX Order Book at the most accurate
prices possible. As the Commission
noted in approval of IEX’s application to
operate as a national securities exchange
in 2016:
[T]he purpose of IEX’s coil is to provide an
intentional buffer that slows down incoming
orders to allow IEX’s matching engine to
update the prices of resting ‘‘pegged’’ orders
when away prices change to protect resting
pegged orders from the possibility of adverse
selection when the market moves to a new
midpoint price. The allowable price of a
‘‘pegged’’ order will change whenever the
best displayed price across all exchanges
changes, but it takes time for IEX’s system to
receive other exchange data feeds and
recalculate the price of each pegged order
resting on its book. For various reasons, IEX’s
systems may not recalculate prices as fast as
some of the fastest low-latency traders in the
market are able to send orders accessing
pegged orders resting on IEX at potentially
‘‘stale’’ prices. The Commission believes that
the application of the POP/coil delay delays
the ability of low-latency market participants
to take a ‘‘stale’’-priced resting pegged order
18 See
19 See
E:\FR\FM\17DEN1.SGM
IEX Rule 11.130(a).
IEX Rule 11.130(a).
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Federal Register / Vol. 85, No. 243 / Thursday, December 17, 2020 / Notices
on IEX (i.e., before IEX finishes its process of
re-pricing the pegged order in response to
changes in the NBBO) based on those market
participants’ ability to more effectively digest
direct market data feeds and swiftly submit
an order before IEX finishes its process of
updating the prices of pegged orders resting
on its book. (internal citations omitted) 20
In addition, with IEX’s recent
addition of its D-Limit order type, the
IEX speed bump helps IEX re-price DLimit orders in the few seconds of the
day when IEX’s Crumbling Quote
Indicator 21 detects that the national best
bid or offer is likely to move in a
direction adverse to the User of the
order within two milliseconds.22
This application of the IEX
Speedbump, and the benefits therein,
are distinct and different from the
additional (and symmetrical) latency
imposed on outbound trading messages
which was designed to slightly delay
news of an execution to the participants
to the execution and to IEX’s Data
Products. The outbound latency thus
enables a market participant using a
serial routing technique 23 that executes
a trade on IEX to avoid potential
information leakage when subsequently
seeking to access liquidity on other
markets before news of the IEX
execution could affect resting liquidity
on those markets 24 (e.g., potentially
resulting in cancellations or re-pricing
of such liquidity). Since the time of
IEX’s exchange approval in 2016 there
have been a myriad of technology
advances, including improvements in
smart-order routing techniques and a
reduction in SIP latencies.25
Consequently, and as discussed more
fully below and in the Statutory Basis
20 See Securities Exchange Act Release No. 34–
78101 (June 17, 2016), 81 FR 41141, 41155 (June 23,
2016) (‘‘Exchange Approval Order’’).
21 See IEX Rule 11.190(g).
22 See Securities Exchange Act Release No. 89686
(August 26, 2020), 85 FR 54438 (September 1, 2020)
(approving SR–IEX–2019–15) (‘‘D-Limit Approval
Order’’).
23 Serial routing entails routing an order first to
one exchange, and then routing whatever shares
remain in the order to other exchanges.
24 See Exchange Approval Order, supra note 20.
25 The SIPs are comprised of three plans: The
CTA Plan (trade data on Tapes A&B), the CQ Plan
(quote data on Tapes A&B), and the UTP Plan (trade
and quote data on Tape C). Since IEX’s exchange
launch in September 2016, the average latencies for
quote messages on the SIPs has dropped from 470
ms to 19.5 ms (CQ Plan) and from 762 ms to 13.2 ms
(UTP Plan); and the average latencies for trade
messages on the SIPs has dropped from 320 ms to
20 ms (CTA Plan) and from 619.7 ms to 15.7 ms (UTP
Plan). See ‘‘Key Operating Metrics of Tape A&B
U.S. Equities Securities Information Processor (CTA
SIP),’’ available at https://www.ctaplan.com/
publicdocs/ctaplan/CTAPLAN_Processor_Metrics_
3Q2020.pdf and ‘‘UTP Q3 2020—September Tape C
Quote Metrics’’ and ‘‘September Tape C Trade
Metrics,’’ available at https://www.utpplan.com/
DOC/UTP_website_Statistics_Q3-2020September.pdf.
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section, IEX does not believe that the
considerations that existed in 2016
necessitate continuing to impose
additional latency on outbound order
messages or IEX Data Products.
Proposal
The Exchange proposes to amend IEX
Rule 11.510 to reduce the outbound
latency that presently applies to all
trading messages sent from IEX back to
Users to the actual geographic distance
and related network connectivity 26
between the Exchange System and the
IEX POP. As proposed, all outbound
communications (including execution
and other order report messages, as well
as TOPS, DEEP and DROP messages)
would be treated in the same manner.
The Exchange estimates that removal of
the coiled optical fiber would reduce
the outbound latency to 37
microseconds.
IEX is not proposing any changes to
the additional latency applied to
inbound orders, cancellations or
modifications from any User, regardless
of making or taking liquidity or any
other factors, which will maintain the
symmetry of IEX’s Speedbump design
for all Users. Users would still be
required to connect to IEX at the POP.
IEXS would continue to be subject to
the existing additional inbound latency
when the IEX routing logic sends an
order to the IEX Order Book (a total
delay of 700 microseconds for inbound
routable orders) but would be subject to
the reduced outbound latency in
receiving execution and order messages
as well as IEX Data Products in the same
manner as those of other Members and
data recipients. Therefore, reducing the
outbound latency will have no impact
on IEX’s ability to provide the benefits
of protection from certain trading
strategies when using pegged or D-Limit
orders.
In addition, based on informal
feedback from Members, IEX
understands that a reduction in the
outbound latency would enhance
Members’ execution and risk
management processes, including with
respect to hedging and re-routing, by
enabling them to receive reports of IEX
executions sooner than is currently the
case. Moreover, IEX believes that these
benefits would apply to all Members,
regardless of business model, by
supporting overall execution and risk
management. IEX further understands
that receiving execution reports closer
in time to when an execution occurred
would enable Members and their
26 Ordinary course network connectivity includes
switches and cabling to connect the network access
point at the POP to the System.
