Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Reintroduce a Market Maker Peg Order Type, 72650-72654 [2021-27660]
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Federal Register / Vol. 86, No. 243 / Wednesday, December 22, 2021 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93800; File No. SR–IEX–
2021–17]
Self-Regulatory Organizations;
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Reintroduce
a Market Maker Peg Order Type
December 16, 2021.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on December
14, 2021, the Investors Exchange LLC
(‘‘IEX’’ or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, 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.
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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,4 and Rule 19b–
4 thereunder,5 the Exchange is filing
with the Commission a proposed rule
change to reintroduce a new Market
Maker Peg order type, designed to
simplify market maker compliance with
IEX Rule 11.151 (Market Maker
Obligations), and make a conforming
change regarding connectivity within
the Exchange System.
The text of the proposed rule change
is available at the Exchange’s website at
www.iextrading.com, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of
and basis for the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of these statement [sic] 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.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
4 15 U.S.C. 78s(b)(1).
5 17 CFR 240.19b–4.
2 15
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1. Purpose
IEX is filing this rule change proposal
to reintroduce a Market Maker Peg order
type. IEX previously had a Market
Maker Peg order type,6 which it retired
in 2020 7 because at the time there were
no Exchange-registered market makers.8
As described below, IEX’s proposed
new order type is almost identical to its
original, Commission-approved, market
maker peg order type, with the
exception that the new Market Maker
Peg order will have tighter quoting
spreads than are required by IEX Rule
11.151.
Background
IEX Rule 11.151 (Market Maker
Obligations) requires market makers for
each stock in which they are registered
to continuously maintain a two-sided
quotation within a designated
percentage of the National Best Bid
(‘‘NBB’’) and National Best Offer
(‘‘NBO’’),9 as appropriate. In addition to
the market maker quoting and pricing
obligations set forth in the Exchange’s
rules, market makers must meet their
obligations under Rule 15c3–5 under
the Act (the ‘‘Market Access Rule’’) 10
and Regulation SHO.11
The Market Access Rule requires a
broker-dealer with market access, or that
provides a customer or any other person
with access to an exchange or
alternative trading system through use
of its market participant identifier or
otherwise, to establish, document, and
maintain a system of risk management
controls and supervisory procedures
reasonably designed to manage the
financial, regulatory, and other risks of
this business activity. These controls
must be reasonably designed to ensure
compliance with all regulatory
requirements, which are defined as ‘‘all
federal securities laws, rules and
regulations, and rules of self-regulatory
organizations, that are applicable in
connection with market access.’’ 12
In addition to the obligations of the
Market Access Rule, broker-dealers have
independent obligations that arise under
6 See Securities Exchange Act Release No. 81482
(August 25, 2017), 82 FR 41452 (August 31, 2017)
(SR–IEX–2017–22) (Approval Order).
7 See Securities Exchange Act Release No. 89146
(June 24, 2020), 85 FR 39251 (June 24, 2020) (SR–
IEX–2020–07).
8 See generally IEX Rules 11.150 and 11.151.
9 As defined by Regulation NMS Rule 600(b)(50).
17 CFR 242.600(50); see also IEX Rule 1.160(u).
10 17 CFR 240.15c3–5.
11 17 CFR 242.200 through 204.
12 See supra note 10.
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Regulation SHO. Regulation SHO
obligations generally include properly
marking sell orders, obtaining a ‘‘locate’’
for short sale orders, closing out fail to
deliver positions, and, where
applicable, complying with the short
sale price test.13 While there are certain
exceptions to some of the requirements
of Regulation SHO where a market
maker is engaged in bona-fide market
making activities,14 the availability of
those exceptions is distinct and
independent from whether a market
maker submits an order that is a Market
Maker Peg order.
Proposed Rule
The Exchange is proposing to
reintroduce an optional Market Maker
Peg order type, which will be identical
to the previously approved order type,
with the exception of the tighter quoting
obligations discussed below. The
Market Maker Peg order type is
designed to simplify market maker
compliance with the continuous quoting
and pricing obligations in IEX Rule
11.151(a) in a manner consistent with
compliance with the Market Access
Rule and Regulation SHO. The Market
Maker Peg order, as proposed, is not
only almost identical to IEX’s
previously approved Market Maker Peg
order type,15 it is also substantially
similar to equivalent order types offered
by other market centers, including Cboe
13 See
supra note 11.
17 CFR 242.203(b)(1). The Commission
adopted a narrow exception to Regulation SHO’s
‘‘locate’’ requirement for market makers engaged in
bona fide market making that may need to facilitate
customer orders in a fast-moving market without
being subject to the possible delays associated with
complying with such requirement. See Exchange
Act Release No. 50103 (July 28, 2004), 69 FR 48008,
48015 (August 6, 2004) (providing guidance as to
what does not constitute bona-fide market making
for purposes of claiming the exception to
Regulation SHO’s ‘‘locate’’ requirement). See also
Exchange Act Release No. 58775 (October 14, 2008),
73 FR 61690, 61698–9 (October 17, 2008) (providing
guidance regarding what is bona-fide market
making for purposes of complying with the market
maker exception to Regulation SHO’s ‘‘locate’’
requirement including without limitation whether
the market maker incurs any economic or market
risk with respect to the securities, continuous
quotations that are at or near the market on both
sides and that are communicated and represented
in a way that makes them widely accessible to
investors and other broker-dealers and a pattern of
trading that includes both purchases and sales in
roughly comparable amounts to provide liquidity to
customers or other broker-dealers). Thus, market
makers would not be able to rely solely on
quotations priced in accordance with the
Designated Percentages under proposed Rule
11.190(b)(17) for eligibility for the bona-fide market
making exception to the ‘‘locate’’ requirement based
on the criteria set forth by the Commission. It
should also be noted that a determination of bonafide market making is relevant for the purposes of
a broker-dealer’s close-out obligations under Rule
204 of Regulation SHO. See 17 CFR 242.204(a)(3).
15 See supra note 6.
14 See
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BZX Exchange, Inc. (‘‘Cboe BZX’’),
Nasdaq Stock Market LLC (‘‘Nasdaq’’),
and Cboe EDGX Exchange, Inc. (‘‘Cboe
EDGX’’).16 Specifically, the Market
Maker Peg order would be a one-sided
limit order and, similar to other peg
orders available to IEX Members, 17
priced in reference to or ‘‘pegged’’ to the
NBB or NBO,18 but is distinguishable in
that like all other exchange market
maker peg orders, it would always be
displayed. In addition, a new timestamp
is created for the order each time that it
is automatically adjusted in accordance
with the proposed rule. And Market
Maker Peg orders may only be entered
by a registered market maker, as defined
in IEX Rule 11.150.
