Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Provide That a Reserve Order May Have (i) an Odd Lot Sized Display Quantity and (ii) an Optional Random Initial and Replenishment Display Quantity, 52713-52719 [2021-20453]
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Federal Register / Vol. 86, No. 181 / Wednesday, September 22, 2021 / Notices
Office of the General Counsel to spend
amounts exceeding the previously
approved program area budget for the
year. As a result, on July 14, 2021 it
submitted a supplemental budget to the
SEC. The PCAOB’s 2021 supplemental
budget requests Commission approval to
transfer $3.4 million of FY 2021 funding
from a certain program area in which all
funds allocated are projected to not be
spent in 2021 to the Office of the
General Counsel to cover the projected
excess costs related to the engagement
of outside counsel. The supplemental
budget does not request an increase to
the PCAOB’s previously approved 2021
budget of $287.3 million.
The Commission directs the PCAOB
to keep the Commission, through staff in
its Office of the Chief Accountant,
apprised each month of monthly legal
expenses incurred and paid through the
end of its fiscal year 2021. Separately,
the Commission directs that the PCAOB
implement policies and procedures to
ensure additional funds will not be
required for spending on outside
counsel for the 2021 fiscal year beyond
those approved in this Order. The
Commission also directs the PCAOB to
inform the Commission of all of the
steps it will take to reduce its current
and future reliance on outside counsel.
The Commission has determined that
the PCAOB’s 2021 supplemental budget
is consistent with Section 109 of the
Sarbanes-Oxley Act. Accordingly,
It is ordered, pursuant to Section 109
of the Sarbanes-Oxley Act, that the
PCAOB supplemental budget for
calendar year 2021 is approved.
By the Commission.
Vanessa A. Countryman,
Secretary.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93027; File No. SR–IEX–
2021–11]
Self-Regulatory Organizations;
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Provide
That a Reserve Order May Have (i) an
Odd Lot Sized Display Quantity and (ii)
an Optional Random Initial and
Replenishment Display Quantity
September 16, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Pursuant to the provisions of Section
19(b)(1) under the Act,3 and Rule 19b–
4 thereunder,4 IEX is filing with the
Commission a proposed rule change to
provide that a reserve order may have (i)
an odd lot sized display quantity and
(ii) an optional random initial and
replenishment display quantity. The
Exchange has designated this rule
change as ‘‘non-controversial’’ under
Section 19(b)(3)(A) of the Act 5 and
provided the Commission with the
notice required by Rule 19b–4(f)(6)
thereunder.6
The text of the proposed rule change
is available at the Exchange’s website at
www.iextrading.com, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and the
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.
[FR Doc. 2021–20515 Filed 9–21–21; 8:45 am]
1 15
notice is hereby given that on
September 14, 2021, 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.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
filing is to amend IEX Rule 11.190(b)(2)
to provide that a reserve order 7 may
3 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
5 15 U.S.C. 78s(b)(3)(A).
6 17 CFR 240.19b–4.
7 See IEX Rule 11.190(b)(2).
4 17
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52713
have (i) an odd lot 8 size display
quantity and (ii) an optional random
initial and replenishment display
quantity. Specifically, as proposed, a
reserve order may have an odd lot as
well as a round or mixed lot initial and
replenishment display quantity. In
addition, as proposed, a Member 9 may
attach an optional random
replenishment instruction to any reserve
order pursuant to which the reserve
order’s display quantity (both upon
initial posting to the Order Book 10 and
upon any subsequent replenishments)
would be randomly determined by the
System 11 within a replenishment range
specified by the Member. In addition,
IEX proposes to make conforming edits
to IEX Rules 11.190(b)(2) and
11.220(a)(1)(C) reflecting the proposed
changes to reserve order functionality.
The proposed changes are designed to
increase displayed liquidity on the
Exchange (potentially at prices better
than the NBBO),12 to the benefit of all
market participants, by providing
additional optionality to Members in the
use of odd lot size reserve order
displayed quantities, as well as helping
to protect Members using reserve orders
with random replenishment from
potential information leakage.
Background
IEX, like other equities exchanges,13
offers Members a ‘‘reserve’’ order type,
which allows Members to submit a
partially displayed limit order,14 so that
a portion of the order is displayed
(‘‘display quantity’’) and a portion of the
order is non-displayed (‘‘reserve
quantity’’).15 As set forth in IEX Rule
11.190(b)(2), when Users 16 submit a
reserve order, they must specify the
display quantity (which must be a
round or mixed lot). Upon entry, the
System attempts to execute a reserve
order as a single order of its full,
unexecuted size. If an incoming reserve
order is not fully executed, it posts to
the Order Book where it is effectively
8 An odd lot order is generally any order of less
than 100 shares (the size of a round lot order). See
IEX Rule 11.180(a).
9 See IEX Rule 1.160(s).
10 See IEX Rule 1.160(p).
11 See IEX Rule 1.160(nn).
12 See IEX Rule 1.160(u).
13 See, e.g., Cboe BZX Exchange, Inc. (‘‘BZX’’)
Rule 11.9(c)(1); MEMX, LLC (‘‘MEMX’’) Rule
11.8(b)(4); The Nasdaq Stock Market LLC
(‘‘Nasdaq’’) Rule 4703(h); and New York Stock
Exchange LLC Rule 7.31(d)(1).
14 See IEX Rule 11.190(a)(1).
15 See IEX Rule 11.190(b)(2).
16 See IEX Rule 1.160(qq). The text of IEX Rule
11.190(b)(2) uses the term ‘‘User’’, so any direct
references to the text of the rule will use the term
‘‘User.’’ Otherwise, for purposes of this rule filing,
the term ‘‘Member’’ will be used synonymously
with the term ‘‘User.’’
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Federal Register / Vol. 86, No. 181 / Wednesday, September 22, 2021 / Notices
treated as two discrete orders: The User
instructed display quantity posts to the
Order Book as a displayed order
(‘‘displayed portion’’) and the reserve
quantity posts to the Order Book as a
non-displayed order (‘‘non-displayed
portion’’). For the purposes of pricing
reserve orders on the Order Book,
displayed portions are treated as
displayed orders and non-displayed
portions are treated as non-displayed
orders. As described in IEX Rule
11.190(h), it is possible for the nondisplayed portion to rest at a different
price than the displayed portion,
because the displayed portion is subject
to display-price sliding 17 while the nondisplayed portion is subject to the
Midpoint Price Constraint.18 If the
displayed portion of the reserve order is
decremented such that less than one
round lot would be displayed, the
displayed portion of the reserve order
shall be refreshed for either (i) the
original displayed quantity, or (ii) the
entire reserve quantity, if the total
number of unexecuted shares in the
order is smaller than the original
Member instructed displayed quantity.
Each time the displayed portion of the
order is refreshed from the reserve
quantity, that portion is prioritized
behind other existing displayed orders;
the priority of the non-displayed
portion, however, is unchanged by the
refresh process.
IEX recently implemented a rule
change that provides for the option to
display odd lot size orders, including
allowing them to aggregate to form a
protected quotation.19 In connection
with the implementation of displayed
odd lot size orders, IEX modified its
reserve order functionality to provide
that if the display quantity of a reserve
order decrements to less than a round
lot (and there are not enough shares
remaining in the reserve quantity to
refresh the display quantity to more
than a round lot), the display quantity
retains its displayed status and its
execution priority.20
Proposal
IEX proposes to amend IEX Rule
11.190(b)(2) to: (i) Allow reserve orders
to be submitted with an odd lot sized
display portion; and (ii) allow Members
to elect that the initial and
replenishment display quantity for the
reserve order will be randomly
determined by the System within a
range specified by the Member. As
17 See
IEX Rule 11.190(h)(1).
IEX Rule 11.190(h)(2).
19 See Securities Exchange Act Release No. 90933
(January 15, 2021), 86 FR 6687 (January 22, 2021)
(SR–IEX–2021–01).
20 See supra note 19.
18 See
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described below, IEX believes this
proposal, which combines order types
and functionality previously considered
by the Commission, will encourage the
posting of more displayed liquidity on
the Exchange in a manner that benefits
all market participants.
1. Odd Lot Display Quantity Reserve
Orders
IEX proposes to modify its reserve
order type to allow Members to submit
a reserve order with an odd lot size
display quantity, in addition to the
current functionality which allows
Members to submit a reserve order with
either a round or mixed lot size display
quantity.
As proposed, odd lot size display
quantity reserve orders (‘‘Displayed Odd
Lot Reserve orders’’) would function
much like a round or mixed lot size
display quantity reserve order, except
that the display quantity would only
replenish from the reserve quantity
when the displayed portion of the order
is decremented to zero shares, as
opposed to round and mixed lot size
display quantity reserve orders, which
would continue to replenish the display
quantity whenever they decrement to
less than a round lot. IEX believes that
replenishing a Displayed Odd Lot
Reserve order only when the display
quantity has been fully exhausted is the
most reasonable and workable
approach. As a threshold matter, the
display quantity of a Displayed Odd Lot
Reserve order by definition will always
be less than a round lot and will vary
based on the Member instructed
displayed quantity and can be as low as
one share. Therefore, the trigger for
replenishment cannot be a quantity that
is the same for all orders unless it is
when the displayed quantity
decrements to zero.
