Self-Regulatory Organizations; Investors Exchange, LLC; Order Granting Approval of Proposed Rule Change To Amend IEX Rule 11.510 To Reduce the Outbound Latency That Presently Applies to All Messages Sent From IEX Back to Users of the Exchange, 8238-8240 [2021-02266]
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Federal Register / Vol. 86, No. 22 / Thursday, February 4, 2021 / Notices
There were no Schedule C appointing
authorities revoked during October
2020.
Authority: 5 U.S.C. 3301 and 3302; E.O.
10577, 3 CFR, 1954–1958 Comp., p. 218.
Office of Personnel Management.
Alexys Stanley,
Regulatory Affairs Analyst.
[FR Doc. 2021–02253 Filed 2–3–21; 8:45 am]
BILLING CODE 6325–39–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91016; File No. SR–IEX–
2020–18]
Self-Regulatory Organizations;
Investors Exchange, LLC; Order
Granting Approval of Proposed Rule
Change To Amend IEX Rule 11.510 To
Reduce the Outbound Latency That
Presently Applies to All Messages Sent
From IEX Back to Users of the
Exchange
January 29, 2021.
I. Introduction
On December 9, 2020, the Investors
Exchange LLC (‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to amend IEX
Rule (‘‘Rule’’) 11.510 to reduce the
outbound latency that presently applies
to all messages sent from IEX to users
of the Exchange, as well as to make
conforming changes to the outbound
latency that applies to all trading
messages sent from the IEX order book
to the system routing logic with respect
to routable orders. The proposed rule
change was published for comment in
the Federal Register on December 17,
2020.3 The Commission received no
comment letters on the proposed rule
change. This order approves the
proposed rule change.
jbell on DSKJLSW7X2PROD with NOTICES
II. Description of the Proposal
The Exchange proposed to amend
Rule 11.510 to eliminate the ‘‘coil’’
delay that is currently applied to
outbound order execution messages and
IEX proprietary market data sent to IEX
users and the IEX system routing logic
used by IEX’s affiliated routing broker1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 90645
(December 11, 2020), 85 FR 81982 (December 17,
2020) (‘‘Notice’’).
2 17
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17:13 Feb 03, 2021
Jkt 253001
dealer, IEX Services LLC (‘‘IEXS’’).4
Currently, users access IEX through the
Exchange-provided network interface at
the IEX Point-of-Presence, or ‘‘POP,’’
located in Secaucus, New Jersey.5
Electronic messages that users send
inbound to the IEX system, and order
execution messages and IEX proprietary
market data sent outbound to users,
traverse the IEX coil, which is a box
containing approximately 38 miles of
compactly coiled optical fiber cable, and
travel an additional geographic and
physical distance between the POP and
the IEX system located at the Exchange’s
primary data center in Weehawken,
New Jersey.6 The time required for such
communications to traverse the coil
combined with the geographic and
physical distance (and related
networking) currently equates to an
equivalent 350 microseconds of
latency.7 IEXS is a member of the
Exchange and its associated routing
logic currently is subject to the same
350 microseconds of latency as other
members when sending order messages
to the IEX order book and when
receiving order execution messages and
IEX proprietary market data.8 As a
result, IEXS has no speed or
informational advantage compared to
other Exchange members and data
recipients.9
IEX’s proposed elimination of the coil
delay on outbound order execution
messages and proprietary market data
will reduce the latency on outbound
communications to 37 microseconds,
which latency will be due to geographic
4 See proposed Rule 11.510; Notice, supra note 3,
at 81982. The Exchange did not propose any
changes to the coil delay that applies to inbound
order messages, including order cancellations and
modifications, from users at the POP to the IEX
system and from the system routing logic to the
order book. See proposed Rule 11.510; Notice,
supra note 3, at 81984. The Exchange does not
apply a coil delay to its communications with the
Securities Information Processors (‘‘SIP(s)’’) or away
trading centers, and those aspects of the Exchange
likewise are not changing under the proposal. See
Notice, supra note 3, at 81983.
5 See Notice, supra note 3, at 81983.
6 Id.
7 Id.
8 Id. If a user sends a routable order to the
Exchange, after traversing the inbound latency
(including the coil) from the POP to the IEX system,
the order is directed to the system routing logic. Id.