The Exchange believes that this orderbased approach would provide an
effective compliance tool to facilitate
market makers’ compliance with IEX
Rule 11.151(a), while also enabling
compliance with the requirements of the
Market Access Rule and Regulation
SHO. Specifically, market makers would
have control of order origination, as
required by the Market Access Rule,
while also allowing market makers to
make marking and locate
determinations prior to order entry, as
required by Regulation SHO. As such,
market makers using Market Maker Peg
orders would be able to comply with the
requirements of the Market Access Rule
and Regulation SHO, as they would
when placing any order, while also
facilitating compliance with their
Exchange market making obligations. In
this regard, the Market Maker Peg order
does not ensure that the market maker
is satisfying the requirements of the
Market Access Rule, such as
maintaining a system of risk
management and supervisory controls
reasonably designed to manage the risk
of its market access business activity,19
or of Regulation SHO, including the
satisfaction of the locate requirements of
Regulation SHO Rule 203(b)(1) or an
exception thereto.20 Market makers
must continue to perform the necessary
checks to comply with both the Market
Access Rule and Regulation SHO, prior
to entry of a Market Maker Peg order.
The Market Maker Peg order would be
limited to registered market makers 21
and would have its price automatically
set and adjusted by the System 22, both
upon entry and any time thereafter, in
order to comply with the Exchange’s
16 See e.g., Cboe BZX Rule 11.9(c)(15), Nasdaq
Rule 4702(b)(7), and Cboe EDGX Rule 11.8(e).
17 See IEX Rule 1.160(s).
18 See IEX Rule 11.190(a)(3).
19 See supra note 10.
20 17 CFR 242.203(b)(1).
21 See IEX Rule 11.150.
22 See IEX Rule 1.160(nn).
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rules regarding market maker quoting
and pricing obligations.23 Specifically,
upon entry or at the beginning of the
Regular Market Session, as applicable,
the entered bid or offer is automatically
priced by the System at the Market
Maker Peg Designated Percentage away
from the then current NBB or NBO, as
applicable, or if there is no NBB or
NBO, at the Market Maker Peg
Designated Percentage away from the
last reported sale from the responsible
single plan processor. Proposed IEX
Rule 11.190(b)(17)(A) defines the
‘‘Market Maker Peg Designated
Percentage’’ as eight (8) percentage
points for all securities, except that
between 9:30 a.m. and 9:45 a.m. and
between 3:35 p.m. and the close of
trading, the Market Maker Peg
Designated Percentage shall be twenty
(20) percentage points. For example, if
the NBB of a security is $10 and the
Market Maker Peg Designated
Percentage for the security is 8%, the
displayed price of a Market Marker Peg
Order to buy would be $9.20. Market
makers may submit Market Maker Peg
orders to the Exchange starting at the
beginning of the Pre-Market Session, but
the order will not be executable or
automatically priced until the beginning
of the Regular Market Session and will
expire at the end of the Regular Market
Session.
IEX also proposes to define, in
proposed IEX Rule 11.190(b)(17)(B), a
new term, ‘‘Market Maker Peg Defined
Limit’’, as nine and one half (9.5)
percentage points for all securities,
except that between 9:30 a.m. and 9:45
a.m. and between 3:35 p.m. and the
close of trading, the Market Maker Peg
Defined Limit shall be twenty-one and
one half (21.5) percentage points.
Upon reaching the Market Maker Peg
Defined Limit, the price of a Market
Maker Peg order bid or offer will be
adjusted by the System to the Market
Maker Peg Designated Percentage away
from the then current NBB or NBO, or,
if there is no NBB or NBO, the order
will, by default, be the Market Maker
Peg Designated Percentage away from
the last reported sale from the
responsible single plan processor. In the
foregoing example, if the Market Maker
Peg Defined Limit is 9.5% and the NBB
increased to $10.17, such that the
displayed price of the Market Maker Peg
order would be more than 9.5% away,
the order would be repriced to $9.36, or
8% away from the NBB.
23 The Market Maker Peg order is one-sided, and
thus a market maker seeking to use Market Maker
Peg orders to comply with the Exchange’s
continuous two-sided quotation requirements
would need to submit both a bid and an offer using
the order type.
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If a Market Maker Peg order bid or
offer moves a specified number of
percentage points away from the Market
Maker Peg Designated Percentage
towards the then current NBB or NBO,
which number of percentage points will
be determined and published in a
circular distributed to Members from
time to time, the price of such bid or
offer will be adjusted by the System to
the Market Maker Peg Designated
Percentage away from the then current
NBB or NBO, as applicable. If there is
no NBB or NBO, as applicable, the order
will be adjusted by the System to the
Market Maker Peg Designated
Percentage away from the last reported
sale from the responsible single plan
processor. In the event that pricing a
Market Maker Peg order at the Market
Maker Peg Designated Percentage away
from the then current NBB and NBO, or,
if no NBB or NBO, to the Market Maker
Peg Designated Percentage away from
the last reported sale from the
responsible single plan processor,
would result in the order exceeding its
limit price, the order will be cancelled
or rejected.
If, after entry, the Market Maker Peg
order is priced based on the last
reported sale from the single plan
processor and such Market Maker Peg
order is established as the NBB or NBO,
the Market Maker Peg order will not be
subsequently adjusted in accordance
with this rule until either there is a new
consolidated last sale, or a new NBB or
NBO is established by a national
securities exchange.
As noted above, this proposed
reintroduction of the IEX Market Maker
Peg order type is identical to the Market
Maker Peg order type previously
approved by the Commission, with the
exception of the tighter quoting spreads
that result from using the ‘‘Market
Maker Peg Designated Percentage’’ and
‘‘Market Maker Peg Defined Limit’’
instead of the ‘‘Designated
Percentage’’ 24 and ‘‘Defined Limit’’ 25
set forth in IEX’s Market Maker
Obligations rule. Specifically, the
Market Maker Obligations rule sets the
Designated Percentage at 28% below/
above the NBB/NBO, and 30% below/
above the NBB/NBO at the market open
and close for stocks not included in the
S&P 500® Index, Russell 1000® Index,
and a pilot list of Exchange Traded
Products. And the Market Maker
Obligations rule sets the Defined Limit
for those same stocks to be 29.5%
below/above the NBB/NBO, and 31.5%
below/above the NBB/NBO at the
market open and close. For stocks that
24 See
25 See
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IEX Rule 11.151(a)(6).
IEX Rule 11.151(a)(7).