IEX notes that it also considered
having Displayed Odd Lot Reserve
orders replenish anytime one or more
share of the displayed portion was
executed, but decided against it for the
following reasons. First, as a practical
matter, Displayed Odd Lot Reserve
orders will be far less useful to Members
if any partial executions of the display
portion trigger a replenishment,
resulting in the display portion
receiving a new time stamp and being
prioritized behind all other existing
displayed orders at that price. Second,
as discussed below, a Displayed Odd
Lot Reserve order would be eligible for
optional random replenishment, which
means the next time the display
quantity of the order replenishes, it
could be randomly set at a value lower
than the prior display quantity, and IEX
seeks to avoid this confusing and
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illogical outcome. Third, IEX believes
that having a Displayed Odd Lot
Reserve Order replenish any time there
is a partial execution of the displayed
portion of the order could increase the
likelihood of adverse selection through
information leakage of the presence of a
larger non-displayed reserve portion of
the order. IEX notes that the
Commission made the same
determination when it approved a 2018
rule filing by the New York Stock
Exchange LLC (‘‘NYSE’’) that changed
NYSE’s reserve order replenishment
trigger from replenishing after any
execution of a portion of the displayed
quantity to only replenishing when the
display quantity decrements to less than
a round lot.21 Based on informal
discussions with Members, IEX believes
that the proposed approach would lead
to increased use of Displayed Odd Lot
Reserve orders compared to other
approaches, as discussed above. IEX
also notes that this proposed approach
to Displayed Odd Lot Reserve order
replenishment mirrors the functionality
of options exchanges with reserve order
types that display in odd lot quantities
that replenish their display quantity
only when it is fully exhausted.22
IEX believes that providing for
Displayed Odd Lot Reserve orders will
incentivize the posting of more
displayed liquidity on IEX, and the
corresponding opportunity for market
participants to interact with displayed
liquidity. In this regard, IEX believes
that the increasing prevalence of highpriced securities (including many
securities that trade for more than
$1,000 per share) 23 makes quoting in
round lot multiples inaccessible to some
market participants. As the Commission
recently noted, ‘‘a significant proportion
of quotation and trading activity occurs
in odd-lots, particularly for frequently
traded, high priced stocks.’’ 24 The
Commission also noted that ‘‘frequently
traded, high priced securities were more
likely to have executions occur in oddlot sizes (about 34% of the share volume
of the 50 securities with the highest
21 See Securities Exchange Act Release No. 83768
(August 3, 2018), 83 FR 39488 (August 9, 2018). The
fact that, until 2018, NYSE triggered replenishment
with any partial execution of the display portion of
a reserve order shows that only replenishing a
reserve order when it decrements to less than a
round lot is not the only Commission-approved
replenishment trigger.
22 See BZX Rule 21.1(d)(1); Cboe EDGX Exchange,
Inc. (‘‘EDGX’’) Rule 21.1(d)(1).
23 As of July 2021, there are 21 securities trading
for $1,000 per share or more, and an additional 38
securities trading between $500 and $999.99 per
share.
24 See Securities Exchange Act Release No. 90610
(December 9, 2020), 86 FR 18596, 18616 n. 240
(April 9, 2021) (‘‘Market Data Infrastructure Final
Rule’’).
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Federal Register / Vol. 86, No. 181 / Wednesday, September 22, 2021 / Notices
share prices) than lower priced
securities (about 3.4% of the 50
securities with the lowest share
prices).’’ 25
Furthermore, the Commission has
noted that almost half of all onexchange trades are odd lot sized, and
about 40% of those odd lot trades occur
at prices better than the NBBO.26 Thus,
allowing reserve orders to display odd
lot quantities would both encourage the
posting of more displayed liquidity on
the Exchange, and offer more price
improvement for high priced stocks that
often trade in odd lot quantities at better
prices than the NBBO.27
Additionally, based on informal
discussions with IEX Members, the
Exchange believes that use of reserve
orders would increase in high priced
securities if the displayed portion of the
reserve order could be entered in an odd
lot quantity.
IEX notes that its proposal for
Displayed Odd Lot Reserve orders is not
novel, in that all four of the Cboe
equities exchanges allow a reserve order
to be submitted with a user instructed
display quantity of less than one round
lot.28 Additionally, BZX’s and EDGX’s
options exchanges offer displayed odd
lot reserve orders that replenish in the
same manner as the current proposal—
when the displayed portion of the odd
lot reserve order is fully executed, the
order is replenished from the reserve
quantity.29
2. Random Replenishment
IEX proposes to offer Members the
option to elect that the initial and each
replenishment display quantity for the
reserve order will be randomly
determined by the System within a
range specified by the Member. IEX
proposes to add the defined term of
‘‘Max Floor’’ to IEX Rule 11.190(b)(2), to
specify the base display quantity for all
reserve orders. As proposed, a Member
can submit a reserve order with a Max
Floor in an odd lot quantity, as well as
25 See
supra note 24.
supra note 24.
27 Displayed odd lot orders do not update the
NBBO unless aggregated to form a round lot size
quotation, and thus can be priced better than the
NBBO.
28 See BZX Rule 11.9(c)(1); Cboe BYX Exchange,
Inc. (‘‘BYX’’) Rule 11.9(c)(1); Cboe EDGA Exchange,
Inc. (‘‘EDGA’’) Rule 11.6(m); EDGX Rule 11.6(m);
see also Cboe US Equities FIX Specification
(Version 2.9.2) avail. at https://cdn.cboe.com/
resources/membership/Cboe_US_Equities_FIX_
Specification.pdf (setting no minimum value for the
user instructed display quantity for reserve orders).
IEX notes that the Cboe equity exchange rules
clearly allow for the entry of an odd lot size display
quantity, but are unclear as to how much the
display quantity must decrement before it
replenishes to its initial display quantity.
29 See supra note 22.
26 See
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in a quantity equal to or greater than a
round lot as provided for under current
rules. Further, IEX proposes that if the
reserve order’s Max Floor is either an
odd lot or a round lot multiple, the
Member may include an instruction that
the reserve order’s display quantity be
randomly replenished (as discussed
below, random replenishment would
not be available to reserve orders with
a Max Floor of either a single round lot
or a mixed lot).
As proposed, Members may attach an
optional random replenishment
instruction (the ‘‘Display Range’’) to any
reserve order with a Max Floor of either
an odd lot or a round lot multiple. If the
Member includes a Display Range with
a reserve order, the reserve order’s
display quantities (both upon initial
posting and upon any subsequent
replenishments) would be randomly
determined by the System within a
replenishment range specified by the
Member. Specifically, the Member
would specify a Display Range and a
Max Floor. The System would then
randomly select the number of shares it
will use to replenish the display
quantity in the following ways
(depending upon the Max Floor of the
Order):
• If the reserve order’s Max Floor
equals a round lot multiple, the Member
would select a Display Range in a round
lot or multiple thereof that is less than
the Max Floor. The System would then
use the Max Floor and Display Range to
determine the initial and replenishment
displayed quantity each time the order
is subject to replenishment by randomly
selecting a round lot number of shares
that is between the Max Floor minus the
Display Range and the Max Floor plus
the Display Range.
• If the reserve order’s Max Floor is
less than one round lot, the Member
would select a Display Range of one or
more shares that is less than the Max
Floor. The System would then use the
Max Floor and Display Range to
determine the initial and replenishment
displayed quantity each time the order
is subject to replenishment by randomly
selecting a number of shares that is
between the Max Floor minus the
Display Range and the Max Floor plus
the Display Range (provided that if the
Max Floor plus the Display Range
equals a round lot or greater, the high
end of the Display Range will be one
share less than a round lot).30
30 Because random replenishment would not be
available for mixed lot display quantity reserve
orders, the maximum value for the random
replenishment range of a Displayed Odd Lot
Reserve order must be one share less than a round
lot. Therefore, if a Member submitted a Displayed
Odd Lot Reserve order with a Max Floor of 95 and
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52715
As proposed, Members could still
elect to have their reserve orders employ
the current, fixed replenishment,
functionality. In order to use fixed
replenishment, a Member would submit
a reserve order with a Max Floor, but
without a Display Range. With fixed
replenishment, the display quantity will
be equal to the Max Floor both when the
order first posts to the Order Book and
any time the display quantity is
replenished from the reserve (i.e., when
the display quantity is decremented to
zero shares if the Max Floor is less than
one round lot, or any time the display
quantity decrements to less than one
round lot if the Max Floor is greater
than or equal to a round lot).
Random replenishment for reserve
orders is an optional additional tool to
assist Members in achieving the general
goal of reserve orders, which is to
display less than the full size of the
order to avoid leaking information
regarding the presence of a large resting
reserve order.31 Because random
replenishment results in the display
quantity of a Reserve order varying with
each replenishment, this functionality
will further reduce the ability of other
market participants to detect that such
order is in fact a reserve order with a
potentially large non-displayed reserve
portion.
IEX is not proposing to offer random
replenishment for reserve orders with a
Max Floor of a single round lot because
the random replenishment functionality
would not work with a Max Floor of one
round lot. Specifically, as noted above,
when a Member selects random
replenishment for a reserve order, the
Member must submit the order with a
Display Range that is less than the Max
Floor. Thus, if a reserve order’s Max
Floor is one round lot, the Display
Range must be zero, so the reserve order
will always replenish using only the
Max Floor, rendering random
replenishment inoperable. Therefore,
reserve orders with a Max Floor equal
to one round lot will only be able to use
the current fixed replenishment
functionality.