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clearing firms to incorporate the
financial and other exposure of an
execution into their risk management
systems and thereby enable enhanced
monitoring and control of applicable
risks. IEX believes that these execution
and risk management benefits outweigh
the concerns that previously existed
regarding the risk to serial routing
techniques. As the Commission has
noted, current and commonplace
routing techniques seek to have orders
arrive and execute simultaneously
across multiple venues and are able to
capture liquidity across multiple venues
simultaneously without signaling those
executions to the market in a way that
would impact prices or available
liquidity.27 As a result, IEX believes that
Members and other market participants
can use such routing techniques instead
of serial routing techniques to avoid
potential information leakage when
subsequently seeking to access liquidity
on other markets after an IEX execution.
IEX also believes that its Data
Products would be more useful if they
were not subject to the additional
outbound latency so that Members can
more effectively use IEX market data in
their execution and risk management
decisions. Additionally, IEX notes that
since its exchange launch in 2016 the
SIPs have materially reduced their
average latencies for dissemination of
quote and trade messages, as discussed
above.28 Thus, IEX believes that these
reduced latencies enable some market
participants to receive IEX market data
messages from the SIPs before they can
receive such messages on TOPS and
DEEP. In these circumstances delaying
IEX’s Data Products effectively renders
them of limited utility. Consequently, as
proposed, IEX Data Products will also
be subject to the reduced outbound
latency.
Accordingly, IEX proposes to amend
IEX Rule 11.510 to reflect the changes
described above as well as to streamline
descriptions of the communications
infrastructure for inbound and
outbound latency. As proposed the
changes are as follows:
• Add new language to paragraph (a) to
add specificity to the reference to the POP,
including that it is an abbreviation for the
IEX point-of-presence and that its network
address is specified in the Exchange’s
Connectivity Manual. In addition, clarifying
language is added to specify and describe the
latency for inbound and outbound
communications between the System and the
POP, including that outbound
communications from the System to the POP
do not traverse the distance provided by
27 See D-Limit Approval Order supra note 22 at
54441–42.
28 See supra note 25.
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coiled optical fiber and are subject to an
equivalent 37 microseconds of latency due to
traversing the geographic distribution and
network connectivity between the System at
the primary data center and the network
access point of the POP. Conforming changes
would be made to existing rule text to refer
to inbound communications separately from
outbound communications and replace the
word ‘‘with’’ with ‘‘to’’ to be descriptive of
the one-way communications referenced.
Conforming changes to subparagraph (a)(1)
would reflect that the Connectivity Manual
was referenced and abbreviated previously.
Subparagraph (a)(2) would be revised to
replace the phrase ‘‘traverse the POP’’ with
more descriptive language ‘‘traverse the
connectivity infrastructure between the
System and the POP.’’
• Paragraph (b) would be amended to
replace the current heading, ‘‘IEX POP
Connectivity’’ with ‘‘IEX Connectivity
Infrastructure’’ which is more descriptive of
the content of the paragraph. In addition,
references to ‘‘inbound POP latency’’ and
‘‘outbound POP latency’’ would each delete
the word ‘‘POP’’ to align with the clarifying
changes to paragraph (a). Further, new
language would be added to reference that
connectivity between the System routing
logic and the Order Book and the manner in
which the System routing logic may receive
IEX’s Data Products are described in
paragraph (c).
• Subparagraphs (b)(1) and (b)(2) would
each also be amended to refer to the
Exchange’s connectivity infrastructure rather
than the POP in describing the design goals
of the inbound and outbound latency.
Subparagraph (b)(2) would also be amended
to specify the outbound latency and to
update references to the types of messages
included in the parenthetical examples.
• Paragraph (c)(1) would be amended to
make conforming terminology changes to
those proposed for paragraph (b). In addition,
new language would be added to clarify and
describe how the changes to the outbound
latency apply to the System routing logic.
• Paragraph (c)(2) would be amended to
make conforming terminology changes to
those proposed for paragraph (b). In addition,
new language would be added to specify that
the System routing logic may only receive
IEX Data Products subject to 37 microseconds
of outbound latency, equivalent to the
outbound latency applicable to all other data
recipients.
• Paragraph (c)(3) would be amended to
make conforming terminology changes to
those proposed for paragraph (b) and to
delete an extra space in a cross-reference to
IEX Rule 11.240(d).
• Supplementary Material .02 would be
amended to make conforming terminology
changes (including deleting the term ‘‘POP’’
from the heading) to those proposed for
paragraph (b), to reference the latency for the
outbound latency, and to include the
inbound and outbound latencies for routable
orders in the description of which latencies
are impacted by force majeure events.
• Supplementary Material .03 would be
amended to clarify when the outbound
versus inbound latency applies to routable
orders.
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Implementation
The Exchange plans to implement the
proposed rule change in two steps. In
the first step, the Exchange would
reduce the outbound latency between
the System and the POP from 350 to 37
microseconds, but would retain the
existing outbound latency between the
System and the System routing logic. In
the second step, the Exchange would
reduce the outbound latency between
the System and the System routing logic
from 350 to 37 microseconds. The
purpose of the two-step implementation
is to enable the IEX technology team to
focus on each part separately, thereby
mitigating potential risks, in a manner
consistent with standard technology
best practices. IEX is choosing to reduce
the outbound latency to the System
routing logic in the second step to avoid
giving the System routing logic any
preference over other Users. The
Exchange expects that there will be
several days between the two steps of
the implementation and will provide at
least ten (10) days’ notice to Members
and market participants of the
implementation timeline.29
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,30 in general, and
furthers the objectives of Section
6(b)(5),31 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities,
and to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest.
Specifically, the Exchange believes that
the proposed rule change is consistent
with the protection of investors and the
public interest because it is designed to
enhance IEX Members’ execution and
risk management efforts. As described
in the Purpose section, IEX believes that
a reduction in the outbound latency
would enhance Members’ execution and
risk management processes, including
29 After step one and before step two, all
outbound communications between the System and
the System routing logic will continue to be subject
to an equivalent 350 microseconds of latency.
Outgoing messages (i.e., responses) from the System
routing logic to Users (with respect to routable
orders sent to IEX) would be subject to the proposed
reduced outbound latency of 37 microseconds.
Further, IEXS would be able to receive IEX Data
Products subject to the same 37 microseconds of
latency as other Members and data recipients.
30 15 U.S.C. 78f(b).
31 15 U.S.C. 78f(b)(5).