The current 350 microsecond latency on order
messages between the IEX routing logic and order
book is implicated when the routing logic has
determined to route to the IEX order book all or part
of the routable order submitted by the user, and is
in addition to the 350 microsecond latency between
the POP and the IEX system. Id. As a result,
currently, users connected at the POP experience a
cumulative, one-way latency of 700 microseconds
on routable order messages to and from the IEX
system. Id. at 81983–84; see also Rule 11.230(b),
11.510(c)(1), and proposed Supplementary Material
(‘‘Supp.’’) .03 to Rule 11.510.
9 See Notice, supra note 3, at 81983.
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and physical distance and network
connectivity.10 The proposed
elimination of the coil delay on
outbound order execution messages and
proprietary market data will affect IEXS
in the same manner that it effects other
Exchange users, thus ensuring that the
Exchange’s affiliated routing brokerdealer is similarly situated and not
competitively advantaged vis-a`-vis any
non-affiliated routing broker-dealer.11
The Exchange also proposed to make
several non-substantive clarifying
changes to add further detail to Rule
11.510 to: (i) Define the term ‘‘POP’’; 12
(ii) reference the 350 microsecond
latency on inbound communications
from the POP to the IEX system and
from the system routing logic to the
order book separately from the proposed
37 microsecond latency on outbound
communications from the system to the
10 See proposed Rule 11.510(a); see also Notice,
supra note 3, at 81984. Specifically, the Exchange
proposed to amend Rule 11.510(a) to state that
outbound communications from the IEX system to
the POP will not traverse the physical distance
provided by coiled optical fiber and instead will be
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. See proposed Rule 11.510(a). Relatedly,
the Exchange proposed to amend Rule 11.510(b)(2)
to state that, for outbound communications
(including, without limitation, execution report
messages found in the Exchange’s FIX
Specification, quote and trade update messages
found in the Exchange’s TOPS and DEEP
specifications, and DROP messages), the Exchange’s
connectivity infrastructure is designed to provide
an equivalent 37 microseconds of latency from the
system at the primary data center to the Exchangeprovided network interface at the POP. See
proposed Rule 11.510(b)(2).
11 See Notice; supra note 3, at 81986. Specifically,
the Exchange proposed to amend Rule 11.510(c)(1)
to state that all outbound communications
(including, without limitation, execution report
messages found in the Exchange’s FIX specification)
from the order book to the system routing logic are
subject to 37 microseconds of latency, which is in
addition to the 37 microsecond latency on
outbound communications from the IEX system to
the POP described in proposed Rule 11.510(b)(2).
See proposed Rule 11.510(c)(1); see also proposed
Supp. .03 (stating that all responses from the IEX
order book to the system routing logic are subject
to 37 microseconds of latency and all messages
from the system routing logic to users are subject
to an additional 37 microseconds of outbound
latency). Users connected to IEX at the POP
therefore would experience a cumulative delay of
74 microseconds on outbound messages from the
IEX system regarding their routable orders. See
proposed Rule 11.510(c)(1); see also proposed
Supp. .03. Users would continue to experience a
cumulative latency of 700 microseconds on
inbound routable order messages. See proposed
Rule 11.510(c)(1); proposed Supp. .03; Notice,
supra note 3, at 81984. In addition, the Exchange
proposed to amend Rule 11.510(c)(2)(A) to specify
that the IEX routing logic may only receive
Exchange data products subject to 37 microseconds
of latency, equivalent to the outbound latency
applicable to all other data product recipients that
is described in proposed Rule 11.510(b)(2). See
proposed Rule 11.510(c)(2)(A).