Additionally, IEX is not proposing to
offer random replenishment for reserve
orders with a Max Floor that is a mixed
lot because implementation would
involve technical complexity. From
informal discussions with Members, IEX
determined there was little interest in
having the option of random
replenishment for a displayed mixed lot
a Display Range of 10, the System would randomly
select a replenishment value between 85 and 99.
31 Identification of a large resting non-displayed
order on an exchange can provide information
regarding buy or sell interest resulting in market
moving trading adverse to the resting order.
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reserve order. Thus, IEX believes that
offering only fixed replenishment for
displayed mixed lot reserve orders
strikes the right balance of offering
enhanced reserve order functionality to
Members without introducing
unnecessary technical complexity to its
reserve order functionality.
IEX notes that the proposed random
replenishment functionality for reserve
orders with a Max Floor that is a round
lot multiple is substantially similar to
that of several other equity exchanges
that offer random replenishment for
reserve orders.32 And as described
above, the proposed new random
replenishment functionality for reserve
orders with a Max Floor that is less than
a round lot is substantially similar to the
functionality used by options exchanges
that offer displayed odd lot reserve
orders with random replenishment.33
The following examples demonstrate
the proposed odd lot fixed and random
replenishment functionality:
Example 1: Displayed Odd Lot Reserve
Order With Fixed Replenishment
• Member submits a reserve order to
buy 200 shares of XYZ with a Max Floor
of 20 and no Display Range.
• The order does not execute upon
entry and posts to the Order Book with
a display quantity of 20 shares and a
reserve quantity of 180 shares.
• An inbound order to sell 10 shares
of XYZ is entered into the System and
executes against 10 shares of the
displayed quantity. The reserve order
has a displayed portion of 10 shares and
a reserve quantity of 180 shares.
Because the displayed portion did not
decrement to zero shares, it does not get
replenished.
• A second inbound market order to
sell 10 shares of XYX is entered into the
System and executes against the
remaining displayed quantity,
decrementing it zero shares.
• The System replenishes the display
quantity to 20 shares (the Max Floor),
leaving a reserve quantity of 160 shares.
Example 2: Displayed Round Lot
Multiple Reserve Order With Random
Replenishment
• Member submits a reserve order to
buy 2000 shares of XYZ with a Max
Floor of 400 and a Display Range of 200.
32 See BZX Rule 11.9(c)(1); EDGX Rule 11.6(m);
MIAX PEARL LLC Rule 2614(c)(8)(A); MEMX Rule
11.6(k)(1)(A); Nasdaq Rule 4703(h).
33 See supra note 22; see also Cboe US Options
FIX Specification (Version 2.7.37) avail. at https://
cdn.cboe.com/resources/membership/US_Options_
FIX_Specification.pdf (random replenishment of an
option reserve order requires a Display Range of one
or more shares, which is the same functionality IEX
is proposing for random replenishment of a
Displayed Odd Lot Reserve order).
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• The order does not execute on
entry, and the System uses the Max
Floor and the Display Range to generate
a replenishment range of either 200,
300, 400, 500, or 600 shares from which
the System will randomly select the
initial replenishment quantity. The
System randomly selects 300 as the
initial replenishment quantity, meaning
the reserve order’s initial display
quantity will be 300 shares, with a
reserve quantity of 1,700 shares.
• An incoming order to sell 250
shares matches with the resting reserve
order’s display quantity, leaving 50
shares in the display quantity (and
1,700 in the reserve quantity).
• Because the Max Floor is at least
one round lot, the reserve order
replenishes when the display quantity
decrements to less than one round lot,
so the System again randomly selects a
replenishment quantity from the
replenishment range of either 200, 300,
400, 500, or 600 shares. The System
randomly selects 600 as the next
replenishment quantity, meaning the
display quantity will be replenished to
600 shares, with 550 shares
decremented from the reserve quantity,
which will now be 1,150 shares.
Example 3: Displayed Odd Lot Reserve
Order With Random Replenishment
• Member submits a reserve order to
buy 200 shares with a Max Floor of 50
and a Display Range of 3.
• The order does not execute on
entry, and the System generates a
replenishment range of either 47, 48, 49,
50, 51, 52, or 53 from which the System
will randomly select the replenishment
quantity. The System randomly selects
48 as the initial replenishment quantity,
meaning the displayed quantity will be
48 shares, with the remaining 152
shares in the reserve quantity.
• An incoming order to sell 48 shares
matches with the resting reserve order’s
displayed portion, leaving 0 shares in
the display quantity (and 152 shares in
the reserve quantity).
• Because the Max Floor is an odd
lot, and the display quantity
decremented to zero shares, the reserve
order replenishes the display quantity,
so the System again randomly selects a
replenishment quantity from the
replenishment range of either 47, 48, 49,
50, 51, 52, or 53 shares. The System
randomly selects 53 as the next
replenishment quantity, meaning the
display quantity will be replenished to
53 shares, with 53 shares decremented
from the reserve quantity, which will
now be 99 shares.
IEX is also proposing to make the
following conforming changes to IEX
Rule 11.190(b)(2). First, IEX proposes to
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delete current subparagraph (H), which
describes how a displayed portion of a
reserve order retains its displayed status
and priority if it decrements to an odd
lot, because it is rendered redundant by
the introduction of displayed quantity
odd lot reserve orders. Second, IEX
proposes to renumber current
subparagraphs (A) to (G) of the rule as
subparagraphs (B) to (H) to incorporate
the addition of new introductory
subparagraph (A).34 Third, IEX proposes
to modify Supplementary Material .01
(‘‘Reserve Orders’’) to clarify that
displayed portions would be
replenished based on the replenishment
options in new IEX Rule
11.190(b)(2)(A). Finally, IEX proposes to
modify IEX Rule 11.220(a)(C)(v) to
change the term ‘‘refreshed’’ to
‘‘replenished’’ and to clarify that not all
reserve orders replenish when the
display portion decrements to less than
one round lot, but rather pursuant to the
conditions set forth in the proposed
changes to IEX Rule 11.190(b)(2).
The following is a list of the specific
proposed changes to IEX Rule
11.190(b)(2):
• Modify any references in the rule to
a ‘‘refresh’’ of the display quantity to the
more technically accurate term
‘‘replenish,’’ which reflects the manner
in which the System replenishes the
displayed portion of a reserve order
with shares taken from the nondisplayed portion.
• Modify the second sentence of IEX
Rule 11.190(b)(2) to add language
stating that the display quantity ‘‘may
be a fixed or random number of shares;
and an odd, mixed, or round lot
quantity,’’ and delete the language
stating that User provided display
quantity ‘‘must be equal to or greater
than a round lot; the System will reject
a reserve order with a User instructed
display quantity less than a round lot.’’
• Modify the fourth sentence of IEX
Rule 11.190(b)(2) to add language
specifying that the User instructed
display quantity may be determined by
‘‘fixed or random replenishment.’’
• Add a new seventh sentence of IEX
Rule 11.190(b)(2) stating that to enter a
reserve order, a User must specify a base
display quantity (‘‘Max Floor’’) and may
enter a replenishment value as
described in subparagraph (A) of IEX
Rule 11.190(b).
• Modify the eighth sentence of IEX
Rule 11.190(b)(2) (formerly the seventh
sentence) to add language clarifying that
a reserve order with a Max Floor of a
34 Because IEX is proposing to delete
subparagraph (H) of the rule, while adding a new
subparagraph (A), subparagraph (I) will not need to
be renumbered.
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round lot or greater will continue to
replenish its displayed portion when
the displayed portion decrements to less
than one round lot. Also modify the
language about how a reserve order with
a Max Floor replenishes by removing
the language about how it always
replenishes to the original displayed
quantity and adding language stating
that the reserve order will replenish its
displayed portion pursuant to one of the
replenishment processes set forth in the
newly added subparagraph (A) of the
rule.
• Add a new ninth sentence of IEX
Rule 11.190(b)(2) stating that a reserve
order with a Max Floor of less than one
round lot (an odd lot), will replenish its
displayed portion when the displayed
portion is decremented to zero shares,
and add language stating that the
reserve order will replenish its
displayed portion pursuant to one of the
replenishment processes set forth in the
newly added subparagraph (A) of the
rule.
• Add to the end of the eleventh
sentence of IEX Rule 11.190(b)(2)
(formerly the ninth sentence) the
language that a reserve order ‘‘has the
following attributes:’’ set forth in the
subsequent subparagraphs.
• Add new subsection (A) to IEX Rule
11.190(b)(2) (‘‘Replenishment Options’’)
that reads: ‘‘The following
replenishment options determine the
size of the displayed quantity for any
reserve order that does not fully execute
on entry.
• Add new subsection (A)(i) to IEX
Rule 11.190(b)(2) (‘‘Random
Replenishment’’) that sets forth new the
random replenishment functionality, as
detailed in this filing.
• Add new subsection (A)(i)(a) to IEX
Rule 11.190(b)(2) (‘‘Random
Replenishment’’) that sets forth new the
random replenishment functionality for
reserve orders with a Max Floor equal
to a round lot multiple, which is
detailed in this filing.