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are included in the S&P 500® Index,
Russell 1000® Index, and a pilot list of
Exchange Traded Products; the
Designated Percentage and Defined
Limit would be the same as the Market
Maker Peg Designated Percentage and
Market Maker Peg Defined Limit,
respectively. Thus, as proposed, market
makers using the optional IEX Market
Maker Peg order type will quote at
narrower spreads than required by IEX
Rule 11.151 for stocks not included in
the S&P 500® Index, Russell 1000®
Index, and a pilot list of Exchange
Traded Products.
IEX proposes to incorporate a tighter
quoting structure for the Market Maker
Peg order type in order to simplify
technical complexities in the design of
the order type associated with treating
all stocks equally. Moreover, IEX
believes that tighter displayed quoting
spreads could help to increase access to
displayed liquidity being posted by IEX
market makers.
The Exchange notes that
notwithstanding the availability of the
proposed Market Maker Peg order
functionality, a market maker remains
responsible for entering, monitoring,
and resubmitting, as applicable,
quotations that meet the requirements of
IEX Rule 11.151. Furthermore, a market
maker would not be required to use the
Market Maker Peg order type and can
instead submit its own quotes to satisfy
its quoting and pricing obligations for
any securities for which it is a registered
market maker.26
Market Maker Peg orders, like all
incoming orders, will be subject to 350
microseconds of inbound latency 27
from the IEX point-of-presence (‘‘POP’’)
before reaching the System.28 Each time
a Market Maker Peg order is
automatically adjusted by the System in
accordance with this proposed rule
change (in response to a change in the
NBB or NBO), the modified order
instruction will be subject to 350
microseconds of latency between the
Market Maker Peg order repricing logic
(i.e., the process by which the System
determines that the price of the Market
Maker Peg order should be adjusted)
and the Order Book 29 (to be equivalent
to the 350 microseconds of inbound
latency for all incoming orders) and all
outbound communications to the
market maker related to the modified
order instruction will be subject to 37
microseconds of latency between the
Market Maker Peg order repricing logic
and the POP (to be equivalent to the 37
IEX Rule 11.151(a)(1).
IEX Rule 11.510(b)(1).
28 See IEX Rule 11.510(a).
29 See IEX Rule 1.160(p).
microseconds of outbound latency that
a market maker would have to wait for
order entry confirmation), pursuant to
IEX Rule 11.510(c)(1).30 In addition, a
new timestamp is created for the order
each time that it is automatically
adjusted by the System in accordance
with the proposed rule. This approach
is designed so that a market maker using
a Market Maker Peg order to facilitate
compliance with the Exchange’s
continuous quoting and pricing
obligations is in the same position as a
market maker updating its own quote,
whose orders and order modification
instructions would be subjected to a
350-microsecond inbound latency and
37-microsecond outbound latency.
The Exchange also proposes to make
a conforming change to IEX Rule
11.510(c)(1) regarding connectivity, to
provide that, pursuant to IEX Rule
11.190(b)(17), each time a Market Maker
Peg order is automatically adjusted by
the System, all inbound
communications related to the modified
order instruction will be subject to a
350-microsecond latency and all
outbound communications related to
the modified order instruction will be
subject to a 37-microsecond latency
between the Market Maker Peg order
repricing logic and the Order Book.
The Exchange plans to implement the
proposed changes in December 2021 or
January 2022, subject to the
effectiveness of filing with the
Commission. The Exchange will
announce the implementation date of
the proposed changes by Trader Alert at
least 10 business days in advance of
such implementation date and within
90 days of the effectiveness of this
proposed rule change.
2. Statutory Basis
IEX believes that the proposed rule
change is consistent with Section 6(b) of
the Act in general, 31 and furthers the
objectives of Section 6(b)(5) of the Act,32
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, 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. As noted above, the
Exchange believes that the proposed
rule is designed to simplify market
maker compliance with the minimum
26 See
27 See
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19:32 Dec 21, 2021
30 See
proposed edits to IEX Rule 11.510(c)(1).
U.S.C. 78f.
32 15 U.S.C. 78f(b)(5).
continuous quoting and pricing
obligations, as well as facilitate market
maker compliance with the
requirements of the Market Access Rule
and Regulation SHO.
Specifically, the Exchange believes
that simplifying compliance with this
rule will remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and protect investors and the
public interest, because it will provide
a simplified means by which market
makers may offer liquidity, using a
tighter quoting spread than the market
maker obligations require, even in
circumstances where they are not
willing to quote at the inside market. As
a result, in circumstances where
liquidity available at displayed prices
closer to the inside than the price of a
Market Maker Peg order is exhausted
during an aggressive market-wide
sweep, the Market Maker Peg order may
nevertheless be available to support
executions at prices that are at least
within the applicable Market Maker Peg
Designated Percentage or Market Maker
Peg Defined Limit. Moreover, the
methodology for repricing Market Maker
Peg orders is consistent with the
requirements of the Act because it is
designed to ensure that the displayed
price of the order is at least within the
applicable Market Maker Peg Designated
Percentage or Market Maker Peg Defined
Limit, as applicable.
The proposed rule change also is
designed to support the principles of
Section 11A(a)(1) of the Act 33 in that it
seeks to assure fair competition among
brokers and dealers and among
exchange markets. The Exchange
believes that offering the Market Maker
Peg order to market makers exclusively
is consistent with fair competition
among brokers and dealers in that
market makers have chosen to subject
themselves to the obligations of IEX
Rule 11.151, and the benefit conferred
on such market participants by this
order type is commensurate with such
obligations. Furthermore, all Members
are eligible to apply for registration as
a market maker under Rule 11.150 on a
fair and equal basis.
The Exchange also believes that it is
fair and reasonable for all inbound
communications related to the repricing
of a Market Maker Peg order to be
subject to 350 microseconds of latency
and for all outbound communications
related to the repricing of a Market
Maker Peg order to be subject to 37
microseconds of latency, each between
the Market Maker Peg repricing logic
and the Order Book. As noted in the
31 15
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Purpose section, this approach is
designed so that a market maker using
a Market Maker Peg order to facilitate
compliance with the Exchange’s
continuous quoting and pricing
obligations is in the same position as a
market maker updating its own quote,
whose order instructions would be
subject to 350 microseconds of inbound
latency and 37 microseconds of
outbound latency. Similarly, price
adjustments to Market Maker Peg orders
will experience the same latency as
other displayed limit orders entered on
the Exchange.
Accordingly, the Exchange believes
that it is consistent with the public
interest and the protection of investors
to reprice Market Maker Peg orders
subject to a 350-microsecond latency for
all inbound communications related to
the modified order instruction and a 37microsecond latency for all outbound
communications related to the modified
order instruction in the interest of
ensuring that market makers using the
Market Maker Peg order type will not
have any unfair advantage over market
makers that update their own quotes, as
well as with other market participants
using displayed orders.