12 See proposed Rule 11.510(a).
E:\FR\FM\04FEN1.SGM
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Federal Register / Vol. 86, No. 22 / Thursday, February 4, 2021 / Notices
POP and from the order book to the
system routing logic; 13 (iii) further
describe, without alteration, how the
Exchange handles incoming routable
orders, and specify that the 350
microseconds of latency on inbound
communications from the routing logic
to the order book is in addition to the
inbound latency on communications
from the POP to the system; 14 (iv) refine
references to ‘‘POP’’ throughout the rule
such that they refer to connectivity at
the POP or the connectivity
infrastructure between the system and
the POP, as appropriate; 15 (v) add
explanatory cross references to
provisions within the rule; 16 and (vi)
make non-substantive grammatical
revisions.17
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange.18 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,19 which requires,
among other things, that the rules of a
national securities exchange be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, to protect
investors and the public interest, and
not be designed to permit unfair
discrimination between customers,
issuers, brokers or dealers; and with
Section 6(b)(8) of the Act,20 which
requires that the rules of a national
securities exchange not impose any
burden on competition that is not
necessary or appropriate.
IEX’s coil delay on outbound order
execution messages and proprietary
market data, which has been in place
since IEX became a registered national
securities exchange in 2016, was
designed to help IEX members avoid
potential information leakage in
connection with an execution on IEX
13 See
proposed Rule 11.510(a) and 11.510(c)(1).
proposed Rule 11.510(c)(1).
15 See proposed Rule 11.510.
16 See proposed Rule 11.510(b), 11.510(c)(3)(A),
and Supp. .02.
17 See proposed Rule 11.510.
18 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
19 15 U.S.C. 78f(b)(5).
20 15 U.S.C. 78f(b)(8).
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14 See
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that could reduce their ability to access
liquidity on other markets after trading
on IEX.21 Since 2016, however, various
technological developments, including
the widespread availability of improved
smart order routing techniques that take
into account transmission latency in
coordinating simultaneous order arrival
and execution times across multiple
trading venues, have greatly reduced the
potential for information leakage when
sweeping the market, thus mitigating
the utility of IEX’s outbound coil delay
to IEX users.22 In addition, SIP latencies
have decreased materially since 2016,
effectively nullifying the purpose of the
coil delay on IEX proprietary data since
market participants currently can
receive SIP data faster than IEX
proprietary data.23
Against this backdrop, the Exchange
asserts that the considerations that
existed in 2016 for imposing the coil
delay on its outbound order execution
messages and proprietary data have
been superseded by developments in
the market and are now outweighed by
the benefits that would be provided by
the proposal—in particular,
enhancement of members’ ability to
manage risk and market exposure
through receipt of execution messages
and IEX market data closer in time to
when executions or quote changes
occur.24 The Exchange also states that
the proposal would enable other
exchanges to update their pegged orders
faster, and enable other exchanges’
affiliated routing brokers to more
quickly incorporate executions on IEX
into their routing decisions.25
Importantly, IEXS (the Exchange’s
affiliated routing broker) and all other
IEX members will remain on equal
footing in that they will experience the
same 37 microseconds of latency on
their receipt of IEX order execution
21 See Notice, supra note 3, at 81983–84. By
contrast, the inbound coil delay, which is not
affected by this proposal, is designed to enable IEX
to more effectively manage and price orders resting
on its book when the market moves. Id. at 81983.
22 Id. at 81983–86; see also Securities Exchange
Act Release No. 89686 (August 26, 2020), 85 FR
54438, 54441 (September 1, 2020).
23 See Notice, supra note 3, at 81984 and n.25
(noting that, at the time of IEX’s exchange launch
in September 2016 the average latencies for quote
messages was 470 microseconds for the CQ Plan
and 762 microseconds for the UTP Plan, and for
trade messages was 320 microseconds for the CTA
Plan and 619.7 microseconds for the UTP Plan); see
also www.utpplan.com (stating that current median
latency is approximately 13.0–14.2 microseconds);
www.ctaplan.com (stating that current median
latency is under 17 microseconds for quotes and
under 18 microseconds for trades); and compare
current Rule 11.150(b)(2) (stating that the POP is
currently designed to provide 350 microseconds of
latency on IEX proprietary market data).
24 See Notice, supra note 3, at 81984–86.
25 Id. at 81986.
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
8239
messages and proprietary market data.
As a result, IEXS will have no
informational or time advantage—or
resulting competitive advantage—over
any other IEX member.26 Also, due to
the equivalent reduction in the latency
attendant to both outbound execution
messages and IEX proprietary market
data, parties to an execution on IEX will
not receive information regarding the
execution prior to other market
participants, and thus will have no
informational or time advantage—or
resulting competitive advantage—over
members who receive IEX proprietary
data but are not parties to the execution.