• Add new subsection (A)(i)(b) to IEX
Rule 11.190(b)(2) (‘‘Random
Replenishment’’) that sets forth new the
random replenishment functionality for
reserve orders with a Max Floor equal
to less than one round lot, which is
detailed in this filing.
• Add new subsection (A)(ii) to IEX
Rule 11.190(b)(2) (‘‘Fixed
Replenishment’’) that sets forth
retention of the current replenishment
functionality for all orders for which
random replenishment has not been
selected, as detailed in this filing.
• Renumber current subparagraphs
(A) to (G) of current IEX Rule
11.190(b)(2) to subparagraphs (B) to (H).
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• Remove current subparagraph (H) of
current IEX Rule 11.190(b)(2).
• Modify Supplementary Material .01
(‘‘Reserve Orders’’) as follows: (i) In the
first sentence, add ‘‘on entry’’ after the
words ‘‘if a reserve order is not fully
executed’’ for clarity; (ii) in the same
sentence, remove the words ‘‘for the
User instructed’’ that describe the
display quantity and replace them with
the words ‘‘based on the replenishment
options sets forth in paragraph (b)(2)(A)
of this IEX Rule;’’ (iii) in the same
sentence, add the word ‘‘quantity’’ after
the words ‘‘non-displayed’’ for clarity
and consistency (matching the earlier
phrase ‘‘displayed quantity’’).
• Modify IEX Rule 11.220(a)(C)(v) to
change the term ‘‘refreshed’’ to
‘‘replenished’’ and to remove the words
‘‘after receiving an execution that
decrements the displayed portion of a
reserve order below one round lot
pursuant to’’ and replace them with the
words ‘‘as set forth in [IEX Rule
11.190(b)(2)]’’ to reflect that not all
reserve orders replenish when the
display portion decrements to less than
one round lot, but rather pursuant to the
conditions set forth in the proposed
changes to IEX Rule 11.190(b)(2).
Implementation
The Exchange will implement the
proposed rule change within 90 days of
filing, subject to the 30-day operative
delay, and provide at least ten (10) days’
notice to Members and market
participants of the implementation
timeline.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,35 in general, and
furthers the objectives of Section
6(b)(5),36 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
provide more flexibility and
opportunities for Members to add
displayed liquidity to the Exchange. As
noted in the Purpose section, the
35 15
36 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00086
Fmt 4703
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52717
proposed rule change is responsive to
informal feedback from Members
indicating that they prefer the
optionality to use Displayed Odd Lot
Reserve orders to post displayed
liquidity, particularly for high-priced
securities. Thus, IEX believes that the
proposed rule change will attract
additional displayed liquidity to the
Exchange and, to the extent it is
successful in doing so, will benefit all
market participants, thereby supporting
the purposes of the Act 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. The Exchange also
believes that, as discussed in the
Purpose section, enabling the use of
Displayed Odd Lot Reserve orders will
enhance opportunities for price
discovery and increase the overall
displayed liquidity profile on the
Exchange to the benefit of all market
participants.
Additionally, IEX believes that having
a Displayed Odd Lot Reserve order
replenish its displayed portion when it
decrements to zero shares is consistent
with the Act, because, as discussed in
the Purpose section, it is the most
workable reasonable approach to
protecting investors from information
leakage and potential adverse selection
in a manner responsive to Members’
feedback. Accordingly, IEX believes that
this approach could incentivize the use
of more reserve orders thereby
increasing the availability of displayed
liquidity over fully non-displayed
orders. For all these reasons, IEX
believes that replenishing Displayed
Odd Lot Reserve orders when the
displayed portion decrements to zero
supports investor protection and the
public interest.
Further, IEX believes that the addition
of the random replenishment option for
reserve orders is consistent with the Act
as it is designed to help to achieve the
general goal of reserve orders, which is
to display less than the full size of the
order to avoid leaking information about
the presence of a large resting reserve
order which can result in market
movement adverse to the reserve order.
Because random replenishment results
in the display quantity of a reserve order
varying with each replenishment, this
functionality will further reduce the
ability of other market participants to
detect that such order is in fact a reserve
order.
Furthermore, IEX believes it is
consistent with the Act to offer only
fixed replenishment for reserve orders
with a Max Floor of a single round lot
or a mixed lot for the reasons discussed
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in the Purpose section. IEX believes that
the proposed approach provides a
reasonable approach with appropriate
optionality.
IEX also notes that, as discussed in
the Purpose section, the proposed
random replenishment functionality is
consistent with the rules of several other
equities 37 and options 38 exchanges and
thus the Exchange does not believe that
this aspect of the proposed rule change
raises any new or novel issues not
already considered by the Commission.
Finally, the Exchange believes that
the proposed non-substantive
conforming changes to IEX Rule
11.190(b)(2) (including the
supplementary material) and IEX Rule
11.220(a)(1)(C) are consistent with the
protection of investors and the public
interest because they will have no
impact on the functionality of reserve
orders, but rather simply provide
consistency and clarity to how reserve
orders function, thereby reducing the
potential for confusion of any market
participants.
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.
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.
To the contrary, the proposal is
designed to enhance IEX’s
competitiveness with other markets by
enabling IEX to offer reserve order
functionality substantially similar to
that offered by several other equity
exchanges. As discussed in the Purpose
section, the proposal is designed to
incentivize the entry of additional
liquidity providing orders on IEX by
offering Members the flexibility of using
an odd lot display quantity as well as
random replenishment of the displayed
quantity of a reserve order as described
in the Purpose and Statutory Basis
sections. Thus, IEX believes that the
proposed rule change will enhance its
ability to compete with other exchanges
that already offer this functionality and
thereby attract more reserve orders to
the Exchange, to the benefit of all
market participants. Moreover, other
exchanges may adopt similar
functionality subject to the Commission
rule filing process.
37 See
38 See
supra note 32.
supra note 22.
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The Exchange also does not believe
that the proposed rule change will
impose any burden on intramarket
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act. All Members would
be eligible to use a Displayed Odd Lot
Reserve order, and all Members would
be eligible to use random or fixed
replenishment for their reserve orders in
the same manner. Moreover, the
proposal would provide potential
benefits to all Members to the extent
that there is more liquidity available on
IEX as a result of increased use of
reserve orders.
Further, the proposed conforming
edits to IEX Rule 11.190(b)(2) (including
the supplementary material) and Rule
11.220(a)(1)(C) are not designed to
address any competitive issue, but
rather to provide additional clarity in
IEX’s rulebook.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 39 and Rule
19b–4(f)(6) thereunder.40 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 41 and Rule 19b–4(f)(6)(iii)
thereunder.42
At any time within 60 days of the
filing of this 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
39 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
41 15 U.S.C. 78s(b)(3)(A).
42 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires the Exchange to give the
Commission written notice of the Exchange’s intent
to file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
40 17
PO 00000
Frm 00087
Fmt 4703
Sfmt 4703
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
IEX–2021–11 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–2021–11. 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 will also be available for
inspection and copying at the IEX’s
principal office and on its internet
website at www.iextrading.com. All
comments received will be posted
without change. 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
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information that you wish to make
available publicly. All submissions
should refer to File Number SR–IEX–
2021–11, and should be submitted on or
before October 13, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.43
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–20453 Filed 9–21–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93037; File No. SR–NYSE–
2021–44]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change To
Amend Rules 7.31, 7.35, 7.35B, 7.35C,
98, and 104 Relating to the Closing
Auction
September 16, 2021.
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
September 3, 2021, 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 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
The Exchange proposes to amend
Rules 7.31 (Orders and Modifiers), 7.35
(General), 7.35B (DMM-Facilitated
Closing Auctions), 7.35C (ExchangeFacilitated Auctions), 98 (Operation of a
DMM Unit), and 104 (Dealings and
Responsibilities of DMMs) relating to
the Closing Auction. 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.
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.
1 15
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rules 7.31 (Orders and Modifiers), 7.35
(General), 7.35B (DMM-Facilitated
Closing Auctions), 7.35C (ExchangeFacilitated Auctions), 98 (Operation of a
DMM Unit), and 104 (Dealings and
Responsibilities of DMMs) relating to
the Closing Auction.4
Overview of Current Closing Auction
Process
The following rules currently describe
the Closing Auction process on the
Exchange: Rule 7.31 (identifying the
order types eligible to participate in an
Auction); Rule 7.35 (general rules and
definitions applicable to Auctions); Rule
7.35B (describing the process for DMMfacilitated Closing Auctions); Rule 7.35C
(describing the process for Exchangefacilitated Auctions); and Rule 104
(establishing DMM obligations with
respect to Closing Auctions and trading
leading into the Closing Auction).
The following interest is eligible to
participate in a Closing Auction:
• Unexecuted buy and sell orders
resting on the Exchange Book at the end
of Core Trading Hours (including DMM
Orders); 5
4 Capitalized terms used in connection with
Auctions on the Exchange are defined in Rule
7.35(a).