Furthermore, the Exchange believes
that it is consistent with the public
interest and the protection of investors
to apply a new timestamp to a Market
Maker Peg order each time it is repriced
so that a Market Maker Peg order does
not achieve execution priority superior
to a displayed order entered at that price
earlier in time. Accordingly, market
makers will not have any unfair
advantage over a market maker updating
its own quote, or other market
participants using displayed orders on
the Exchange.
Additionally, the Exchange believes
that the proposed conforming rule
change to IEX Rule 11.510(c)(1) is
consistent with the protection of
investors and the public interest in that
it is designed to provide clarity to
market participants regarding Market
Maker Peg order repricing methodology.
Finally, IEX notes that the
Commission previously approved an
almost identical market maker peg order
type.34 As described in the Purpose
section, the one difference between this
proposed Market Maker Peg order type
and IEX’s previous market maker peg
order type is that this order type will
apply the same Market Maker Peg
Designated Percentage and Market
Maker Peg Defined Limit to all stocks,
irrespective of if they are included in
the S&P 500® Index, Russell 1000®
Index, and a pilot list of Exchange
34 See
supra note 6.
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Traded Products. IEX believes this
modification is consistent with the
protection of investors and helps perfect
the mechanism of a free and open
market because this proposal will result
in Market Maker Peg orders resting on
the Order Book quoting at the tighter
limit that is only required for certain
securities. IEX believes these tighter
quote spreads would be of particular
benefit to investors during times of high
market volatility by making it more
likely that a security will avoid socalled ‘‘stub quotes’’ that are so far away
from the NBB or NBO that the quote is
unlikely to be executed. Additionally,
IEX notes that the proposed application
of the tighter quote spreads to all Market
Maker Peg orders will simplify the
technical complexities in the design and
functioning of the order type.
Furthermore, IEX notes that the
proposed Market Maker Peg order is an
optional order type that may be used by
any registered market maker to facilitate
its compliance with their obligations but
that market makers are free to manage
their own quotes subject to the
applicable quoting and pricing
requirements of IEX Rule 11.151.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
IEX does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. Specifically,
the Exchange believes that the proposal
will enhance the Exchange’s
competitiveness by providing market
makers on IEX with a tool designed to
facilitate quoting and offering liquidity
even in circumstances where they are
not willing to quote at the inside
market. Based on informal discussion
with market participants that serve as
market makers on other trading centers,
the Exchange believes that this
functionality will be appealing to
potential market makers, and therefore
will make it more likely that market
participants will choose to become
registered market makers on the
Exchange. This may, in turn, increase
the extent of liquidity available on IEX
and increase its ability to compete with
other execution venues to attract orders
that are seeking liquidity. The Exchange
further notes that the Market Maker Peg
order, as proposed, is substantially
similar to equivalent order types offered
by other market centers, including Cboe
BZX, Nasdaq, and Cboe EDGX, and
therefore will not impair market
participants or other market centers
from competing, but would in fact allow
the Exchange to compete with existing
functionality offered by competing
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72653
market centers.35 Moreover, there is no
barrier to other exchanges adopting the
same repricing functionality subject to
the Commission rule filing process
pursuant to Section 19(b) of the Act.
With regard to intra-market
competition, the Exchange does not
believe that the method of repricing
Market Maker Peg orders will result in
any burden on intra-market competition
that is not necessary or appropriate in
furtherance of the purposes of the Act.
To the contrary, as described in the
Statutory Basis section, the proposed
Market Maker Peg order type is an
optional order type that would be
available to IEX market makers that is
designed so that market makers using
Market Maker Peg orders will not be
subject to any competitive advantage
compared to market makers updating
their own quotes, or other market
participants using displayed orders.
Furthermore, as discussed in the
Statutory Basis section, the Exchange
believes that offering the Market Maker
Peg order to market makers exclusively
is consistent with fair competition
among brokers and dealers in that
market makers have chosen to subject
themselves to the obligations of IEX
Rule 11.151, and the benefit conferred
on such market participants by this
order type is commensurate with the
obligations. Furthermore, all Members
are eligible to apply for registration as
a market maker under IEX Rule 11.150
on a fair and equal basis.
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
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 36 and Rule 19b–
4(f)(6) thereunder.37
35 See
supra note 16.
U.S.C. 78s(b)(3)(A).
37 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its 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
36 15
E:\FR\FM\22DEN1.SGM
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22DEN1
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Federal Register / Vol. 86, No. 243 / Wednesday, December 22, 2021 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 38 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 39
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay. The proposed rule
change provides for the reintroduction
of a Market Maker Peg Order type on the
Exchange. The Exchange believes that
waiver of the operative delay is
consistent with the protection of
investors and the public interest
because IEX is restoring an order type
previously available on IEX, which is
substantially similar to order types
offered on several other exchanges
(discussed above), with the only
difference being that this version of the
Market Maker Peg order will apply the
tighter market maker quoting
requirement to all securities and will
not apply wider limits for stocks in the
Russell 1000® Index and a pilot list of
Exchange Traded Products. IEX believes
that allowing market makers to begin
using the Market Maker Peg order type
immediately upon effectiveness of this
rule change will potentially increase
liquidity on IEX to the benefit all
investors, which will serve the public
interest. The Commission believes that
waiver of the 30-day operative delay is
consistent with the protection of
investors and the public interest
because the proposed rule change does
not raise any novel issues, adopts the
narrower limits for all securities and
thus will result in prices closer to the
NBB or NBO (as applicable) compared
to the prior version of this order type,
and may help increase displayed
liquidity on IEX during periods of
volatility. Therefore, the Commission
hereby waives the operative delay and
designates the proposal as operative
upon filing.40
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
38 17 CFR 240.19b–4(f)(6).
39 17 CFR 240.19b–4(f)(6)(iii).
40 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
VerDate Sep<11>2014
17:55 Dec 21, 2021
Jkt 256001
the purpose of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 41 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
IEX–2021–17 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–2021–17. 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. Persons submitting
comments are cautioned that we do not
redact or edit personal identifying
information from comment submissions.
You should submit only information
41 15
PO 00000
U.S.C. 78s(b)(2)(B).