For these reasons, the Commission
believes that the proposal is not
designed to permit unfair
discrimination, consistent with Section
6(b)(5) of the Act, and would not impose
any inappropriate or unnecessary
burden on competition, consistent with
Section 6(b)(8) of the Act.
In addition, permitting the Exchange
to modernize its infrastructure in a way
that will better enable its members to
manage risk and market exposure
without inhibiting their ability to
capture liquidity when routing orders to
multiple market venues is consistent
with the Section 6(b)(5) goals of
promoting just and equitable principles
of trade, removing impediments to and
perfecting the mechanism of a free and
open market and a national market
system, and protecting investors and the
public interest. These goals also will be
furthered by the proposal to the extent
that other exchanges are better able to
manage their own resting orders and
routing processes through faster receipt
of order messages and proprietary data
from IEX. This potential effect on other
exchanges, coupled with the fact that no
other exchange currently imposes an
artificial delay on outbound order
execution messages or proprietary
market data,27 also support the
conclusion that the proposal will not
impose any inappropriate or
unnecessary burden on competition,
26 IEX will sequence the necessary systems
changes to implement this proposed rule change in
two steps, the first occurring for IEX users and the
second for IEXS, thus ensuring that IEX’s system
routing logic is not preferenced over other users
during implementation. Id. at 81985. After step one
and before step two, while all outbound
communications from the order book to the routing
logic would continue to be subject to an equivalent
350 microseconds of latency, outgoing messages
(i.e., responses) from the routing logic to users (with
respect to routable orders sent to IEX) would be
subject to the proposed reduced outbound latency
of 37 microseconds. Id. at 81985 n.29. During this
intervening period IEXS also would be able to
receive IEX proprietary market data subject to the
same 37 microseconds of latency as other members
and data recipients. Id.
27 Id. at 81986.
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Federal Register / Vol. 86, No. 22 / Thursday, February 4, 2021 / Notices
consistent with Section 6(b)(8) of the
Act.
Finally, the Commission believes that
the Exchange’s proposed clarifying
changes to Rule 11.510 add helpful
detail that will further enhance
investors’ understanding of how IEX
operates in a manner consistent with the
Act, thereby helping to protect investors
and the public interest consistent with
Section 6(b)(5) of the Act.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,28 that the
proposed rule change (SR–IEX–2020–
18) be and hereby is approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–02266 Filed 2–3–21; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–91012; File No. SR–NYSE–
2021–06]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Amending
Sections 902.02 and 902.11 of the
NYSE Listed Company Manual To
Defer the Billing of Initial Listing Fees
Payable by Acquisition Companies
January 29, 2021.
jbell on DSKJLSW7X2PROD with NOTICES
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 January
21, 2021, the New York Stock Exchange
LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory 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
The Exchange proposes to amend
Sections 902.02 and 902.11 of the NYSE
Listed Company Manual (the ‘‘Manual’’)
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
28 15
to defer the billing of initial listing fees
payable by Acquisition Companies. The
text of the. The proposed rule change is
available on the Exchange’s website at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
1. Purpose
Section 102.06 sets forth listing
requirements applicable to any
company with a business plan is to
complete an initial public offering and
engage in a merger or acquisition with
one or more unidentified companies
within a specific period (‘‘Acquisition
Company’’). Section 902.11 provides
that an Acquisition Company is subject
to a flat initial listing fee of $85,000 at
the time of initial listing. Based on
experience listing these companies, the
Exchange proposes to defer the billing
and payment of initial listing fees until
one year from the date of an Acquisition
Company’s initial listing on the
Exchange. For the avoidance of doubt,
such fee is owed to the Exchange at the
time of initial listing based on the fee
schedule in effect on the date of listing
but will be billed by the Exchange and
become payable on the first anniversary
of the date of listing. The Exchange
notes that the Nasdaq Stock Market
(‘‘Nasdaq’’) is the Exchange’s primary
competitor in the market for the listing
of Acquisition Companies and that
Nasdaq has a deferral provision
comparable to the deferral the Exchange
proposes.4
Acquisition Companies are formed to
raise capital in an initial public offering
(‘‘IPO’’) with the purpose of using the
proceeds to acquire one or more
unspecified businesses or assets to be
29 17
VerDate Sep<11>2014
17:13 Feb 03, 2021
4 See Securities Exchange Act Release No. 89403
(July 31, 2020 [sic]), 85 FR 46198 (July 31, 2008
[sic]) (SR–NASDAQ–2020–038).