5 For purposes of Auctions, the term ‘‘DMM
Interest’’ is defined in Rule 7.35(a)(9) to mean all
buy and sell interest entered by a DMM unit in its
assigned securities and includes the following: (i)
‘‘DMM Auction Liquidity,’’ which is non-displayed
buy and sell interest that is designated for an
Auction only (see Rule 7.35(a)(9)(A)); (ii) ‘‘DMM
Orders,’’ which are orders, as defined under Rule
7.31, entered by a DMM unit (see Rule
7.35(a)(9)(B)); and (iii) ‘‘DMM After-Auction
Orders,’’ which are orders entered by a DMM unit
before either the Core Open Auction or Trading Halt
Auction that do not participate in an Auction and
are intended instead to maintain price continuity
with reasonable depth following an Auction (see
Rule 7.35(a)(9)(C)).
PO 00000
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52719
• Auction-Only Orders; 6 and
• DMM Auction Liquidity entered by
the DMM in connection with facilitating
the Closing Auction.7
Beginning 10 minutes before the
scheduled end of Core Trading Hours,
the Exchange begins disseminating
through its proprietary data feed Closing
Auction Imbalance Information that is
calculated based on the interest eligible
to participate in the Closing Auction.8
The Closing Auction Imbalance
Information includes the Continuous
Book Clearing Price, which is the price
at which all better-priced orders eligible
to trade in the Closing Auction on the
Side of the Imbalance can be traded.9
The Closing Auction Imbalance
Information also includes an Imbalance
Reference Price, which is the Exchange
Last Sale Price bound by the Exchange
BBO.10 Beginning five minutes before
the end of Core Trading Hours, Closing
D Orders are included in the Closing
Auction Imbalance Information at their
undisplayed discretionary price.11 The
Closing Auction Imbalance Information
is updated at least every second, unless
there is no change to the information,
and is disseminated until the Closing
6 Auction-Only Orders available for the Closing
Auction are defined in Rule 7.31(c)(2)(A)–(D) as the
Limit-on-Close Order (‘‘LOC Order’’), Market-onClose Order (‘‘MOC Order’’), Closing D Order, and
Closing Imbalance Offset Order (‘‘Closing IO
Order’’).
7 The Commission recently approved proposed
changes to Rule 7.35B that provide that Floor
Broker Interest is no longer eligible to participate
in the Closing Auction. See Securities Exchange Act
Release No. 92480 (July 23, 2021), 86 FR 40886
(July 29, 2021) (SR–NYSE–2020–95) (‘‘Floor Broker
Interest Approval Order’’). The term ‘‘Floor Broker
Interest’’ is defined in Rule 7.35(a)(10) to mean
orders represented orally by a Floor broker at the
point of sale.
In light of the Floor Broker Interest Approval
Order, the Exchange is proposing conforming
changes to Rule 7.35B(j)(2) and subparagraph
(A)(iii) to that Rule. Specifically, Rule 7.35B(j)(2)
provides that, to avoid closing price dislocation that
may result from an order entered into Exchange
systems or represented to a DMM orally at or near
the end of Core Trading Hours, the Exchange may
temporarily suspend the requirement to enter all
order instructions by the end of Core Trading
Hours. Because the Exchange has eliminated Floor
Broker Interest at the close, the Exchange proposes
to delete the phrase ‘‘or represented to a DMM
orally’’ in Rule 7.35B(j)(2). For similar reasons, the
Exchange proposes to delete the phrase ‘‘and Floor
Broker Interest’’ in Rule 7.35B(j)(2)(A)(iii).
8 See Rule 7.35B(e)(1)(A). DMM Orders, as
defined in Rule 7.35(d)(9)(B), that have been
entered by the DMM in advance of a Closing
Auction are included in the Closing Auction
Imbalance Information.
9 See Rule 7.35(a)(4)(C). In the case of a buy
Imbalance, the Continuous Book Clearing Price
would be the highest potential Closing Auction
Price and in the case of a sell Imbalance, the
Continuous Book Clearing Price would be the
lowest potential Closing Auction Price.
10 See Rule 7.35B(e)(3).
11 See Rule 7.35(b)(1)(C)(ii).
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]]>Agencies
[Federal Register Volume 86, Number 181 (Wednesday, September 22, 2021)]
[Notices]
[Pages 52713-52719]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-20453]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93027; File No. SR-IEX-2021-11]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Provide
That a Reserve Order May Have (i) an Odd Lot Sized Display Quantity and
(ii) an Optional Random Initial and Replenishment Display Quantity
September 16, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 14, 2021, 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\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of Section 19(b)(1) under the Act,\3\
and Rule 19b-4 thereunder,\4\ IEX is filing with the Commission a
proposed rule change to provide that a reserve order may have (i) an
odd lot sized display quantity and (ii) an optional random initial and
replenishment display quantity. The Exchange has designated this rule
change as ``non-controversial'' under Section 19(b)(3)(A) of the Act
\5\ and provided the Commission with the notice required by Rule 19b-
4(f)(6) thereunder.\6\
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78s(b)(1).
\4\ 17 CFR 240.19b-4.
\5\ 15 U.S.C. 78s(b)(3)(A).
\6\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
The text of the proposed rule change is available at the Exchange's
website at www.iextrading.com, at the principal office of the Exchange,
and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and the
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule filing is to amend IEX Rule
11.190(b)(2) to provide that a reserve order \7\ may have (i) an odd
lot \8\ size display quantity and (ii) an optional random initial and
replenishment display quantity. Specifically, as proposed, a reserve
order may have an odd lot as well as a round or mixed lot initial and
replenishment display quantity. In addition, as proposed, a Member \9\
may attach an optional random replenishment instruction to any reserve
order pursuant to which the reserve order's display quantity (both upon
initial posting to the Order Book \10\ and upon any subsequent
replenishments) would be randomly determined by the System \11\ within
a replenishment range specified by the Member. In addition, IEX
proposes to make conforming edits to IEX Rules 11.190(b)(2) and
11.220(a)(1)(C) reflecting the proposed changes to reserve order
functionality.
---------------------------------------------------------------------------
\7\ See IEX Rule 11.190(b)(2).
\8\ An odd lot order is generally any order of less than 100
shares (the size of a round lot order). See IEX Rule 11.180(a).
\9\ See IEX Rule 1.160(s).
\10\ See IEX Rule 1.160(p).
\11\ See IEX Rule 1.160(nn).
---------------------------------------------------------------------------
The proposed changes are designed to increase displayed liquidity
on the Exchange (potentially at prices better than the NBBO),\12\ to
the benefit of all market participants, by providing additional
optionality to Members in the use of odd lot size reserve order
displayed quantities, as well as helping to protect Members using
reserve orders with random replenishment from potential information
leakage.
---------------------------------------------------------------------------
\12\ See IEX Rule 1.160(u).
---------------------------------------------------------------------------
Background
IEX, like other equities exchanges,\13\ offers Members a
``reserve'' order type, which allows Members to submit a partially
displayed limit order,\14\ so that a portion of the order is displayed
(``display quantity'') and a portion of the order is non-displayed
(``reserve quantity'').\15\ As set forth in IEX Rule 11.190(b)(2), when
Users \16\ submit a reserve order, they must specify the display
quantity (which must be a round or mixed lot). Upon entry, the System
attempts to execute a reserve order as a single order of its full,
unexecuted size. If an incoming reserve order is not fully executed, it
posts to the Order Book where it is effectively
[[Page 52714]]
treated as two discrete orders: The User instructed display quantity
posts to the Order Book as a displayed order (``displayed portion'')
and the reserve quantity posts to the Order Book as a non-displayed
order (``non-displayed portion''). For the purposes of pricing reserve
orders on the Order Book, displayed portions are treated as displayed
orders and non-displayed portions are treated as non-displayed orders.
As described in IEX Rule 11.190(h), it is possible for the non-
displayed portion to rest at a different price than the displayed
portion, because the displayed portion is subject to display-price
sliding \17\ while the non-displayed portion is subject to the Midpoint
Price Constraint.\18\ If the displayed portion of the reserve order is
decremented such that less than one round lot would be displayed, the
displayed portion of the reserve order shall be refreshed for either
(i) the original displayed quantity, or (ii) the entire reserve
quantity, if the total number of unexecuted shares in the order is
smaller than the original Member instructed displayed quantity. Each
time the displayed portion of the order is refreshed from the reserve
quantity, that portion is prioritized behind other existing displayed
orders; the priority of the non-displayed portion, however, is
unchanged by the refresh process.
---------------------------------------------------------------------------
\13\ See, e.g., Cboe BZX Exchange, Inc. (``BZX'') Rule
11.9(c)(1); MEMX, LLC (``MEMX'') Rule 11.8(b)(4); The Nasdaq Stock
Market LLC (``Nasdaq'') Rule 4703(h); and New York Stock Exchange
LLC Rule 7.31(d)(1).
\14\ See IEX Rule 11.190(a)(1).
\15\ See IEX Rule 11.190(b)(2).
\16\ See IEX Rule 1.160(qq). The text of IEX Rule 11.190(b)(2)
uses the term ``User'', so any direct references to the text of the
rule will use the term ``User.'' Otherwise, for purposes of this
rule filing, the term ``Member'' will be used synonymously with the
term ``User.''
\17\ See IEX Rule 11.190(h)(1).
\18\ See IEX Rule 11.190(h)(2).