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81985
with respect to hedging and re-routing,
by enabling them to receive reports of
IEX executions sooner than is currently
the case. IEX further believes that this
reduction in outbound latency will
enable Members and their clearing firms
to incorporate the financial and other
exposure related to IEX executions into
their risk management systems and
thereby enable enhanced monitoring
and control of applicable risks.
Moreover, IEX believes that these
benefits would apply to all Members,
regardless of the details or nature of a
Member’s business, by supporting
overall execution and risk management.
Further, IEX believes that these
execution and risk management benefits
outweigh the concerns that previously
existed regarding the risk to serial
routing techniques. As discussed in the
Purpose section, and as the Commission
has noted, current and commonplace
routing techniques seek to have orders
arrive and execute simultaneously
across multiple venues and are able to
capture liquidity across multiple venues
simultaneously without signaling those
executions to the market in a way that
would impact prices or available
liquidity.32 As a result, IEX believes that
Members and other market participants
can use such routing techniques instead
of serial routing techniques to avoid
potential information leakage when
subsequently seeking to access liquidity
on other markets after an IEX execution.
Similarly, and as discussed in the
Purpose section, IEX believes that its
Data Products will be more useful for
execution and risk management
purposes if they are disseminated closer
in time to the applicable execution or
quote change. IEX believes that this is
particularly true with the recent
material reduction in SIP latencies, as
detailed in the Purpose section.
Further, the Exchange believes that
the proposed rule change is consistent
with the protection of investors and the
public interest because it will apply to
all Members in the same manner. All
outbound communications will be
subject to the same reduction in latency
on a fair and nondiscriminatory basis.
Significantly, and as discussed in the
Purpose section, execution and other
order messages from the System to
Users will be subject to the same latency
as IEX’s Data Products so that the
parties to an execution do not receive
information regarding the execution
prior to other market participants.
Although the existing delay in
dissemination of its Data Products was
designed to enable an order sender to
avoid the potential for information
32 See
E:\FR\FM\17DEN1.SGM
supra note 27.
17DEN1
81986
Federal Register / Vol. 85, No. 243 / Thursday, December 17, 2020 / Notices
leakage when accessing liquidity on
other markets (as discussed in the
Purpose section), the Exchange believes
this purpose is clearly outweighed by
the potential execution and risk
management benefits to market
participants in receiving market data
and execution reports more quickly, and
the concomitant benefit to efficient
markets. Moreover, as discussed in the
Purpose section, the Exchange believes
that market participants routinely
utilize routing strategies and techniques
to avoid potential information leakage,
by routing in a manner so that child
orders arrive at multiple markets nearsimultaneously and that the technology
to do so is well established and has
evolved since IEX was approved as an
exchange in 2016.33
Additionally, the Exchange notes that
IEXS, its routing broker, will continue to
be on a level playing field compared to
all other Members, as it will be subject
to the same outbound latency reduction,
except for the few days between stages
one and two of the proposed
implementation. With respect to these
few days, the Exchange notes that the
Act generally does not prohibit an
exchange from treating its affiliated
routing broker in a manner that is less
preferential than other Members.
Moreover, use of IEXS by other
Members is optional and any Member
that does not want to use IEXS may use
other routers to route orders to away
trading centers.34
The Exchange also notes that no other
national securities exchanges currently
provide for additional latency to
outbound communications. Thus, IEX
does not believe that the proposed
changes raise any new or novel material
issues that have not already been
considered by the Commission in
connection with the operations of other
national securities exchanges. Moreover,
because the Exchange does not believe
that the proposed rule change is novel,
it believes that IEX Members will be
readily able to accommodate the
reduced outbound latency into their
trading systems.
Finally, and for clarification purposes,
IEX is not proposing any changes to the
additional latency applied to inbound
orders, cancelations, and modifications
or to those communications and
processes that are not subject to the
inbound or outbound latency, which
continue to be critical to the protection
of pegged and D-Limit orders, as
described above.
33 See
34 See
supra note 22 at 54441.
IEX Rule 2.220(a)(3).
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18:52 Dec 16, 2020
Jkt 253001
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, the proposal is designed to
enable enhancement of Members’
execution and risk management
processes, as described in the Purpose
and Statutory Basis sections.
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
because other exchanges offer similar
functionality. Moreover, the proposed
rule change would benefit other
exchanges because it would enable them
to receive IEX’s Data Products sooner
than is currently the case which could
correspondingly enable them to update
pegged orders more quickly. Similarly,
as with other Exchange Members, their
outbound routing brokers would receive
order messages from IEX sooner than is
currently the case and could more
quickly incorporate such information
into any further routing decisions.
The Exchange also does not believe
that the proposed rule change will
impose any burden on intramarket
competition because it will apply to all
Members in the same manner, except for
the few days between stages one and
two of the proposed implementation.
With respect to these few days, as noted
in the Statutory Basis section, the
Exchange notes that the Act generally
does not prohibit an exchange from
treating its affiliated routing broker in a
manner that is less preferential than
other Members. Moreover, use of IEXS
by other Members is optional and any
Member that does not want to use IEXS
may use other routers to route orders to
away trading centers.
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
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
PO 00000
Frm 00118
Fmt 4703
Sfmt 4703
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be 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–2020–18 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–2020–18. 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–2020–18 and should
E:\FR\FM\17DEN1.SGM
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Federal Register / Vol. 85, No. 243 / Thursday, December 17, 2020 / Notices
be submitted on or before January 7,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–27726 Filed 12–16–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meetings
Notice is hereby given,
pursuant to the provisions of the
Government in the Sunshine Act, Public
Law 94–409, the Securities and
Exchange Commission will hold an
Open Meeting on Monday, December
21, 2020 at 10:00 a.m.
PLACE: The meeting will be held via
remote means and/or at the
Commission’s headquarters, 100 F
Street NE, Washington, DC 20549.
STATUS: This meeting will begin at
10:00 a.m. (ET) and will be open to the
public via audio webcast only on the
Commission’s website at www.sec.gov.
MATTERS TO BE CONSIDERED:
1. The Commission will consider
whether to authorize the execution of a
Memorandum of Understanding and
related documents with the
Bundesanstalt fu¨r
Finanzdienstleistungsaufsicht (‘‘BaFin’’)
concerning consultation, cooperation
and the exchange of information related
to the supervision and oversight of
certain cross-border over-the-counter
derivatives entities in connection with
the use of substituted compliance by
such entities.