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PO 00000
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identified after the IPO. However,
unlike other types of listed companies
that have pre-existing operations or that
fund their operations by proceeds raised
from the IPO, following the IPO, an
Acquisition Company funds a trust
account with an amount typically equal
to 100% of the gross proceeds of the
IPO.5 As such, operating expenses are
typically borne by the Acquisition
Company’s sponsor, particularly during
the initial post-IPO period. The
Acquisition Company’s sponsor is the
entity or management team that forms
the Acquisition Company and, typically,
runs the operations of the Acquisition
Company until an appropriate target
company is identified and the business
combination is consummated. The
funds in the trust account are typically
invested in short-term U.S. government
securities or held as cash, earning
interest over time. Thus, the unique
structure of an Acquisition Company
results in the sponsor’s extreme fee
sensitivity, particularly during the
initial post-IPO period before any
substantial amount of interest is earned
from the trust account. The Exchange
believes that the market practice of
depositing 100% of the gross proceeds
of the IPO in a trust account (rather than
the minimum of 90% required by
Section 102.06) benefits shareholders
and is consistent with investor
protection because it assures that
shareholders choosing to exercise their
right to redeem shares for a pro rata
share of the trust account will receive
the full IPO price paid, rather than a
lesser amount guaranteed by Exchange
rules. Accordingly, to encourage this
market practice the Exchange believes it
is appropriate to defer the payment of
the initial listing fee owed by an
Acquisition Company listed on the
Exchange until the first anniversary of
the date of listing. The initial listing fee
paid at that time would be based on the
fee schedule in effect at the time of
initial listing.
The Exchange believes that the
proposed fee deferral would provide an
incentive to sponsors to list Acquisition
Companies on the Exchange. The
Exchange also believes it is reasonable
to balance its need to remain
competitive with other listing venues,
while at the same time ensuring
5 Section 102.06 of the Manual provides that an
Acquisition Company could pay operating and
other expenses, subject to a limitation that 90% of
the gross proceeds of the company’s offering must
be retained in the trust account. However, the
Exchange understands that marketplace demands
typically dictate that 100% of the gross proceeds
from the IPO be kept in the trust account and that
only interest earned on that account be used to pay
taxes and a limited amount of operating expenses.
E:\FR\FM\04FEN1.SGM
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]]>Agencies
[Federal Register Volume 86, Number 22 (Thursday, February 4, 2021)]
[Notices]
[Pages 8238-8240]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-02266]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91016; File No. SR-IEX-2020-18]
Self-Regulatory Organizations; Investors Exchange, LLC; Order
Granting Approval of Proposed Rule Change To Amend IEX Rule 11.510 To
Reduce the Outbound Latency That Presently Applies to All Messages Sent
From IEX Back to Users of the Exchange
January 29, 2021.
I. Introduction
On December 9, 2020, the Investors Exchange LLC (``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend IEX Rule (``Rule'') 11.510 to reduce the
outbound latency that presently applies to all messages sent from IEX
to users of the Exchange, as well as to make conforming changes to the
outbound latency that applies to all trading messages sent from the IEX
order book to the system routing logic with respect to routable orders.