---------------------------------------------------------------------------
IEX recently implemented a rule change that provides for the option
to display odd lot size orders, including allowing them to aggregate to
form a protected quotation.\19\ In connection with the implementation
of displayed odd lot size orders, IEX modified its reserve order
functionality to provide that if the display quantity of a reserve
order decrements to less than a round lot (and there are not enough
shares remaining in the reserve quantity to refresh the display
quantity to more than a round lot), the display quantity retains its
displayed status and its execution priority.\20\
---------------------------------------------------------------------------
\19\ See Securities Exchange Act Release No. 90933 (January 15,
2021), 86 FR 6687 (January 22, 2021) (SR-IEX-2021-01).
\20\ See supra note 19.
---------------------------------------------------------------------------
Proposal
IEX proposes to amend IEX Rule 11.190(b)(2) to: (i) Allow reserve
orders to be submitted with an odd lot sized display portion; and (ii)
allow Members to elect that the initial and replenishment display
quantity for the reserve order will be randomly determined by the
System within a range specified by the Member. As described below, IEX
believes this proposal, which combines order types and functionality
previously considered by the Commission, will encourage the posting of
more displayed liquidity on the Exchange in a manner that benefits all
market participants.
1. Odd Lot Display Quantity Reserve Orders
IEX proposes to modify its reserve order type to allow Members to
submit a reserve order with an odd lot size display quantity, in
addition to the current functionality which allows Members to submit a
reserve order with either a round or mixed lot size display quantity.
As proposed, odd lot size display quantity reserve orders
(``Displayed Odd Lot Reserve orders'') would function much like a round
or mixed lot size display quantity reserve order, except that the
display quantity would only replenish from the reserve quantity when
the displayed portion of the order is decremented to zero shares, as
opposed to round and mixed lot size display quantity reserve orders,
which would continue to replenish the display quantity whenever they
decrement to less than a round lot. IEX believes that replenishing a
Displayed Odd Lot Reserve order only when the display quantity has been
fully exhausted is the most reasonable and workable approach. As a
threshold matter, the display quantity of a Displayed Odd Lot Reserve
order by definition will always be less than a round lot and will vary
based on the Member instructed displayed quantity and can be as low as
one share. Therefore, the trigger for replenishment cannot be a
quantity that is the same for all orders unless it is when the
displayed quantity decrements to zero.
IEX notes that it also considered having Displayed Odd Lot Reserve
orders replenish anytime one or more share of the displayed portion was
executed, but decided against it for the following reasons. First, as a
practical matter, Displayed Odd Lot Reserve orders will be far less
useful to Members if any partial executions of the display portion
trigger a replenishment, resulting in the display portion receiving a
new time stamp and being prioritized behind all other existing
displayed orders at that price. Second, as discussed below, a Displayed
Odd Lot Reserve order would be eligible for optional random
replenishment, which means the next time the display quantity of the
order replenishes, it could be randomly set at a value lower than the
prior display quantity, and IEX seeks to avoid this confusing and
illogical outcome. Third, IEX believes that having a Displayed Odd Lot
Reserve Order replenish any time there is a partial execution of the
displayed portion of the order could increase the likelihood of adverse
selection through information leakage of the presence of a larger non-
displayed reserve portion of the order. IEX notes that the Commission
made the same determination when it approved a 2018 rule filing by the
New York Stock Exchange LLC (``NYSE'') that changed NYSE's reserve
order replenishment trigger from replenishing after any execution of a
portion of the displayed quantity to only replenishing when the display
quantity decrements to less than a round lot.\21\ Based on informal
discussions with Members, IEX believes that the proposed approach would
lead to increased use of Displayed Odd Lot Reserve orders compared to
other approaches, as discussed above. IEX also notes that this proposed
approach to Displayed Odd Lot Reserve order replenishment mirrors the
functionality of options exchanges with reserve order types that
display in odd lot quantities that replenish their display quantity
only when it is fully exhausted.\22\
---------------------------------------------------------------------------
\21\ See Securities Exchange Act Release No. 83768 (August 3,
2018), 83 FR 39488 (August 9, 2018). The fact that, until 2018, NYSE
triggered replenishment with any partial execution of the display
portion of a reserve order shows that only replenishing a reserve
order when it decrements to less than a round lot is not the only
Commission-approved replenishment trigger.
\22\ See BZX Rule 21.1(d)(1); Cboe EDGX Exchange, Inc.
(``EDGX'') Rule 21.1(d)(1).
---------------------------------------------------------------------------
IEX believes that providing for Displayed Odd Lot Reserve orders
will incentivize the posting of more displayed liquidity on IEX, and
the corresponding opportunity for market participants to interact with
displayed liquidity. In this regard, IEX believes that the increasing
prevalence of high-priced securities (including many securities that
trade for more than $1,000 per share) \23\ makes quoting in round lot
multiples inaccessible to some market participants. As the Commission
recently noted, ``a significant proportion of quotation and trading
activity occurs in odd-lots, particularly for frequently traded, high
priced stocks.'' \24\ The Commission also noted that ``frequently
traded, high priced securities were more likely to have executions
occur in odd-lot sizes (about 34% of the share volume of the 50
securities with the highest
[[Page 52715]]
share prices) than lower priced securities (about 3.4% of the 50
securities with the lowest share prices).'' \25\
---------------------------------------------------------------------------
\23\ As of July 2021, there are 21 securities trading for $1,000
per share or more, and an additional 38 securities trading between
$500 and $999.99 per share.
\24\ See Securities Exchange Act Release No. 90610 (December 9,
2020), 86 FR 18596, 18616 n. 240 (April 9, 2021) (``Market Data
Infrastructure Final Rule'').
\25\ See supra note 24.
---------------------------------------------------------------------------
Furthermore, the Commission has noted that almost half of all on-
exchange trades are odd lot sized, and about 40% of those odd lot
trades occur at prices better than the NBBO.\26\ Thus, allowing reserve
orders to display odd lot quantities would both encourage the posting
of more displayed liquidity on the Exchange, and offer more price
improvement for high priced stocks that often trade in odd lot
quantities at better prices than the NBBO.\27\
---------------------------------------------------------------------------
\26\ See supra note 24.
\27\ Displayed odd lot orders do not update the NBBO unless
aggregated to form a round lot size quotation, and thus can be
priced better than the NBBO.
---------------------------------------------------------------------------
Additionally, based on informal discussions with IEX Members, the
Exchange believes that use of reserve orders would increase in high
priced securities if the displayed portion of the reserve order could
be entered in an odd lot quantity.
IEX notes that its proposal for Displayed Odd Lot Reserve orders is
not novel, in that all four of the Cboe equities exchanges allow a
reserve order to be submitted with a user instructed display quantity
of less than one round lot.\28\ Additionally, BZX's and EDGX's options
exchanges offer displayed odd lot reserve orders that replenish in the
same manner as the current proposal--when the displayed portion of the
odd lot reserve order is fully executed, the order is replenished from
the reserve quantity.\29\
---------------------------------------------------------------------------
\28\ See BZX Rule 11.9(c)(1); Cboe BYX Exchange, Inc. (``BYX'')
Rule 11.9(c)(1); Cboe EDGA Exchange, Inc. (``EDGA'') Rule 11.6(m);
EDGX Rule 11.6(m); see also Cboe US Equities FIX Specification
(Version 2.9.2) avail. at https://cdn.cboe.com/resources/membership/Cboe_US_Equities_FIX_Specification.pdf (setting no minimum value for
the user instructed display quantity for reserve orders). IEX notes
that the Cboe equity exchange rules clearly allow for the entry of
an odd lot size display quantity, but are unclear as to how much the
display quantity must decrement before it replenishes to its initial
display quantity.
\29\ See supra note 22.
---------------------------------------------------------------------------
2. Random Replenishment
IEX proposes to offer Members the option to elect that the initial
and each replenishment display quantity for the reserve order will be
randomly determined by the System within a range specified by the
Member. IEX proposes to add the defined term of ``Max Floor'' to IEX
Rule 11.190(b)(2), to specify the base display quantity for all reserve
orders. As proposed, a Member can submit a reserve order with a Max
Floor in an odd lot quantity, as well as in a quantity equal to or
greater than a round lot as provided for under current rules. Further,
IEX proposes that if the reserve order's Max Floor is either an odd lot
or a round lot multiple, the Member may include an instruction that the
reserve order's display quantity be randomly replenished (as discussed
below, random replenishment would not be available to reserve orders
with a Max Floor of either a single round lot or a mixed lot).
As proposed, Members may attach an optional random replenishment
instruction (the ``Display Range'') to any reserve order with a Max
Floor of either an odd lot or a round lot multiple. If the Member
includes a Display Range with a reserve order, the reserve order's
display quantities (both upon initial posting and upon any subsequent
replenishments) would be randomly determined by the System within a
replenishment range specified by the Member. Specifically, the Member
would specify a Display Range and a Max Floor. The System would then
randomly select the number of shares it will use to replenish the
display quantity in the following ways (depending upon the Max Floor of
the Order):
If the reserve order's Max Floor equals a round lot
multiple, the Member would select a Display Range in a round lot or
multiple thereof that is less than the Max Floor. The System would then
use the Max Floor and Display Range to determine the initial and
replenishment displayed quantity each time the order is subject to
replenishment by randomly selecting a round lot number of shares that
is between the Max Floor minus the Display Range and the Max Floor plus
the Display Range.