2. The Commission will consider
whether to issue an Order, pursuant to
Exchange Act Rule 3a71–6, granting
conditional substituted compliance in
connection with certain Exchange Act
requirements related to risk control (but
not including nonbank capital and
margin requirements), internal
supervision and compliance,
counterparty protection, and books and
records, in response to an application by
BaFin.
3. The Commission will consider
whether to issue a Notice, pursuant to
Exchange Act Rule 0–13, seeking public
comment on an application made by a
foreign financial regulatory authority,
pursuant to Exchange Act Rule 3a71–6,
for a substituted compliance
determination, and on a proposed order
providing for the conditional
TIME AND DATE:
35 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
18:52 Dec 16, 2020
Jkt 253001
availability of substituted compliance in
connection with the application.
4. The Commission will consider
whether to approve a proposed rule
change by New York Stock Exchange
LLC to amend Chapter One of the Listed
Company Manual to modify the
provisions relating to direct listings.
CONTACT PERSON FOR MORE INFORMATION:
For further information and to ascertain
what, if any, matters have been added,
deleted or postponed, please contact
Vanessa A. Countryman, Office of the
Secretary, at (202) 551–5400.
Dated: December 14, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020–27866 Filed 12–15–20; 11:15 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
34138; 812–14951]
KKR Income Opportunities Fund, et al.
December 11, 2020.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
AGENCY:
Notice of application for an order
under sections 17(d) and 57(i) of the
Investment Company Act of 1940 (the
‘‘Act’’) and rule 17d–1 under the Act to
permit certain joint transactions
otherwise prohibited by sections 17(d)
and 57(a)(4) of the Act and rule 17d–1
under the Act.
Summary of Application: Applicants
request an order to permit certain
business development companies and
closed-end management investment
companies to co-invest in portfolio
companies with each other and with
certain affiliated investment funds and
accounts.
Applicants: KKR INCOME
OPPORTUNITIES FUND (‘‘KIO’’), KKR
CREDIT OPPORTUNITIES PORTFOLIO
(‘‘KCOP’’), KKR CREDIT ADVISORS
(US) LLC (‘‘KKR Credit’’), KKR CREDIT
ADVISORS (HONG KONG) LIMITED,
KKR STRATEGIC CAPITAL
MANAGEMENT LLC, KKR FI
ADVISORS LLC, KKR FINANCIAL
ADVISORS LLC, KKR FINANCIAL
ADVISORS II, LLC, KKR CS ADVISORS
I LLC, KKR MEZZANINE I ADVISORS
LLC, KKR FI ADVISORS CAYMAN
LTD., KAM ADVISORS LLC, KAM
FUND ADVISORS LLC, KKR CREDIT
FUND ADVISORS LLC, KKR ASSET
MANAGEMENT, LTD., KKR CREDIT
ADVISORS (IRELAND) UNLIMITED
COMPANY, KKR CREDIT ADVISORS
PO 00000
Frm 00119
Fmt 4703
Sfmt 4703
81987
(EMEA) LLP, KKR CREDIT ADVISORS
(SINGAPORE) PTE. LTD., KKR
CAPITAL MARKETS HOLDINGS L.P.,
KKR CAPITAL MARKETS LLC, KKR
CAPITAL MARKETS LIMITED, KKR
CAPITAL MARKETS ASIA LIMITED,
MCS CAPITAL MARKETS LLC, KKR
CAPITAL MARKETS PARTNERS LLP,
KKR CAPITAL MARKETS INDIA
PRIVATE LIMITED, KKR CAPITAL
MARKETS (IRELAND) LIMITED, KKR
CAPITAL MARKETS JAPAN LIMITED,
KKR RTV MANAGER LLC, KKR LOAN
ADMINISTRATION SERVICES LLC,
KKR CORPORATE LENDING LLC, KKR
CORPORATE LENDING (CAYMAN)
LIMITED, KKR CORPORATE LENDING
(UK) LLC, MERCHANT CAPITAL
SOLUTIONS LLC, MCS CORPORATE
LENDING LLC, KKR ALTERNATIVE
ASSETS LLC, KKR ALTERNATIVE
ASSETS L.P., KKR ALTERNATIVE
ASSETS LIMITED, KKR CORPORATE
LENDING (CA) LLC, KKR CORPORATE
LENDING (TN) LLC, KKR FINANCIAL
HOLDINGS, INC., KKR FINANCIAL
HOLDINGS, LTD., KKR FINANCIAL
HOLDINGS II, LLC, KKR FINANCIAL
HOLDINGS II, LTD., KKR FINANCIAL
HOLDINGS III, LLC, KKR FINANCIAL
HOLDINGS III, LTD., KKR FINANCIAL
CLO HOLDINGS, LLC, KKR
FINANCIAL CLO HOLDINGS II, LLC,
KKR TRS HOLDINGS, LTD., KKR
STRATEGIC CAPITAL
INSTITUTIONAL FUND, LTD., KKR
DEBT INVESTORS II (2006) IRELAND
L.P., KKR DI 2006 LP, KKR EUROPEAN
SPECIAL OPPORTUNITIES LIMITED, 8
CAPITAL PARTNERS L.P., KKR
FINANCIAL CLO 2007–1, LTD., KKR
FINANCIAL CLO 2012–1, LTD., KKR
FINANCIAL CLO 2013–1, LTD., KKR
FINANCIAL CLO 2013–2, LTD., KKR
CLO 9 LTD., KKR CLO 10 LTD., KKR
CLO 11 LTD., KKR CLO 12 LTD., KKR
CLO 13 LTD., KKR CLO 14 LTD., KKR
CLO 15 LTD., KKR CLO 16 LTD., KKR
CLO 17 LTD., KKR CLO 18 LTD., KKR
CLO 19 LTD., KKR CLO 20 LTD., KKR
CLO 21 LTD., KKR CLO 22 LTD., KKR
CLO 23 LTD., KKR CLO 24 LTD., KKR
CLO 25 LTD., KKR CLO 26 LTD., KKR
CLO 27 LTD., KKR CLO 28 LTD., KKR
CLO 29 LTD., KKR CLO 30 LTD., KKR
CLO 31 LTD., KKR CORPORATE
CREDIT PARTNERS L.P., KKR
MEZZANINE PARTNERS I L.P., KKR
MEZZANINE PARTNERS I SIDE-BYSIDE L.P., KKR–KEATS CAPITAL
PARTNERS L.P., KKR–MILTON
CAPITAL PARTNERS L.P., KKR–
MILTON CAPITAL PARTNERS II L.P.,
KKR LENDING PARTNERS L.P., KKR
LENDING PARTNERS II L.P., KKR–VRS
CREDIT PARTNERS L.P., KKR PIP
INVESTMENTS L.P., KKR SPECIAL
SITUATIONS (DOMESTIC) FUND L.P.,
E:\FR\FM\17DEN1.SGM
17DEN1
]]>Agencies
[Federal Register Volume 85, Number 243 (Thursday, December 17, 2020)]
[Notices]
[Pages 81982-81987]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27726]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90645; File No. SR-IEX-2020-18]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing of Proposed Rule Change To Amend IEX Rule 11.510 To Reduce the
Outbound Latency That Presently Applies to All Trading Messages Sent
From IEX Back to Users of the Exchange
December 11, 2020.