The proposed rule change was published for comment in the Federal
Register on December 17, 2020.\3\ The Commission received no comment
letters on the proposed rule change. This order approves the proposed
rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 90645 (December 11,
2020), 85 FR 81982 (December 17, 2020) (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposal
The Exchange proposed to amend Rule 11.510 to eliminate the
``coil'' delay that is currently applied to outbound order execution
messages and IEX proprietary market data sent to IEX users and the IEX
system routing logic used by IEX's affiliated routing broker-dealer,
IEX Services LLC (``IEXS'').\4\ Currently, users access IEX through the
Exchange-provided network interface at the IEX Point-of-Presence, or
``POP,'' located in Secaucus, New Jersey.\5\ Electronic messages that
users send inbound to the IEX system, and order execution messages and
IEX proprietary market data sent outbound to users, traverse the IEX
coil, which is a box containing approximately 38 miles of compactly
coiled optical fiber cable, and travel an additional geographic and
physical distance between the POP and the IEX system located at the
Exchange's primary data center in Weehawken, New Jersey.\6\ The time
required for such communications to traverse the coil combined with the
geographic and physical distance (and related networking) currently
equates to an equivalent 350 microseconds of latency.\7\ IEXS is a
member of the Exchange and its associated routing logic currently is
subject to the same 350 microseconds of latency as other members when
sending order messages to the IEX order book and when receiving order
execution messages and IEX proprietary market data.\8\ As a result,
IEXS has no speed or informational advantage compared to other Exchange
members and data recipients.\9\
---------------------------------------------------------------------------
\4\ See proposed Rule 11.510; Notice, supra note 3, at 81982.
The Exchange did not propose any changes to the coil delay that
applies to inbound order messages, including order cancellations and
modifications, from users at the POP to the IEX system and from the
system routing logic to the order book. See proposed Rule 11.510;
Notice, supra note 3, at 81984. The Exchange does not apply a coil
delay to its communications with the Securities Information
Processors (``SIP(s)'') or away trading centers, and those aspects
of the Exchange likewise are not changing under the proposal. See
Notice, supra note 3, at 81983.
\5\ See Notice, supra note 3, at 81983.
\6\ Id.
\7\ Id.
\8\ Id. If a user sends a routable order to the Exchange, after
traversing the inbound latency (including the coil) from the POP to
the IEX system, the order is directed to the system routing logic.
Id. The current 350 microsecond latency on order messages between
the IEX routing logic and order book is implicated when the routing
logic has determined to route to the IEX order book all or part of
the routable order submitted by the user, and is in addition to the
350 microsecond latency between the POP and the IEX system. Id. As a
result, currently, users connected at the POP experience a
cumulative, one-way latency of 700 microseconds on routable order
messages to and from the IEX system. Id. at 81983-84; see also Rule
11.230(b), 11.510(c)(1), and proposed Supplementary Material
(``Supp.'') .03 to Rule 11.510.
\9\ See Notice, supra note 3, at 81983.
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IEX's proposed elimination of the coil delay on outbound order
execution messages and proprietary market data will reduce the latency
on outbound communications to 37 microseconds, which latency will be
due to geographic and physical distance and network connectivity.\10\
The proposed elimination of the coil delay on outbound order execution
messages and proprietary market data will affect IEXS in the same
manner that it effects other Exchange users, thus ensuring that the
Exchange's affiliated routing broker-dealer is similarly situated and
not competitively advantaged vis-[agrave]-vis any non-affiliated
routing broker-dealer.\11\
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\10\ See proposed Rule 11.510(a); see also Notice, supra note 3,
at 81984. Specifically, the Exchange proposed to amend Rule
11.510(a) to state that outbound communications from the IEX system
to the POP will not traverse the physical distance provided by
coiled optical fiber and instead will be 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. See
proposed Rule 11.510(a). Relatedly, the Exchange proposed to amend
Rule 11.510(b)(2) to state that, for outbound communications
(including, without limitation, execution report messages found in
the Exchange's FIX Specification, quote and trade update messages
found in the Exchange's TOPS and DEEP specifications, and DROP
messages), the Exchange's connectivity infrastructure is designed to
provide an equivalent 37 microseconds of latency from the system at
the primary data center to the Exchange-provided network interface
at the POP. See proposed Rule 11.510(b)(2).