If the reserve order's Max Floor is less than one round
lot, the Member would select a Display Range of one or more shares that
is less than the Max Floor. The System would then use the Max Floor and
Display Range to determine the initial and replenishment displayed
quantity each time the order is subject to replenishment by randomly
selecting a number of shares that is between the Max Floor minus the
Display Range and the Max Floor plus the Display Range (provided that
if the Max Floor plus the Display Range equals a round lot or greater,
the high end of the Display Range will be one share less than a round
lot).\30\
---------------------------------------------------------------------------
\30\ Because random replenishment would not be available for
mixed lot display quantity reserve orders, the maximum value for the
random replenishment range of a Displayed Odd Lot Reserve order must
be one share less than a round lot. Therefore, if a Member submitted
a Displayed Odd Lot Reserve order with a Max Floor of 95 and a
Display Range of 10, the System would randomly select a
replenishment value between 85 and 99.
---------------------------------------------------------------------------
As proposed, Members could still elect to have their reserve orders
employ the current, fixed replenishment, functionality. In order to use
fixed replenishment, a Member would submit a reserve order with a Max
Floor, but without a Display Range. With fixed replenishment, the
display quantity will be equal to the Max Floor both when the order
first posts to the Order Book and any time the display quantity is
replenished from the reserve (i.e., when the display quantity is
decremented to zero shares if the Max Floor is less than one round lot,
or any time the display quantity decrements to less than one round lot
if the Max Floor is greater than or equal to a round lot).
Random replenishment for reserve orders is an optional additional
tool to assist Members in achieving the general goal of reserve orders,
which is to display less than the full size of the order to avoid
leaking information regarding the presence of a large resting reserve
order.\31\ Because random replenishment results in the display quantity
of a Reserve order varying with each replenishment, this functionality
will further reduce the ability of other market participants to detect
that such order is in fact a reserve order with a potentially large
non-displayed reserve portion.
---------------------------------------------------------------------------
\31\ Identification of a large resting non-displayed order on an
exchange can provide information regarding buy or sell interest
resulting in market moving trading adverse to the resting order.
---------------------------------------------------------------------------
IEX is not proposing to offer random replenishment for reserve
orders with a Max Floor of a single round lot because the random
replenishment functionality would not work with a Max Floor of one
round lot. Specifically, as noted above, when a Member selects random
replenishment for a reserve order, the Member must submit the order
with a Display Range that is less than the Max Floor. Thus, if a
reserve order's Max Floor is one round lot, the Display Range must be
zero, so the reserve order will always replenish using only the Max
Floor, rendering random replenishment inoperable. Therefore, reserve
orders with a Max Floor equal to one round lot will only be able to use
the current fixed replenishment functionality.
Additionally, IEX is not proposing to offer random replenishment
for reserve orders with a Max Floor that is a mixed lot because
implementation would involve technical complexity. From informal
discussions with Members, IEX determined there was little interest in
having the option of random replenishment for a displayed mixed lot
[[Page 52716]]
reserve order. Thus, IEX believes that offering only fixed
replenishment for displayed mixed lot reserve orders strikes the right
balance of offering enhanced reserve order functionality to Members
without introducing unnecessary technical complexity to its reserve
order functionality.
IEX notes that the proposed random replenishment functionality for
reserve orders with a Max Floor that is a round lot multiple is
substantially similar to that of several other equity exchanges that
offer random replenishment for reserve orders.\32\ And as described
above, the proposed new random replenishment functionality for reserve
orders with a Max Floor that is less than a round lot is substantially
similar to the functionality used by options exchanges that offer
displayed odd lot reserve orders with random replenishment.\33\
---------------------------------------------------------------------------
\32\ See BZX Rule 11.9(c)(1); EDGX Rule 11.6(m); MIAX PEARL LLC
Rule 2614(c)(8)(A); MEMX Rule 11.6(k)(1)(A); Nasdaq Rule 4703(h).
\33\ See supra note 22; see also Cboe US Options FIX
Specification (Version 2.7.37) avail. at https://cdn.cboe.com/resources/membership/US_Options_FIX_Specification.pdf (random
replenishment of an option reserve order requires a Display Range of
one or more shares, which is the same functionality IEX is proposing
for random replenishment of a Displayed Odd Lot Reserve order).
---------------------------------------------------------------------------
The following examples demonstrate the proposed odd lot fixed and
random replenishment functionality:
Example 1: Displayed Odd Lot Reserve Order With Fixed Replenishment
Member submits a reserve order to buy 200 shares of XYZ
with a Max Floor of 20 and no Display Range.
The order does not execute upon entry and posts to the
Order Book with a display quantity of 20 shares and a reserve quantity
of 180 shares.
An inbound order to sell 10 shares of XYZ is entered into
the System and executes against 10 shares of the displayed quantity.
The reserve order has a displayed portion of 10 shares and a reserve
quantity of 180 shares. Because the displayed portion did not decrement
to zero shares, it does not get replenished.
A second inbound market order to sell 10 shares of XYX is
entered into the System and executes against the remaining displayed
quantity, decrementing it zero shares.
The System replenishes the display quantity to 20 shares
(the Max Floor), leaving a reserve quantity of 160 shares.
Example 2: Displayed Round Lot Multiple Reserve Order With Random
Replenishment
Member submits a reserve order to buy 2000 shares of XYZ
with a Max Floor of 400 and a Display Range of 200.
The order does not execute on entry, and the System uses
the Max Floor and the Display Range to generate a replenishment range
of either 200, 300, 400, 500, or 600 shares from which the System will
randomly select the initial replenishment quantity. The System randomly
selects 300 as the initial replenishment quantity, meaning the reserve
order's initial display quantity will be 300 shares, with a reserve
quantity of 1,700 shares.
An incoming order to sell 250 shares matches with the
resting reserve order's display quantity, leaving 50 shares in the
display quantity (and 1,700 in the reserve quantity).
Because the Max Floor is at least one round lot, the
reserve order replenishes when the display quantity decrements to less
than one round lot, so the System again randomly selects a
replenishment quantity from the replenishment range of either 200, 300,
400, 500, or 600 shares. The System randomly selects 600 as the next
replenishment quantity, meaning the display quantity will be
replenished to 600 shares, with 550 shares decremented from the reserve
quantity, which will now be 1,150 shares.
Example 3: Displayed Odd Lot Reserve Order With Random Replenishment
Member submits a reserve order to buy 200 shares with a
Max Floor of 50 and a Display Range of 3.
The order does not execute on entry, and the System
generates a replenishment range of either 47, 48, 49, 50, 51, 52, or 53
from which the System will randomly select the replenishment quantity.
The System randomly selects 48 as the initial replenishment quantity,
meaning the displayed quantity will be 48 shares, with the remaining
152 shares in the reserve quantity.
An incoming order to sell 48 shares matches with the
resting reserve order's displayed portion, leaving 0 shares in the
display quantity (and 152 shares in the reserve quantity).
Because the Max Floor is an odd lot, and the display
quantity decremented to zero shares, the reserve order replenishes the
display quantity, so the System again randomly selects a replenishment
quantity from the replenishment range of either 47, 48, 49, 50, 51, 52,
or 53 shares. The System randomly selects 53 as the next replenishment
quantity, meaning the display quantity will be replenished to 53
shares, with 53 shares decremented from the reserve quantity, which
will now be 99 shares.
IEX is also proposing to make the following conforming changes to
IEX Rule 11.190(b)(2). First, IEX proposes to delete current
subparagraph (H), which describes how a displayed portion of a reserve
order retains its displayed status and priority if it decrements to an
odd lot, because it is rendered redundant by the introduction of
displayed quantity odd lot reserve orders. Second, IEX proposes to
renumber current subparagraphs (A) to (G) of the rule as subparagraphs
(B) to (H) to incorporate the addition of new introductory subparagraph
(A).\34\ Third, IEX proposes to modify Supplementary Material .01
(``Reserve Orders'') to clarify that displayed portions would be
replenished based on the replenishment options in new IEX Rule
11.190(b)(2)(A). Finally, IEX proposes to modify IEX Rule
11.220(a)(C)(v) to change the term ``refreshed'' to ``replenished'' and
to clarify that not all reserve orders replenish when the display
portion decrements to less than one round lot, but rather pursuant to
the conditions set forth in the proposed changes to IEX Rule
11.190(b)(2).
---------------------------------------------------------------------------
\34\ Because IEX is proposing to delete subparagraph (H) of the
rule, while adding a new subparagraph (A), subparagraph (I) will not
need to be renumbered.
---------------------------------------------------------------------------
The following is a list of the specific proposed changes to IEX
Rule 11.190(b)(2):
Modify any references in the rule to a ``refresh'' of the
display quantity to the more technically accurate term ``replenish,''
which reflects the manner in which the System replenishes the displayed
portion of a reserve order with shares taken from the non-displayed
portion.
Modify the second sentence of IEX Rule 11.190(b)(2) to add
language stating that the display quantity ``may be a fixed or random
number of shares; and an odd, mixed, or round lot quantity,'' and
delete the language stating that User provided display quantity ``must
be equal to or greater than a round lot; the System will reject a
reserve order with a User instructed display quantity less than a round
lot.''