Frm 00081
Fmt 4703
Sfmt 4703
that you wish to make available
publicly. All submissions should refer
to File Number SR–IEX–2021–17 and
should be submitted on or before
January 12, 2022.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–27660 Filed 12–21–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93799; File No. SR–CBOE–
2021–074]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Make Juneteenth
National Independence Day a Holiday
of the Exchange
December 16, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
6, 2021, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 3 and Rule 19b–4(f)(6)
thereunder.4 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
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to amend
its rules to make Juneteenth National
Independence Day a holiday of the
Exchange. The text of the proposed rule
change is provided in Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
42 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
1 15
E:\FR\FM\22DEN1.SGM
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]]>Agencies
[Federal Register Volume 86, Number 243 (Wednesday, December 22, 2021)]
[Notices]
[Pages 72650-72654]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-27660]
[[Page 72650]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93800; File No. SR-IEX-2021-17]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To
Reintroduce a Market Maker Peg Order Type
December 16, 2021.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on December 14, 2021, the Investors Exchange LLC (``IEX''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
and II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of Section 19(b)(1) under the Act,\4\
and Rule 19b-4 thereunder,\5\ the Exchange is filing with the
Commission a proposed rule change to reintroduce a new Market Maker Peg
order type, designed to simplify market maker compliance with IEX Rule
11.151 (Market Maker Obligations), and make a conforming change
regarding connectivity within the Exchange System.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78s(b)(1).
\5\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
The text of the proposed rule change is available at the Exchange's
website at www.iextrading.com, at the principal office of the Exchange,
and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statement [sic] may be examined
at the places specified in Item IV below. The self-regulatory
organization has prepared summaries, set forth in Sections A, B, and C
below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
IEX is filing this rule change proposal to reintroduce a Market
Maker Peg order type. IEX previously had a Market Maker Peg order
type,\6\ which it retired in 2020 \7\ because at the time there were no
Exchange-registered market makers.\8\ As described below, IEX's
proposed new order type is almost identical to its original,
Commission-approved, market maker peg order type, with the exception
that the new Market Maker Peg order will have tighter quoting spreads
than are required by IEX Rule 11.151.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 81482 (August 25,
2017), 82 FR 41452 (August 31, 2017) (SR-IEX-2017-22) (Approval
Order).
\7\ See Securities Exchange Act Release No. 89146 (June 24,
2020), 85 FR 39251 (June 24, 2020) (SR-IEX-2020-07).
\8\ See generally IEX Rules 11.150 and 11.151.
---------------------------------------------------------------------------
Background
IEX Rule 11.151 (Market Maker Obligations) requires market makers
for each stock in which they are registered to continuously maintain a
two-sided quotation within a designated percentage of the National Best
Bid (``NBB'') and National Best Offer (``NBO''),\9\ as appropriate. In
addition to the market maker quoting and pricing obligations set forth
in the Exchange's rules, market makers must meet their obligations
under Rule 15c3-5 under the Act (the ``Market Access Rule'') \10\ and
Regulation SHO.\11\
---------------------------------------------------------------------------
\9\ As defined by Regulation NMS Rule 600(b)(50). 17 CFR
242.600(50); see also IEX Rule 1.160(u).
\10\ 17 CFR 240.15c3-5.
\11\ 17 CFR 242.200 through 204.
---------------------------------------------------------------------------
The Market Access Rule requires a broker-dealer with market access,
or that provides a customer or any other person with access to an
exchange or alternative trading system through use of its market
participant identifier or otherwise, to establish, document, and
maintain a system of risk management controls and supervisory
procedures reasonably designed to manage the financial, regulatory, and
other risks of this business activity. These controls must be
reasonably designed to ensure compliance with all regulatory
requirements, which are defined as ``all federal securities laws, rules
and regulations, and rules of self-regulatory organizations, that are
applicable in connection with market access.'' \12\
---------------------------------------------------------------------------
\12\ See supra note 10.
---------------------------------------------------------------------------
In addition to the obligations of the Market Access Rule, broker-
dealers have independent obligations that arise under Regulation SHO.
Regulation SHO obligations generally include properly marking sell
orders, obtaining a ``locate'' for short sale orders, closing out fail
to deliver positions, and, where applicable, complying with the short
sale price test.\13\ While there are certain exceptions to some of the
requirements of Regulation SHO where a market maker is engaged in bona-
fide market making activities,\14\ the availability of those exceptions
is distinct and independent from whether a market maker submits an
order that is a Market Maker Peg order.
---------------------------------------------------------------------------
\13\ See supra note 11.
\14\ See 17 CFR 242.203(b)(1). The Commission adopted a narrow
exception to Regulation SHO's ``locate'' requirement for market
makers engaged in bona fide market making that may need to
facilitate customer orders in a fast-moving market without being
subject to the possible delays associated with complying with such
requirement. See Exchange Act Release No. 50103 (July 28, 2004), 69
FR 48008, 48015 (August 6, 2004) (providing guidance as to what does
not constitute bona-fide market making for purposes of claiming the
exception to Regulation SHO's ``locate'' requirement). See also
Exchange Act Release No. 58775 (October 14, 2008), 73 FR 61690,
61698-9 (October 17, 2008) (providing guidance regarding what is
bona-fide market making for purposes of complying with the market
maker exception to Regulation SHO's ``locate'' requirement including
without limitation whether the market maker incurs any economic or
market risk with respect to the securities, continuous quotations
that are at or near the market on both sides and that are
communicated and represented in a way that makes them widely
accessible to investors and other broker-dealers and a pattern of
trading that includes both purchases and sales in roughly comparable
amounts to provide liquidity to customers or other broker-dealers).
Thus, market makers would not be able to rely solely on quotations
priced in accordance with the Designated Percentages under proposed
Rule 11.190(b)(17) for eligibility for the bona-fide market making
exception to the ``locate'' requirement based on the criteria set
forth by the Commission. It should also be noted that a
determination of bona-fide market making is relevant for the
purposes of a broker-dealer's close-out obligations under Rule 204
of Regulation SHO. See 17 CFR 242.204(a)(3).
---------------------------------------------------------------------------
Proposed Rule
The Exchange is proposing to reintroduce an optional Market Maker
Peg order type, which will be identical to the previously approved
order type, with the exception of the tighter quoting obligations
discussed below. The Market Maker Peg order type is designed to
simplify market maker compliance with the continuous quoting and
pricing obligations in IEX Rule 11.151(a) in a manner consistent with
compliance with the Market Access Rule and Regulation SHO. The Market
Maker Peg order, as proposed, is not only almost identical to IEX's
previously approved Market Maker Peg order type,\15\ it is also
substantially similar to equivalent order types offered by other market
centers, including Cboe
[[Page 72651]]
BZX Exchange, Inc. (``Cboe BZX''), Nasdaq Stock Market LLC
(``Nasdaq''), and Cboe EDGX Exchange, Inc. (``Cboe EDGX'').\16\
Specifically, the Market Maker Peg order would be a one-sided limit
order and, similar to other peg orders available to IEX Members, \17\
priced in reference to or ``pegged'' to the NBB or NBO,\18\ but is
distinguishable in that like all other exchange market maker peg
orders, it would always be displayed. In addition, a new timestamp is
created for the order each time that it is automatically adjusted in
accordance with the proposed rule. And Market Maker Peg orders may only
be entered by a registered market maker, as defined in IEX Rule 11.150.