\11\ See Notice; supra note 3, at 81986. Specifically, the
Exchange proposed to amend Rule 11.510(c)(1) to state that all
outbound communications (including, without limitation, execution
report messages found in the Exchange's FIX specification) from the
order book to the system routing logic are subject to 37
microseconds of latency, which is in addition to the 37 microsecond
latency on outbound communications from the IEX system to the POP
described in proposed Rule 11.510(b)(2). See proposed Rule
11.510(c)(1); see also proposed Supp. .03 (stating that all
responses from the IEX order book to the system routing logic are
subject to 37 microseconds of latency and all messages from the
system routing logic to users are subject to an additional 37
microseconds of outbound latency). Users connected to IEX at the POP
therefore would experience a cumulative delay of 74 microseconds on
outbound messages from the IEX system regarding their routable
orders. See proposed Rule 11.510(c)(1); see also proposed Supp. .03.
Users would continue to experience a cumulative latency of 700
microseconds on inbound routable order messages. See proposed Rule
11.510(c)(1); proposed Supp. .03; Notice, supra note 3, at 81984. In
addition, the Exchange proposed to amend Rule 11.510(c)(2)(A) to
specify that the IEX routing logic may only receive Exchange data
products subject to 37 microseconds of latency, equivalent to the
outbound latency applicable to all other data product recipients
that is described in proposed Rule 11.510(b)(2). See proposed Rule
11.510(c)(2)(A).
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The Exchange also proposed to make several non-substantive
clarifying changes to add further detail to Rule 11.510 to: (i) Define
the term ``POP''; \12\ (ii) reference the 350 microsecond latency on
inbound communications from the POP to the IEX system and from the
system routing logic to the order book separately from the proposed 37
microsecond latency on outbound communications from the system to the
[[Page 8239]]
POP and from the order book to the system routing logic; \13\ (iii)
further describe, without alteration, how the Exchange handles incoming
routable orders, and specify that the 350 microseconds of latency on
inbound communications from the routing logic to the order book is in
addition to the inbound latency on communications from the POP to the
system; \14\ (iv) refine references to ``POP'' throughout the rule such
that they refer to connectivity at the POP or the connectivity
infrastructure between the system and the POP, as appropriate; \15\ (v)
add explanatory cross references to provisions within the rule; \16\
and (vi) make non-substantive grammatical revisions.\17\
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\12\ See proposed Rule 11.510(a).
\13\ See proposed Rule 11.510(a) and 11.510(c)(1).
\14\ See proposed Rule 11.510(c)(1).
\15\ See proposed Rule 11.510.
\16\ See proposed Rule 11.510(b), 11.510(c)(3)(A), and Supp.
.02.
\17\ See proposed Rule 11.510.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\18\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\19\ which
requires, among other things, that the rules of a national securities
exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest, and not be designed to permit unfair discrimination
between customers, issuers, brokers or dealers; and with Section
6(b)(8) of the Act,\20\ which requires that the rules of a national
securities exchange not impose any burden on competition that is not
necessary or appropriate.
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\18\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\19\ 15 U.S.C. 78f(b)(5).
\20\ 15 U.S.C. 78f(b)(8).
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IEX's coil delay on outbound order execution messages and
proprietary market data, which has been in place since IEX became a
registered national securities exchange in 2016, was designed to help
IEX members avoid potential information leakage in connection with an
execution on IEX that could reduce their ability to access liquidity on
other markets after trading on IEX.\21\ Since 2016, however, various
technological developments, including the widespread availability of
improved smart order routing techniques that take into account
transmission latency in coordinating simultaneous order arrival and
execution times across multiple trading venues, have greatly reduced
the potential for information leakage when sweeping the market, thus
mitigating the utility of IEX's outbound coil delay to IEX users.\22\
In addition, SIP latencies have decreased materially since 2016,
effectively nullifying the purpose of the coil delay on IEX proprietary
data since market participants currently can receive SIP data faster
than IEX proprietary data.\23\
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\21\ See Notice, supra note 3, at 81983-84. By contrast, the
inbound coil delay, which is not affected by this proposal, is
designed to enable IEX to more effectively manage and price orders
resting on its book when the market moves. Id. at 81983.
\22\ Id. at 81983-86; see also Securities Exchange Act Release
No. 89686 (August 26, 2020), 85 FR 54438, 54441 (September 1, 2020).