Modify the fourth sentence of IEX Rule 11.190(b)(2) to add
language specifying that the User instructed display quantity may be
determined by ``fixed or random replenishment.''
Add a new seventh sentence of IEX Rule 11.190(b)(2)
stating that to enter a reserve order, a User must specify a base
display quantity (``Max Floor'') and may enter a replenishment value as
described in subparagraph (A) of IEX Rule 11.190(b).
Modify the eighth sentence of IEX Rule 11.190(b)(2)
(formerly the seventh sentence) to add language clarifying that a
reserve order with a Max Floor of a
[[Page 52717]]
round lot or greater will continue to replenish its displayed portion
when the displayed portion decrements to less than one round lot. Also
modify the language about how a reserve order with a Max Floor
replenishes by removing the language about how it always replenishes to
the original displayed quantity and adding language stating that the
reserve order will replenish its displayed portion pursuant to one of
the replenishment processes set forth in the newly added subparagraph
(A) of the rule.
Add a new ninth sentence of IEX Rule 11.190(b)(2) stating
that a reserve order with a Max Floor of less than one round lot (an
odd lot), will replenish its displayed portion when the displayed
portion is decremented to zero shares, and add language stating that
the reserve order will replenish its displayed portion pursuant to one
of the replenishment processes set forth in the newly added
subparagraph (A) of the rule.
Add to the end of the eleventh sentence of IEX Rule
11.190(b)(2) (formerly the ninth sentence) the language that a reserve
order ``has the following attributes:'' set forth in the subsequent
subparagraphs.
Add new subsection (A) to IEX Rule 11.190(b)(2)
(``Replenishment Options'') that reads: ``The following replenishment
options determine the size of the displayed quantity for any reserve
order that does not fully execute on entry.
Add new subsection (A)(i) to IEX Rule 11.190(b)(2)
(``Random Replenishment'') that sets forth new the random replenishment
functionality, as detailed in this filing.
Add new subsection (A)(i)(a) to IEX Rule 11.190(b)(2)
(``Random Replenishment'') that sets forth new the random replenishment
functionality for reserve orders with a Max Floor equal to a round lot
multiple, which is detailed in this filing.
Add new subsection (A)(i)(b) to IEX Rule 11.190(b)(2)
(``Random Replenishment'') that sets forth new the random replenishment
functionality for reserve orders with a Max Floor equal to less than
one round lot, which is detailed in this filing.
Add new subsection (A)(ii) to IEX Rule 11.190(b)(2)
(``Fixed Replenishment'') that sets forth retention of the current
replenishment functionality for all orders for which random
replenishment has not been selected, as detailed in this filing.
Renumber current subparagraphs (A) to (G) of current IEX
Rule 11.190(b)(2) to subparagraphs (B) to (H).
Remove current subparagraph (H) of current IEX Rule
11.190(b)(2).
Modify Supplementary Material .01 (``Reserve Orders'') as
follows: (i) In the first sentence, add ``on entry'' after the words
``if a reserve order is not fully executed'' for clarity; (ii) in the
same sentence, remove the words ``for the User instructed'' that
describe the display quantity and replace them with the words ``based
on the replenishment options sets forth in paragraph (b)(2)(A) of this
IEX Rule;'' (iii) in the same sentence, add the word ``quantity'' after
the words ``non-displayed'' for clarity and consistency (matching the
earlier phrase ``displayed quantity'').
Modify IEX Rule 11.220(a)(C)(v) to change the term
``refreshed'' to ``replenished'' and to remove the words ``after
receiving an execution that decrements the displayed portion of a
reserve order below one round lot pursuant to'' and replace them with
the words ``as set forth in [IEX Rule 11.190(b)(2)]'' to reflect that
not all reserve orders replenish when the display portion decrements to
less than one round lot, but rather pursuant to the conditions set
forth in the proposed changes to IEX Rule 11.190(b)(2).
Implementation
The Exchange will implement the proposed rule change within 90 days
of filing, subject to the 30-day operative delay, and provide at least
ten (10) days' notice to Members and market participants of the
implementation timeline.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\35\ in general, and furthers the
objectives of Section 6(b)(5),\36\ 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 provide more flexibility and opportunities for Members to add
displayed liquidity to the Exchange. As noted in the Purpose section,
the proposed rule change is responsive to informal feedback from
Members indicating that they prefer the optionality to use Displayed
Odd Lot Reserve orders to post displayed liquidity, particularly for
high-priced securities. Thus, IEX believes that the proposed rule
change will attract additional displayed liquidity to the Exchange and,
to the extent it is successful in doing so, will benefit all market
participants, thereby supporting the purposes of the Act 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. The Exchange also believes that, as discussed in the
Purpose section, enabling the use of Displayed Odd Lot Reserve orders
will enhance opportunities for price discovery and increase the overall
displayed liquidity profile on the Exchange to the benefit of all
market participants.
---------------------------------------------------------------------------
\35\ 15 U.S.C. 78f(b).
\36\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Additionally, IEX believes that having a Displayed Odd Lot Reserve
order replenish its displayed portion when it decrements to zero shares
is consistent with the Act, because, as discussed in the Purpose
section, it is the most workable reasonable approach to protecting
investors from information leakage and potential adverse selection in a
manner responsive to Members' feedback. Accordingly, IEX believes that
this approach could incentivize the use of more reserve orders thereby
increasing the availability of displayed liquidity over fully non-
displayed orders. For all these reasons, IEX believes that replenishing
Displayed Odd Lot Reserve orders when the displayed portion decrements
to zero supports investor protection and the public interest.
Further, IEX believes that the addition of the random replenishment
option for reserve orders is consistent with the Act as it is designed
to help to achieve the general goal of reserve orders, which is to
display less than the full size of the order to avoid leaking
information about the presence of a large resting reserve order which
can result in market movement adverse to the reserve order. Because
random replenishment results in the display quantity of a reserve order
varying with each replenishment, this functionality will further reduce
the ability of other market participants to detect that such order is
in fact a reserve order.
Furthermore, IEX believes it is consistent with the Act to offer
only fixed replenishment for reserve orders with a Max Floor of a
single round lot or a mixed lot for the reasons discussed
[[Page 52718]]
in the Purpose section. IEX believes that the proposed approach
provides a reasonable approach with appropriate optionality.
IEX also notes that, as discussed in the Purpose section, the
proposed random replenishment functionality is consistent with the
rules of several other equities \37\ and options \38\ exchanges and
thus the Exchange does not believe that this aspect of the proposed
rule change raises any new or novel issues not already considered by
the Commission.
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\37\ See supra note 32.
\38\ See supra note 22.
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Finally, the Exchange believes that the proposed non-substantive
conforming changes to IEX Rule 11.190(b)(2) (including the
supplementary material) and IEX Rule 11.220(a)(1)(C) are consistent
with the protection of investors and the public interest because they
will have no impact on the functionality of reserve orders, but rather
simply provide consistency and clarity to how reserve orders function,
thereby reducing the potential for confusion of any market
participants.
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.
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. To the contrary,
the proposal is designed to enhance IEX's competitiveness with other
markets by enabling IEX to offer reserve order functionality
substantially similar to that offered by several other equity
exchanges. As discussed in the Purpose section, the proposal is
designed to incentivize the entry of additional liquidity providing
orders on IEX by offering Members the flexibility of using an odd lot
display quantity as well as random replenishment of the displayed
quantity of a reserve order as described in the Purpose and Statutory
Basis sections. Thus, IEX believes that the proposed rule change will
enhance its ability to compete with other exchanges that already offer
this functionality and thereby attract more reserve orders to the
Exchange, to the benefit of all market participants. Moreover, other
exchanges may adopt similar functionality subject to the Commission
rule filing process.
The Exchange also does not believe that the proposed rule change
will impose any burden on intramarket competition that is not necessary
or appropriate in furtherance of the purposes of the Act. All Members
would be eligible to use a Displayed Odd Lot Reserve order, and all
Members would be eligible to use random or fixed replenishment for
their reserve orders in the same manner. Moreover, the proposal would
provide potential benefits to all Members to the extent that there is
more liquidity available on IEX as a result of increased use of reserve
orders.
Further, the proposed conforming edits to IEX Rule 11.190(b)(2)
(including the supplementary material) and Rule 11.220(a)(1)(C) are not
designed to address any competitive issue, but rather to provide
additional clarity in IEX's rulebook.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \39\ and Rule 19b-4(f)(6) thereunder.\40\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \41\ and Rule 19b-
4(f)(6)(iii) thereunder.\42\
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\39\ 15 U.S.C. 78s(b)(3)(A)(iii).
\40\ 17 CFR 240.19b-4(f)(6).
\41\ 15 U.S.C. 78s(b)(3)(A).
\42\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
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At any time within 60 days of the filing of this proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-IEX-2021-11 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-2021-11. 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 will also be available for inspection
and copying at the IEX's principal office and on its internet website
at www.iextrading.com. All comments received will be posted without
change. 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
[[Page 52719]]
information that you wish to make available publicly. All submissions
should refer to File Number SR-IEX-2021-11, and should be submitted on
or before October 13, 2021.
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\43\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-20453 Filed 9-21-21; 8:45 am]
BILLING CODE 8011-01-P