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 9, 2020, the Investors Exchange LLC (``IEX'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 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,\4\
and Rule 19b-4 thereunder,\5\ IEX is filing with the Commission a
proposed rule change to amend IEX Rule 11.510 to reduce the outbound
latency that presently applies to all trading messages sent from IEX
back to Users \6\ of the Exchange to include only the actual geographic
distance and related network connectivity, as well as to make
conforming changes to the outbound latency that applies to all trading
messages sent from the IEX System \7\ to the System routing logic \8\
with respect to routable orders. 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.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(b)(1).
\5\ 17 CFR 240.19b-4.
\6\ See IEX Rule 1.160(qq).
\7\ See IEX Rule 1.160(nn).
\8\ See IEX Rule 2.220(a).
---------------------------------------------------------------------------
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 amend IEX Rule 11.510 to reduce the
outbound latency that presently applies to all trading messages sent
from the IEX System at its primary data center back to Users of the
Exchange to include only the actual geographic distance and related
network connectivity, as well as to make conforming changes to the
outbound latency that applies to all trading messages sent from the IEX
System to the System routing logic with respect to routable orders.
The Exchange is not proposing to make any changes to the additional
latency that applies in a symmetrical manner to all inbound order
messages (i.e., orders, modifications or cancellations) regardless of
whether such orders are to make or take liquidity. This additional
latency on inbound order messages, commonly referred to as the ``IEX
Speedbump,'' continues to be a critical part of the IEX system and is
designed to protect the interests of investors, brokers, and market
makers that rest orders on IEX.
As described in more detail below, the additional latencies that
are currently applied to both inbound and
[[Page 81983]]
outbound messages between IEX and Users were put in place for
completely different purposes. In contrast to the resting order
protective design of the additional inbound latency, the additional
outbound latency was designed simply to avoid potential information
leakage about an execution on IEX that could reduce a Member's \9\
ability to access liquidity on other markets after trading on IEX. As
discussed more fully below, since the IEX exchange launch in 2016 there
have been significant improvements in routing technology as well as
reductions in Securities Information Processor (``SIP'') market data
dissemination latencies, and as a result the Exchange believes that the
additional outbound latency is no longer necessary.
---------------------------------------------------------------------------
\9\ See IEX Rule 1.160(s).
---------------------------------------------------------------------------
The Exchange also notes that no other national securities exchanges
currently provide for additional latency to outbound communications.
Thus, IEX does not believe that the proposed changes raise any new or
novel material issues that have not already been considered by the
Commission in connection with the operations of other national
securities exchanges, or that Members could not readily incorporate
into their trading systems.
Background
Connectivity Description
Currently, all Users, which include Members and Sponsored
Participants,\10\ access IEX through the Exchange-provided network
interface at the IEX Point-of-Presence \11\ or ``POP,'' located in
Secaucus, New Jersey.\12\ After entering through the POP, a User's
electronic message sent to the System traverses the IEX ``coil'' which
is a box containing approximately 38 miles of compactly coiled optical
fiber cable. After exiting the coil, the User's message travels an
additional geographic or physical distance to the System, located at
the Exchange's primary data center in Weehawken, New Jersey. The time
required for a message to traverse the coil combined with the physical
distance (and related networking) to the System equates to an
equivalent 350 microseconds of latency, referred to herein as the
``inbound latency.'' \13\ All inbound messages (e.g., orders to buy or
sell and any modification to a previously sent open order) from any
User traverse this connectivity infrastructure, including the coil, in
a symmetrical manner regardless of the type of message or whether the
User is seeking to buy, sell, make or take liquidity.
---------------------------------------------------------------------------
\10\ See IEX Rule 1.160(ll).
\11\ A Point-of-Presence is the location at which customers of
an exchange (or other technological system) can connect to the
exchange.
\12\ Please see discussion infra with respect to the
connectivity infrastructure applicable to routable orders.
\13\ See IEX Rule 11.510(b)(1).
---------------------------------------------------------------------------
Separately, all outbound messages from IEX back to a User (e.g.,
confirmations of an execution that occurred on IEX), as well as
messages from IEX's TOPS, DEEP and DROP data products \14\
(collectively ``Data Products''), pass through the communication
infrastructure in reverse, referred to herein as the ``outbound
latency.'' \15\
---------------------------------------------------------------------------
\14\ See IEX Rule 11.330(a).
\15\ See IEX Rule 11.510(b)(2). IEX's backup data center, in
Chicago, Illinois, which only consumes market data from the SIPs,
does not have any inbound or outbound POP/coil latency, see IEX Rule
11.510 Supplementary Material .01, and is therefore unaffected by
this proposed rule change.
---------------------------------------------------------------------------
Other incoming and outgoing messages to and from IEX are not
subject to either the inbound or outbound latency. Instead, they are
sent and received directly to and from the System, subject only to the
latencies inherent in the geographic distances that the messages
travel. These other messages include (i) incoming proprietary market
data from other national securities exchanges and market data from the
SIPs and (ii) outgoing messages to the SIPs (to disseminate IEX's
quotation and last sale/execution information), the National Securities
Clearing Corporation (to transmit executed transactions) and other
national securities exchanges (to route orders for potential execution
on such exchanges). In addition, all IEX Order Book \16\ processing and
order executions on the IEX Order Book occur within the System and are
not subject to the inbound or outbound connectivity infrastructure.
---------------------------------------------------------------------------
\16\ See IEX Rule 1.160(p).