\23\ See Notice, supra note 3, at 81984 and n.25 (noting that,
at the time of IEX's exchange launch in September 2016 the average
latencies for quote messages was 470 microseconds for the CQ Plan
and 762 microseconds for the UTP Plan, and for trade messages was
320 microseconds for the CTA Plan and 619.7 microseconds for the UTP
Plan); see also www.utpplan.com (stating that current median latency
is approximately 13.0-14.2 microseconds); www.ctaplan.com (stating
that current median latency is under 17 microseconds for quotes and
under 18 microseconds for trades); and compare current Rule
11.150(b)(2) (stating that the POP is currently designed to provide
350 microseconds of latency on IEX proprietary market data).
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Against this backdrop, the Exchange asserts that the considerations
that existed in 2016 for imposing the coil delay on its outbound order
execution messages and proprietary data have been superseded by
developments in the market and are now outweighed by the benefits that
would be provided by the proposal--in particular, enhancement of
members' ability to manage risk and market exposure through receipt of
execution messages and IEX market data closer in time to when
executions or quote changes occur.\24\ The Exchange also states that
the proposal would enable other exchanges to update their pegged orders
faster, and enable other exchanges' affiliated routing brokers to more
quickly incorporate executions on IEX into their routing decisions.\25\
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\24\ See Notice, supra note 3, at 81984-86.
\25\ Id. at 81986.
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Importantly, IEXS (the Exchange's affiliated routing broker) and
all other IEX members will remain on equal footing in that they will
experience the same 37 microseconds of latency on their receipt of IEX
order execution messages and proprietary market data. As a result, IEXS
will have no informational or time advantage--or resulting competitive
advantage--over any other IEX member.\26\ Also, due to the equivalent
reduction in the latency attendant to both outbound execution messages
and IEX proprietary market data, parties to an execution on IEX will
not receive information regarding the execution prior to other market
participants, and thus will have no informational or time advantage--or
resulting competitive advantage--over members who receive IEX
proprietary data but are not parties to the execution. For these
reasons, the Commission believes that the proposal is not designed to
permit unfair discrimination, consistent with Section 6(b)(5) of the
Act, and would not impose any inappropriate or unnecessary burden on
competition, consistent with Section 6(b)(8) of the Act.
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\26\ IEX will sequence the necessary systems changes to
implement this proposed rule change in two steps, the first
occurring for IEX users and the second for IEXS, thus ensuring that
IEX's system routing logic is not preferenced over other users
during implementation. Id. at 81985. After step one and before step
two, while all outbound communications from the order book to the
routing logic would continue to be subject to an equivalent 350
microseconds of latency, outgoing messages (i.e., responses) from
the routing logic to users (with respect to routable orders sent to
IEX) would be subject to the proposed reduced outbound latency of 37
microseconds. Id. at 81985 n.29. During this intervening period IEXS
also would be able to receive IEX proprietary market data subject to
the same 37 microseconds of latency as other members and data
recipients. Id.
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In addition, permitting the Exchange to modernize its
infrastructure in a way that will better enable its members to manage
risk and market exposure without inhibiting their ability to capture
liquidity when routing orders to multiple market venues is consistent
with the Section 6(b)(5) goals of promoting just and equitable
principles of trade, removing impediments to and perfecting the
mechanism of a free and open market and a national market system, and
protecting investors and the public interest. These goals also will be
furthered by the proposal to the extent that other exchanges are better
able to manage their own resting orders and routing processes through
faster receipt of order messages and proprietary data from IEX. This
potential effect on other exchanges, coupled with the fact that no
other exchange currently imposes an artificial delay on outbound order
execution messages or proprietary market data,\27\ also support the
conclusion that the proposal will not impose any inappropriate or
unnecessary burden on competition,
[[Page 8240]]
consistent with Section 6(b)(8) of the Act.
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\27\ Id. at 81986.
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Finally, the Commission believes that the Exchange's proposed
clarifying changes to Rule 11.510 add helpful detail that will further
enhance investors' understanding of how IEX operates in a manner
consistent with the Act, thereby helping to protect investors and the
public interest consistent with Section 6(b)(5) of the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\28\ that the proposed rule change (SR-IEX-2020-18) be and hereby
is approved.
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\28\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-02266 Filed 2-3-21; 8:45 am]
BILLING CODE 8011-01-P