---------------------------------------------------------------------------
\15\ See supra note 6.
\16\ See e.g., Cboe BZX Rule 11.9(c)(15), Nasdaq Rule
4702(b)(7), and Cboe EDGX Rule 11.8(e).
\17\ See IEX Rule 1.160(s).
\18\ See IEX Rule 11.190(a)(3).
---------------------------------------------------------------------------
The Exchange believes that this order-based approach would provide
an effective compliance tool to facilitate market makers' compliance
with IEX Rule 11.151(a), while also enabling compliance with the
requirements of the Market Access Rule and Regulation SHO.
Specifically, market makers would have control of order origination, as
required by the Market Access Rule, while also allowing market makers
to make marking and locate determinations prior to order entry, as
required by Regulation SHO. As such, market makers using Market Maker
Peg orders would be able to comply with the requirements of the Market
Access Rule and Regulation SHO, as they would when placing any order,
while also facilitating compliance with their Exchange market making
obligations. In this regard, the Market Maker Peg order does not ensure
that the market maker is satisfying the requirements of the Market
Access Rule, such as maintaining a system of risk management and
supervisory controls reasonably designed to manage the risk of its
market access business activity,\19\ or of Regulation SHO, including
the satisfaction of the locate requirements of Regulation SHO Rule
203(b)(1) or an exception thereto.\20\ Market makers must continue to
perform the necessary checks to comply with both the Market Access Rule
and Regulation SHO, prior to entry of a Market Maker Peg order.
---------------------------------------------------------------------------
\19\ See supra note 10.
\20\ 17 CFR 242.203(b)(1).
---------------------------------------------------------------------------
The Market Maker Peg order would be limited to registered market
makers \21\ and would have its price automatically set and adjusted by
the System \22\, both upon entry and any time thereafter, in order to
comply with the Exchange's rules regarding market maker quoting and
pricing obligations.\23\ Specifically, upon entry or at the beginning
of the Regular Market Session, as applicable, the entered bid or offer
is automatically priced by the System at the Market Maker Peg
Designated Percentage away from the then current NBB or NBO, as
applicable, or if there is no NBB or NBO, at the Market Maker Peg
Designated Percentage away from the last reported sale from the
responsible single plan processor. Proposed IEX Rule 11.190(b)(17)(A)
defines the ``Market Maker Peg Designated Percentage'' as eight (8)
percentage points for all securities, except that between 9:30 a.m. and
9:45 a.m. and between 3:35 p.m. and the close of trading, the Market
Maker Peg Designated Percentage shall be twenty (20) percentage points.
For example, if the NBB of a security is $10 and the Market Maker Peg
Designated Percentage for the security is 8%, the displayed price of a
Market Marker Peg Order to buy would be $9.20. Market makers may submit
Market Maker Peg orders to the Exchange starting at the beginning of
the Pre-Market Session, but the order will not be executable or
automatically priced until the beginning of the Regular Market Session
and will expire at the end of the Regular Market Session.
---------------------------------------------------------------------------
\21\ See IEX Rule 11.150.
\22\ See IEX Rule 1.160(nn).
\23\ The Market Maker Peg order is one-sided, and thus a market
maker seeking to use Market Maker Peg orders to comply with the
Exchange's continuous two-sided quotation requirements would need to
submit both a bid and an offer using the order type.
---------------------------------------------------------------------------
IEX also proposes to define, in proposed IEX Rule 11.190(b)(17)(B),
a new term, ``Market Maker Peg Defined Limit'', as nine and one half
(9.5) percentage points for all securities, except that between 9:30
a.m. and 9:45 a.m. and between 3:35 p.m. and the close of trading, the
Market Maker Peg Defined Limit shall be twenty-one and one half (21.5)
percentage points.
Upon reaching the Market Maker Peg Defined Limit, the price of a
Market Maker Peg order bid or offer will be adjusted by the System to
the Market Maker Peg Designated Percentage away from the then current
NBB or NBO, or, if there is no NBB or NBO, the order will, by default,
be the Market Maker Peg Designated Percentage away from the last
reported sale from the responsible single plan processor. In the
foregoing example, if the Market Maker Peg Defined Limit is 9.5% and
the NBB increased to $10.17, such that the displayed price of the
Market Maker Peg order would be more than 9.5% away, the order would be
repriced to $9.36, or 8% away from the NBB.
If a Market Maker Peg order bid or offer moves a specified number
of percentage points away from the Market Maker Peg Designated
Percentage towards the then current NBB or NBO, which number of
percentage points will be determined and published in a circular
distributed to Members from time to time, the price of such bid or
offer will be adjusted by the System to the Market Maker Peg Designated
Percentage away from the then current NBB or NBO, as applicable. If
there is no NBB or NBO, as applicable, the order will be adjusted by
the System to the Market Maker Peg Designated Percentage away from the
last reported sale from the responsible single plan processor. In the
event that pricing a Market Maker Peg order at the Market Maker Peg
Designated Percentage away from the then current NBB and NBO, or, if no
NBB or NBO, to the Market Maker Peg Designated Percentage away from the
last reported sale from the responsible single plan processor, would
result in the order exceeding its limit price, the order will be
cancelled or rejected.
If, after entry, the Market Maker Peg order is priced based on the
last reported sale from the single plan processor and such Market Maker
Peg order is established as the NBB or NBO, the Market Maker Peg order
will not be subsequently adjusted in accordance with this rule until
either there is a new consolidated last sale, or a new NBB or NBO is
established by a national securities exchange.