---------------------------------------------------------------------------
IEX's affiliated broker-dealer, IEX Services LLC (``IEXS''), is a
Member of the Exchange and is subject to the same inbound and outbound
latency as other Members, as described in IEX Rules 2.220 and 11.510.
If a User sends a routable order to the Exchange for potential
execution on IEX, after traversing the inbound latency (including the
coil) to reach the System, it is directed to the System routing logic
rather than the IEX matching engine.\17\ Upon receipt of a routable
order, the System routing logic may route all or a portion of the order
to the IEX Order Book or to another national securities exchange. Any
such orders routed to the IEX Order Book by the System routing logic
are subject to an additional 350 microsecond inbound latency between
the IEX routing logic and the IEX Order Book. Similarly, the IEX
routing logic may only receive IEX Data Products subject to the same
350 microsecond outbound latency as other data recipients. These
additional inbound and outbound latency delays place IEXS in the same
position as any Member that is a third-party routing broker in reaching
the IEX Order Book, receiving outbound order messages, and receiving
IEX Data Products, i.e., IEXS has no speed or informational advantage
compared to other Members and data recipients.
---------------------------------------------------------------------------
\17\ See IEX Rule 11.230(b).
---------------------------------------------------------------------------
See IEX Rule 11.510 for a complete description of the manner in
which Participants \18\ and Extranet Providers \19\ may connect to,
access, and interact with the System including the applicable
latencies.
---------------------------------------------------------------------------
\18\ See IEX Rule 11.130(a).
\19\ See IEX Rule 11.130(a).
---------------------------------------------------------------------------
The Critical Function of the ``Speedbump''
The IEX Speedbump, which applies additional latency to inbound
order messages (including modifications and cancellations), is designed
to enable IEX to more effectively manage and price orders resting on
its book when the market moves. This is because (as described above)
orders sent to IEX are delayed by 350 microseconds in reaching IEX's
matching engine but IEX does not delay its own receipt of market data
from other national securities exchanges and the SIPs. This approach is
designed to enable IEX's matching engine to timely process price
changes and to price or execute orders on the IEX Order Book at the
most accurate prices possible. As the Commission noted in approval of
IEX's application to operate as a national securities exchange in 2016:
[T]he purpose of IEX's coil is to provide an intentional buffer
that slows down incoming orders to allow IEX's matching engine to
update the prices of resting ``pegged'' orders when away prices
change to protect resting pegged orders from the possibility of
adverse selection when the market moves to a new midpoint price. The
allowable price of a ``pegged'' order will change whenever the best
displayed price across all exchanges changes, but it takes time for
IEX's system to receive other exchange data feeds and recalculate
the price of each pegged order resting on its book. For various
reasons, IEX's systems may not recalculate prices as fast as some of
the fastest low-latency traders in the market are able to send
orders accessing pegged orders resting on IEX at potentially
``stale'' prices. The Commission believes that the application of
the POP/coil delay delays the ability of low-latency market
participants to take a ``stale''-priced resting pegged order
[[Page 81984]]
on IEX (i.e., before IEX finishes its process of re-pricing the
pegged order in response to changes in the NBBO) based on those
market participants' ability to more effectively digest direct
market data feeds and swiftly submit an order before IEX finishes
its process of updating the prices of pegged orders resting on its
book. (internal citations omitted) \20\
---------------------------------------------------------------------------
\20\ See Securities Exchange Act Release No. 34-78101 (June 17,
2016), 81 FR 41141, 41155 (June 23, 2016) (``Exchange Approval
Order'').
In addition, with IEX's recent addition of its D-Limit order type,
the IEX speed bump helps IEX re-price D-Limit orders in the few seconds
of the day when IEX's Crumbling Quote Indicator \21\ detects that the
national best bid or offer is likely to move in a direction adverse to
the User of the order within two milliseconds.\22\
---------------------------------------------------------------------------
\21\ See IEX Rule 11.190(g).
\22\ See Securities Exchange Act Release No. 89686 (August 26,
2020), 85 FR 54438 (September 1, 2020) (approving SR-IEX-2019-15)
(``D-Limit Approval Order'').
---------------------------------------------------------------------------
This application of the IEX Speedbump, and the benefits therein,
are distinct and different from the additional (and symmetrical)
latency imposed on outbound trading messages which was designed to
slightly delay news of an execution to the participants to the
execution and to IEX's Data Products. The outbound latency thus enables
a market participant using a serial routing technique \23\ that
executes a trade on IEX to avoid potential information leakage when
subsequently seeking to access liquidity on other markets before news
of the IEX execution could affect resting liquidity on those markets
\24\ (e.g., potentially resulting in cancellations or re-pricing of
such liquidity). Since the time of IEX's exchange approval in 2016
there have been a myriad of technology advances, including improvements
in smart-order routing techniques and a reduction in SIP latencies.\25\
Consequently, and as discussed more fully below and in the Statutory
Basis section, IEX does not believe that the considerations that
existed in 2016 necessitate continuing to impose additional latency on
outbound order messages or IEX Data Products.
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\23\ Serial routing entails routing an order first to one
exchange, and then routing whatever shares remain in the order to
other exchanges.
\24\ See Exchange Approval Order, supra note 20.
\25\ The SIPs are comprised of three plans: The CTA Plan (trade
data on Tapes A&B), the CQ Plan (quote data on Tapes A&B), and the
UTP Plan (trade and quote data on Tape C). Since IEX's exchange
launch in September 2016, the average latencies for quote messages
on the SIPs has dropped from 470 [micro]s to 19.5 [micro]s (CQ Plan)
and from 762 [micro]s to 13.2 [micro]s (UTP Plan); and the average
latencies for trade messages on the SIPs has dropped from 320
[micro]s to 20 [micro]s (CTA Plan) and from 619.7 [micro]s to 15.7
[micro]s (UTP Plan). See ``Key Operating Metrics of Tape A&B U.S.
Equities Securities Information Processor (CTA SIP),'' available at
https://www.ctaplan.com/publicdocs/ctaplan/CTAPLAN_Processor_Metrics_3Q2020.pdf and ``UTP Q3 2020--September
Tape C Quote Metrics'' and ``September Tape C Trade Metrics,''
available at https://www.utpplan.com/DOC/UTP_website_Statistics_Q3-2020-September.pdf.
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Proposal
The Exchange proposes to amend IEX Rule 11.510 to reduce the
outbound latency that presently applies to all trading messages sent
from IEX back to Users to the actual geographic distance and related
network connectivity \26\ between the Exchange System and the IEX POP.
As proposed, all outbound communications (including execution and other
order report messages, as well as TOPS, DEEP and DROP messages) would
be treated in the same manner. The Exchange estimates that removal of
the coiled optical fiber would reduce the outbound latency to 37
microseconds.
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\26\ Ordinary course network connectivity includes switches and
cabling to connect the network access point at the POP to the
System.
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IEX is not proposing any changes to the additional latency applied
to inbound orders, cancellations or modifications from any User,
regardless of making or taking liquidity or any other factors, which
will maintain the symmetry of IEX's Speedbump design for all Users.
Users would still be required to connect to IEX at the POP. IEXS would
continue to be subject to the existing additional inbound latency when
the IEX routing logic sends an order to the IEX Order Book (a total
delay of 700 microseconds for inbound routable orders) but would be
subject to the reduced outbound latency in receiving execution and
order messages as well as IEX Data Products in the same manner as those
of other Members and data recipients. Therefore, reducing the outbound
latency will have no impact on IEX's ability to provide the benefits of
protection from certain trading strategies when using pegged or D-Limit
orders.
In addition, based on informal feedback from Members, IEX
understands that a reduction in the outbound latency would enhance
Members' execution and risk management processes, including with
respect to hedging and re-routing, by enabling them to receive reports
of IEX executions sooner than is currently the case. Moreover, IEX
believes that these benefits would apply to all Members, regardless of
business model, by supporting overall execution and risk management.
IEX further understands that receiving execution reports closer in time
to when an execution occurred would enable Members and their clearing
firms to incorporate the financial and other exposure of an execution
into their risk management systems and thereby enable enhanced
monitoring and control of applicable risks. IEX believes that these
execution and risk management benefits outweigh the concerns that
previously existed regarding the risk to serial routing techniques. As
the Commission has noted, current and commonplace routing techniques
seek to have orders arrive and execute simultaneously across multiple
venues and are able to capture liquidity across multiple venues
simultaneously without signaling those executions to the market in a
way that would impact prices or available liquidity.\27\ As a result,
IEX believes that Members and other market participants can use such
routing techniques instead of serial routing techniques to avoid
potential information leakage when subsequently seeking to access
liquidity on other markets after an IEX execution.
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\27\ See D-Limit Approval Order supra note 22 at 54441-42.
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IEX also believes that its Data Products would be more useful if
they were not subject to the additional outbound latency so that
Members can more effectively use IEX market data in their execution and
risk management decisions. Additionally, IEX notes that since its
exchange launch in 2016 the SIPs have materially reduced their average
latencies for dissemination of quote and trade messages, as discussed
above.\28\ Thus, IEX believes that these reduced latencies enable some
market participants to receive IEX market data messages from the SIPs
before they can receive such messages on TOPS and DEEP. In these
circumstances delaying IEX's Data Products effectively renders them of
limited utility. Consequently, as proposed, IEX Data Products will also
be subject to the reduced outbound latency.
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\28\ See supra note 25.
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Accordingly, IEX proposes to amend IEX Rule 11.510 to reflect the
changes described above as well as to streamline descriptions of the
communications infrastructure for inbound and outbound latency. As
proposed the changes are as follows:
Add new language to paragraph (a) to add specificity to
the reference to the POP, including that it is an abbreviation for
the IEX point-of-presence and that its network address is specified
in the Exchange's Connectivity Manual. In addition, clarifying
language is added to specify and describe the latency for inbound
and outbound communications between the System and the POP,
including that outbound communications from the System to the POP do
not traverse the distance provided by
[[Page 81985]]
coiled optical fiber and are subject to an equivalent 37
microseconds of latency due to traversing the geographic
distribution and network connectivity between the System at the
primary data center and the network access point of the POP.
Conforming changes would be made to existing rule text to refer to
inbound communications separately from outbound communications and
replace the word ``with'' with ``to'' to be descriptive of the one-
way communications referenced. Conforming changes to subparagraph
(a)(1) would reflect that the Connectivity Manual was referenced and
abbreviated previously. Subparagraph (a)(2) would be revised to
replace the phrase ``traverse the POP'' with more descriptive
language ``traverse the connectivity infrastructure between the
System and the POP.''
Paragraph (b) would be amended to replace the current
heading, ``IEX POP Connectivity'' with ``IEX Connectivity
Infrastructure'' which is more descriptive of the content of the
paragraph. In addition, references to ``inbound POP latency'' and
``outbound POP latency'' would each delete the word ``POP'' to align
with the clarifying changes to paragraph (a). Further, new language
would be added to reference that connectivity between the System
routing logic and the Order Book and the manner in which the System
routing logic may receive IEX's Data Products are described in
paragraph (c).
Subparagraphs (b)(1) and (b)(2) would each also be
amended to refer to the Exchange's connectivity infrastructure
rather than the POP in describing the design goals of the inbound
and outbound latency. Subparagraph (b)(2) would also be amended to
specify the outbound latency and to update references to the types
of messages included in the parenthetical examples.
Paragraph (c)(1) would be amended to make conforming
terminology changes to those proposed for paragraph (b). In
addition, new language would be added to clarify and describe how
the changes to the outbound latency apply to the System routing
logic.
Paragraph (c)(2) would be amended to make conforming
terminology changes to those proposed for paragraph (b). In
addition, new language would be added to specify that the System
routing logic may only receive IEX Data Products subject to 37
microseconds of outbound latency, equivalent to the outbound latency
applicable to all other data recipients.
Paragraph (c)(3) would be amended to make conforming
terminology changes to those proposed for paragraph (b) and to
delete an extra space in a cross-reference to IEX Rule 11.240(d).
Supplementary Material .02 would be amended to make
conforming terminology changes (including deleting the term ``POP''
from the heading) to those proposed for paragraph (b), to reference
the latency for the outbound latency, and to include the inbound and
outbound latencies for routable orders in the description of which
latencies are impacted by force majeure events.
Supplementary Material .03 would be amended to clarify
when the outbound versus inbound latency applies to routable orders.
Implementation
The Exchange plans to implement the proposed rule change in two
steps. In the first step, the Exchange would reduce the outbound
latency between the System and the POP from 350 to 37 microseconds, but
would retain the existing outbound latency between the System and the
System routing logic. In the second step, the Exchange would reduce the
outbound latency between the System and the System routing logic from
350 to 37 microseconds. The purpose of the two-step implementation is
to enable the IEX technology team to focus on each part separately,
thereby mitigating potential risks, in a manner consistent with
standard technology best practices. IEX is choosing to reduce the
outbound latency to the System routing logic in the second step to
avoid giving the System routing logic any preference over other Users.