As noted above, this proposed reintroduction of the IEX Market
Maker Peg order type is identical to the Market Maker Peg order type
previously approved by the Commission, with the exception of the
tighter quoting spreads that result from using the ``Market Maker Peg
Designated Percentage'' and ``Market Maker Peg Defined Limit'' instead
of the ``Designated Percentage'' \24\ and ``Defined Limit'' \25\ set
forth in IEX's Market Maker Obligations rule. Specifically, the Market
Maker Obligations rule sets the Designated Percentage at 28% below/
above the NBB/NBO, and 30% below/above the NBB/NBO at the market open
and close for stocks not included in the S&P 500[supreg] Index, Russell
1000[supreg] Index, and a pilot list of Exchange Traded Products. And
the Market Maker Obligations rule sets the Defined Limit for those same
stocks to be 29.5% below/above the NBB/NBO, and 31.5% below/above the
NBB/NBO at the market open and close. For stocks that
[[Page 72652]]
are included in the S&P 500[supreg] Index, Russell 1000[supreg] Index,
and a pilot list of Exchange Traded Products; the Designated Percentage
and Defined Limit would be the same as the Market Maker Peg Designated
Percentage and Market Maker Peg Defined Limit, respectively. Thus, as
proposed, market makers using the optional IEX Market Maker Peg order
type will quote at narrower spreads than required by IEX Rule 11.151
for stocks not included in the S&P 500[supreg] Index, Russell
1000[supreg] Index, and a pilot list of Exchange Traded Products.
---------------------------------------------------------------------------
\24\ See IEX Rule 11.151(a)(6).
\25\ See IEX Rule 11.151(a)(7).
---------------------------------------------------------------------------
IEX proposes to incorporate a tighter quoting structure for the
Market Maker Peg order type in order to simplify technical complexities
in the design of the order type associated with treating all stocks
equally. Moreover, IEX believes that tighter displayed quoting spreads
could help to increase access to displayed liquidity being posted by
IEX market makers.
The Exchange notes that notwithstanding the availability of the
proposed Market Maker Peg order functionality, a market maker remains
responsible for entering, monitoring, and resubmitting, as applicable,
quotations that meet the requirements of IEX Rule 11.151. Furthermore,
a market maker would not be required to use the Market Maker Peg order
type and can instead submit its own quotes to satisfy its quoting and
pricing obligations for any securities for which it is a registered
market maker.\26\
---------------------------------------------------------------------------
\26\ See IEX Rule 11.151(a)(1).
---------------------------------------------------------------------------
Market Maker Peg orders, like all incoming orders, will be subject
to 350 microseconds of inbound latency \27\ from the IEX point-of-
presence (``POP'') before reaching the System.\28\ Each time a Market
Maker Peg order is automatically adjusted by the System in accordance
with this proposed rule change (in response to a change in the NBB or
NBO), the modified order instruction will be subject to 350
microseconds of latency between the Market Maker Peg order repricing
logic (i.e., the process by which the System determines that the price
of the Market Maker Peg order should be adjusted) and the Order Book
\29\ (to be equivalent to the 350 microseconds of inbound latency for
all incoming orders) and all outbound communications to the market
maker related to the modified order instruction will be subject to 37
microseconds of latency between the Market Maker Peg order repricing
logic and the POP (to be equivalent to the 37 microseconds of outbound
latency that a market maker would have to wait for order entry
confirmation), pursuant to IEX Rule 11.510(c)(1).\30\ In addition, a
new timestamp is created for the order each time that it is
automatically adjusted by the System in accordance with the proposed
rule. This approach is designed so that a market maker using a Market
Maker Peg order to facilitate compliance with the Exchange's continuous
quoting and pricing obligations is in the same position as a market
maker updating its own quote, whose orders and order modification
instructions would be subjected to a 350-microsecond inbound latency
and 37-microsecond outbound latency.
---------------------------------------------------------------------------
\27\ See IEX Rule 11.510(b)(1).
\28\ See IEX Rule 11.510(a).
\29\ See IEX Rule 1.160(p).
\30\ See proposed edits to IEX Rule 11.510(c)(1).
---------------------------------------------------------------------------
The Exchange also proposes to make a conforming change to IEX Rule
11.510(c)(1) regarding connectivity, to provide that, pursuant to IEX
Rule 11.190(b)(17), each time a Market Maker Peg order is automatically
adjusted by the System, all inbound communications related to the
modified order instruction will be subject to a 350-microsecond latency
and all outbound communications related to the modified order
instruction will be subject to a 37-microsecond latency between the
Market Maker Peg order repricing logic and the Order Book.
The Exchange plans to implement the proposed changes in December
2021 or January 2022, subject to the effectiveness of filing with the
Commission. The Exchange will announce the implementation date of the
proposed changes by Trader Alert at least 10 business days in advance
of such implementation date and within 90 days of the effectiveness of
this proposed rule change.
2. Statutory Basis
IEX believes that the proposed rule change is consistent with
Section 6(b) of the Act in general, \31\ and furthers the objectives of
Section 6(b)(5) of the Act,\32\ 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, 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. As noted above, the Exchange
believes that the proposed rule is designed to simplify market maker
compliance with the minimum continuous quoting and pricing obligations,
as well as facilitate market maker compliance with the requirements of
the Market Access Rule and Regulation SHO.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78f.
\32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Specifically, the Exchange believes that simplifying compliance
with this rule will remove impediments to and perfect the mechanism of
a free and open market and a national market system, and protect
investors and the public interest, because it will provide a simplified
means by which market makers may offer liquidity, using a tighter
quoting spread than the market maker obligations require, even in
circumstances where they are not willing to quote at the inside market.
As a result, in circumstances where liquidity available at displayed
prices closer to the inside than the price of a Market Maker Peg order
is exhausted during an aggressive market-wide sweep, the Market Maker
Peg order may nevertheless be available to support executions at prices
that are at least within the applicable Market Maker Peg Designated
Percentage or Market Maker Peg Defined Limit. Moreover, the methodology
for repricing Market Maker Peg orders is consistent with the
requirements of the Act because it is designed to ensure that the
displayed price of the order is at least within the applicable Market
Maker Peg Designated Percentage or Market Maker Peg Defined Limit, as
applicable.
The proposed rule change also is designed to support the principles
of Section 11A(a)(1) of the Act \33\ in that it seeks to assure fair
competition among brokers and dealers and among exchange markets. The
Exchange believes that offering the Market Maker Peg order to market
makers exclusively is consistent with fair competition among brokers
and dealers in that market makers have chosen to subject themselves to
the obligations of IEX Rule 11.151, and the benefit conferred on such
market participants by this order type is commensurate with such
obligations. Furthermore, all Members are eligible to apply for
registration as a market maker under Rule 11.150 on a fair and equal
basis.
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\33\ 15 U.S.C. 78k-1.
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The Exchange also believes that it is fair and reasonable for all
inbound communications related to the repricing of a Market Maker Peg
order to be subject to 350 microseconds of latency and for all outbound
communications related to the repricing of a Market Maker Peg order to
be subject to 37 microseconds of latency, each between the Market Maker
Peg repricing logic and the Order Book. As noted in the
[[Page 72653]]
Purpose section, this approach is designed so that a market maker using
a Market Maker Peg order to facilitate compliance with the Exchange's
continuous quoting and pricing obligations is in the same position as a
market maker updating its own quote, whose order instructions would be
subject to 350 microseconds of inbound latency and 37 microseconds of
outbound latency. Similarly, price adjustments to Market Maker Peg
orders will experience the same latency as other displayed limit orders
entered on the Exchange.