The Exchange expects that there will be several days between the two
steps of the implementation and will provide at least ten (10) days'
notice to Members and market participants of the implementation
timeline.\29\
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\29\ After step one and before step two, all outbound
communications between the System and the System routing logic will
continue to be subject to an equivalent 350 microseconds of latency.
Outgoing messages (i.e., responses) from the System routing logic to
Users (with respect to routable orders sent to IEX) would be subject
to the proposed reduced outbound latency of 37 microseconds.
Further, IEXS would be able to receive IEX Data Products subject to
the same 37 microseconds of latency as other Members and data
recipients.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\30\ in general, and furthers the
objectives of Section 6(b)(5),\31\ in particular, in that it is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, and to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest. Specifically, the Exchange
believes that the proposed rule change is consistent with the
protection of investors and the public interest because it is designed
to enhance IEX Members' execution and risk management efforts. As
described in the Purpose section, IEX believes that a reduction in the
outbound latency would enhance Members' execution and risk management
processes, including with respect to hedging and re-routing, by
enabling them to receive reports of IEX executions sooner than is
currently the case. IEX further believes that this reduction in
outbound latency will enable Members and their clearing firms to
incorporate the financial and other exposure related to IEX executions
into their risk management systems and thereby enable enhanced
monitoring and control of applicable risks. Moreover, IEX believes that
these benefits would apply to all Members, regardless of the details or
nature of a Member's business, by supporting overall execution and risk
management. Further, IEX believes that these execution and risk
management benefits outweigh the concerns that previously existed
regarding the risk to serial routing techniques. As discussed in the
Purpose section, and as the Commission has noted, current and
commonplace routing techniques seek to have orders arrive and execute
simultaneously across multiple venues and are able to capture liquidity
across multiple venues simultaneously without signaling those
executions to the market in a way that would impact prices or available
liquidity.\32\ As a result, IEX believes that Members and other market
participants can use such routing techniques instead of serial routing
techniques to avoid potential information leakage when subsequently
seeking to access liquidity on other markets after an IEX execution.
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\30\ 15 U.S.C. 78f(b).
\31\ 15 U.S.C. 78f(b)(5).
\32\ See supra note 27.
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Similarly, and as discussed in the Purpose section, IEX believes
that its Data Products will be more useful for execution and risk
management purposes if they are disseminated closer in time to the
applicable execution or quote change. IEX believes that this is
particularly true with the recent material reduction in SIP latencies,
as detailed in the Purpose section.
Further, the Exchange believes that the proposed rule change is
consistent with the protection of investors and the public interest
because it will apply to all Members in the same manner. All outbound
communications will be subject to the same reduction in latency on a
fair and nondiscriminatory basis. Significantly, and as discussed in
the Purpose section, execution and other order messages from the System
to Users will be subject to the same latency as IEX's Data Products so
that the parties to an execution do not receive information regarding
the execution prior to other market participants. Although the existing
delay in dissemination of its Data Products was designed to enable an
order sender to avoid the potential for information
[[Page 81986]]
leakage when accessing liquidity on other markets (as discussed in the
Purpose section), the Exchange believes this purpose is clearly
outweighed by the potential execution and risk management benefits to
market participants in receiving market data and execution reports more
quickly, and the concomitant benefit to efficient markets. Moreover, as
discussed in the Purpose section, the Exchange believes that market
participants routinely utilize routing strategies and techniques to
avoid potential information leakage, by routing in a manner so that
child orders arrive at multiple markets near-simultaneously and that
the technology to do so is well established and has evolved since IEX
was approved as an exchange in 2016.\33\
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\33\ See supra note 22 at 54441.
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Additionally, the Exchange notes that IEXS, its routing broker,
will continue to be on a level playing field compared to all other
Members, as it will be subject to the same outbound latency reduction,
except for the few days between stages one and two of the proposed
implementation. With respect to these few days, the Exchange notes that
the Act generally does not prohibit an exchange from treating its
affiliated routing broker in a manner that is less preferential than
other Members. Moreover, use of IEXS by other Members is optional and
any Member that does not want to use IEXS may use other routers to
route orders to away trading centers.\34\
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\34\ See IEX Rule 2.220(a)(3).
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The Exchange also notes that no other national securities exchanges
currently provide for additional latency to outbound communications.
Thus, IEX does not believe that the proposed changes raise any new or
novel material issues that have not already been considered by the
Commission in connection with the operations of other national
securities exchanges. Moreover, because the Exchange does not believe
that the proposed rule change is novel, it believes that IEX Members
will be readily able to accommodate the reduced outbound latency into
their trading systems.
Finally, and for clarification purposes, IEX is not proposing any
changes to the additional latency applied to inbound orders,
cancelations, and modifications or to those communications and
processes that are not subject to the inbound or outbound latency,
which continue to be critical to the protection of pegged and D-Limit
orders, as described above.
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, the
proposal is designed to enable enhancement of Members' execution and
risk management processes, as described in the Purpose and Statutory
Basis sections.
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 because other
exchanges offer similar functionality. Moreover, the proposed rule
change would benefit other exchanges because it would enable them to
receive IEX's Data Products sooner than is currently the case which
could correspondingly enable them to update pegged orders more quickly.
Similarly, as with other Exchange Members, their outbound routing
brokers would receive order messages from IEX sooner than is currently
the case and could more quickly incorporate such information into any
further routing decisions.
The Exchange also does not believe that the proposed rule change
will impose any burden on intramarket competition because it will apply
to all Members in the same manner, except for the few days between
stages one and two of the proposed implementation. With respect to
these few days, as noted in the Statutory Basis section, the Exchange
notes that the Act generally does not prohibit an exchange from
treating its affiliated routing broker in a manner that is less
preferential than other Members. Moreover, use of IEXS by other Members
is optional and any Member that does not want to use IEXS may use other
routers to route orders to away trading centers.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-IEX-2020-18 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-2020-18. 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-2020-18 and should
[[Page 81987]]
be submitted on or before January 7, 2021.
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\35\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27726 Filed 12-16-20; 8:45 am]
BILLING CODE 8011-01-P