Accordingly, the Exchange believes that it is consistent with the
public interest and the protection of investors to reprice Market Maker
Peg orders subject to a 350-microsecond latency for all inbound
communications related to the modified order instruction and a 37-
microsecond latency for all outbound communications related to the
modified order instruction in the interest of ensuring that market
makers using the Market Maker Peg order type will not have any unfair
advantage over market makers that update their own quotes, as well as
with other market participants using displayed orders.
Furthermore, the Exchange believes that it is consistent with the
public interest and the protection of investors to apply a new
timestamp to a Market Maker Peg order each time it is repriced so that
a Market Maker Peg order does not achieve execution priority superior
to a displayed order entered at that price earlier in time.
Accordingly, market makers will not have any unfair advantage over a
market maker updating its own quote, or other market participants using
displayed orders on the Exchange.
Additionally, the Exchange believes that the proposed conforming
rule change to IEX Rule 11.510(c)(1) is consistent with the protection
of investors and the public interest in that it is designed to provide
clarity to market participants regarding Market Maker Peg order
repricing methodology.
Finally, IEX notes that the Commission previously approved an
almost identical market maker peg order type.\34\ As described in the
Purpose section, the one difference between this proposed Market Maker
Peg order type and IEX's previous market maker peg order type is that
this order type will apply the same Market Maker Peg Designated
Percentage and Market Maker Peg Defined Limit to all stocks,
irrespective of if they are included in the S&P 500[supreg] Index,
Russell 1000[supreg] Index, and a pilot list of Exchange Traded
Products. IEX believes this modification is consistent with the
protection of investors and helps perfect the mechanism of a free and
open market because this proposal will result in Market Maker Peg
orders resting on the Order Book quoting at the tighter limit that is
only required for certain securities. IEX believes these tighter quote
spreads would be of particular benefit to investors during times of
high market volatility by making it more likely that a security will
avoid so-called ``stub quotes'' that are so far away from the NBB or
NBO that the quote is unlikely to be executed. Additionally, IEX notes
that the proposed application of the tighter quote spreads to all
Market Maker Peg orders will simplify the technical complexities in the
design and functioning of the order type. Furthermore, IEX notes that
the proposed Market Maker Peg order is an optional order type that may
be used by any registered market maker to facilitate its compliance
with their obligations but that market makers are free to manage their
own quotes subject to the applicable quoting and pricing requirements
of IEX Rule 11.151.
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\34\ See supra note 6.
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B. Self-Regulatory Organization's Statement on Burden on Competition
IEX does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. Specifically, the Exchange
believes that the proposal will enhance the Exchange's competitiveness
by providing market makers on IEX with a tool designed to facilitate
quoting and offering liquidity even in circumstances where they are not
willing to quote at the inside market. Based on informal discussion
with market participants that serve as market makers on other trading
centers, the Exchange believes that this functionality will be
appealing to potential market makers, and therefore will make it more
likely that market participants will choose to become registered market
makers on the Exchange. This may, in turn, increase the extent of
liquidity available on IEX and increase its ability to compete with
other execution venues to attract orders that are seeking liquidity.
The Exchange further notes that the Market Maker Peg order, as
proposed, is substantially similar to equivalent order types offered by
other market centers, including Cboe BZX, Nasdaq, and Cboe EDGX, and
therefore will not impair market participants or other market centers
from competing, but would in fact allow the Exchange to compete with
existing functionality offered by competing market centers.\35\
Moreover, there is no barrier to other exchanges adopting the same
repricing functionality subject to the Commission rule filing process
pursuant to Section 19(b) of the Act.
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\35\ See supra note 16.
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With regard to intra-market competition, the Exchange does not
believe that the method of repricing Market Maker Peg orders will
result in any burden on intra-market competition that is not necessary
or appropriate in furtherance of the purposes of the Act. To the
contrary, as described in the Statutory Basis section, the proposed
Market Maker Peg order type is an optional order type that would be
available to IEX market makers that is designed so that market makers
using Market Maker Peg orders will not be subject to any competitive
advantage compared to market makers updating their own quotes, or other
market participants using displayed orders. Furthermore, as discussed
in the Statutory Basis section, the Exchange believes that offering the
Market Maker Peg order to market makers exclusively is consistent with
fair competition among brokers and dealers in that market makers have
chosen to subject themselves to the obligations of IEX Rule 11.151, and
the benefit conferred on such market participants by this order type is
commensurate with the obligations. Furthermore, all Members are
eligible to apply for registration as a market maker under IEX Rule
11.150 on a fair and equal basis.
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
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \36\ and Rule 19b-
4(f)(6) thereunder.\37\
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\36\ 15 U.S.C. 78s(b)(3)(A).
\37\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its 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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[[Page 72654]]
A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \38\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \39\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay. The
proposed rule change provides for the reintroduction of a Market Maker
Peg Order type on the Exchange. The Exchange believes that waiver of
the operative delay is consistent with the protection of investors and
the public interest because IEX is restoring an order type previously
available on IEX, which is substantially similar to order types offered
on several other exchanges (discussed above), with the only difference
being that this version of the Market Maker Peg order will apply the
tighter market maker quoting requirement to all securities and will not
apply wider limits for stocks in the Russell 1000[supreg] Index and a
pilot list of Exchange Traded Products. IEX believes that allowing
market makers to begin using the Market Maker Peg order type
immediately upon effectiveness of this rule change will potentially
increase liquidity on IEX to the benefit all investors, which will
serve the public interest. The Commission believes that waiver of the
30-day operative delay is consistent with the protection of investors
and the public interest because the proposed rule change does not raise
any novel issues, adopts the narrower limits for all securities and
thus will result in prices closer to the NBB or NBO (as applicable)
compared to the prior version of this order type, and may help increase
displayed liquidity on IEX during periods of volatility. Therefore, the
Commission hereby waives the operative delay and designates the
proposal as operative upon filing.\40\
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\38\ 17 CFR 240.19b-4(f)(6).
\39\ 17 CFR 240.19b-4(f)(6)(iii).
\40\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purpose of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \41\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\41\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-IEX-2021-17 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-2021-17. 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. Persons submitting comments are cautioned that we do not redact
or edit personal identifying information from comment submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-IEX-2021-17
and should be submitted on or before January 12, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
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\42\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-27660 Filed 12-21-21; 8:45 am]
BILLING CODE 8011-01-P
