Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing of Proposed Rule Change To Modify IEX Rule 11.190(b)(7), 72523-72527 [2022-25663]

Download as PDF Federal Register / Vol. 87, No. 226 / Friday, November 25, 2022 / Notices POSTAL SERVICE Product Change—First-Class Package Service Negotiated Service Agreement AGENCY: ACTION: Postal ServiceTM. Notice. The Postal Service gives notice of filing a request with the Postal Regulatory Commission to add a domestic shipping services contract to the list of Negotiated Service Agreements in the Mail Classification Schedule’s Competitive Products List. SUMMARY: Date of required notice: November 25, 2022. DATES: FOR FURTHER INFORMATION CONTACT: Sean Robinson, 202–268–8405. The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on November 9, 2022, it filed with the Postal Regulatory Commission a USPS Request to Add First-Class Package Service Contract 121 to Competitive Product List. Documents are available at www.prc.gov, Docket Nos. MC2023–42, CP2023–41. SUPPLEMENTARY INFORMATION: Sarah Sullivan, Attorney, Ethics & Legal Compliance. [FR Doc. 2022–25678 Filed 11–23–22; 8:45 am] 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 the Exchange is filing with the Commission a proposed rule change to provide Members 5 the option of having Discretionary Limit orders automatically cancel or re-price in certain circumstances. The text of the proposed rule change is available at the Exchange’s website at www.iextrading.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. BILLING CODE 7710–12–P A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change SECURITIES AND EXCHANGE COMMISSION 1. Purpose [Release No. 34–96352; File No. SR–IEX– 2022–10] Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing of Proposed Rule Change To Modify IEX Rule 11.190(b)(7) khammond on DSKJM1Z7X2PROD with NOTICES November 18, 2022. 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 November 4, 2022 the Investors Exchange LLC (‘‘IEX’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Sep<11>2014 18:43 Nov 23, 2022 Jkt 259001 The purpose of this proposed rule filing is to amend IEX Rule 11.190(b)(7) to allow Users 6 to attach an optional instruction to any Discretionary Limit 7 (‘‘D-Limit’’) order to either re-price or cancel an order that was price adjusted during a period of quote instability,8 if, ten (10) milliseconds after the most recent quote instability determination 9 that resulted in the order being price adjusted, the order is resting at a price that is less aggressive than the NBB 10 (NBO 11) for buy (sell) orders. 3 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 5 See IEX Rule 1.160(s). 6 See IEX Rule 1.160(qq). Users include both Members and Sponsored Participants, see IEX Rule 1.160(ll), but the terms ‘‘Member’’ and ‘‘User’’ are used interchangeably in this filing. 7 See IEX Rule 11.190(b)(7). 8 See IEX Rule 11.190(g). 9 Id. 10 See IEX Rule 1.160(u). 11 See IEX Rule 1.160(u). 4 17 PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 72523 Background In October 2020,12 IEX introduced the D-Limit order type,13 which is designed to help protect liquidity providers from potential adverse selection during periods of quote instability in a fair and nondiscriminatory manner.14 A D-Limit order may be a displayed or nondisplayed limit order that upon entry and when posting to the Order Book 15 is priced to be equal to and ranked at the order’s limit price, but will be adjusted to a less-aggressive price during periods of quote instability, as defined in IEX Rule 11.190(g).16 Specifically, if the System 17 receives a D-Limit buy (sell) order during a period of quote instability (i.e., the Crumbling Quote Indicator or ‘‘CQI’’ is on), and the D-Limit order has a limit price equal to or higher (lower) than the quote instability determination price level (‘‘CQI Price’’), the price of the order will be automatically adjusted by the System to one (1) minimum price variation (‘‘MPV’’) 18 lower (higher) than the CQI Price.19 Similarly, when unexecuted shares of a D-Limit buy (sell) order are posted to the Order Book, if a quote instability determination is made and such shares are ranked and displayed (in the case of a displayed order) by the System at a price equal to or higher (lower) than the CQI Price, the price of the order will be automatically adjusted by the System to a price one MPV lower (higher) than the quote instability price level.20 Currently, a D-Limit order that has been subject to an automatic price adjustment will not revert to the price at which it was previously ranked and displayed (in the case of a displayed order). Rather, once the price of a DLimit order that has been posted to the Order Book is automatically adjusted by the System, the order will continue to be ranked and displayed (in the case of a displayed order) at the adjusted price, unless subject to another automatic adjustment, or if the order is subject to the price sliding provisions of IEX Rule 11.190(h).21 Whenever the price of a D12 See IEX Trading Alert 2020–029, available at https://iextrading.com/alerts/#/126. 13 See Securities Exchange Act Release No. 89686 (August 26, 2020), 85 FR 54438 (September 1, 2020) (SR–IEX–2019–15) (‘‘D-Limit Approval Order’’). 14 See Securities Exchange Act Release No. 87814 (December 20, 2019), 84 FR 71997, 71998 (December 30, 2019) (SR–IEX–2019–15) (‘‘D-Limit Proposal’’). 15 See IEX Rule 1.160(p). 16 See IEX Rules 11.190(b)(7) and 11.190(g). 17 See IEX Rule 1.160(nn). 18 See IEX Rule 11.210. 19 See IEX Rule 11.190(b)(7)(A) and (B). 20 See IEX Rule 11.190(b)(7)(C) and (D). 21 See IEX Rule 11.190(b)(7)(E). E:\FR\FM\25NON1.SGM 25NON1 72524 Federal Register / Vol. 87, No. 226 / Friday, November 25, 2022 / Notices Limit order is adjusted the order will receive a new time priority. If multiple D-Limit orders are adjusted at the same time, their relative time priority will be maintained. Further, when the price of a D-Limit order is adjusted, the Member that entered the order receives an order restatement message from the Exchange notifying the Member of the price adjustment.22 IEX is proposing optional functionality that will facilitate the ability of some Members to manage their use of D-Limit orders. Some Members that use D-Limit orders have informed IEX that they cannot readily configure their trading systems to receive, process, and respond to the restatement messages IEX transmits to Members after each price adjustment. They note that their trading systems are not currently configured to ingest the DLimit restatement messages (and, in some cases, other restatement messages), and they would have to devote significant resources to build the logic in order to ingest, and respond to, the messages for this one order type. In these cases, the Members are unable to track whether their D-Limit orders have been re-priced, and if so, the price at which they are currently resting. Without this information, IEX understands that such Members are hindered in their ability to timely cancel or adjust the prices of their resting DLimit orders to meet their trading objectives. To address this issue, some Members have requested that IEX provide optional functionality allowing a D-Limit order that has been subject to an automatic price adjustment to be automatically either canceled or repriced in certain circumstances. Specifically, this option would allow the User to elect to automatically cancel or re-price the order when, ten (10) milliseconds following the quote instability determination that resulted in a price adjustment, it is resting at a price less aggressive than the NBBO. khammond on DSKJM1Z7X2PROD with NOTICES Proposal Based upon the Member feedback discussed above, IEX proposes to modify IEX Rule 11.190(b)(7) to allow Users to submit a D-Limit order with an optional cancel or re-price instruction. As proposed, if a D-Limit order that is entered with the optional instruction was subject to an automatic price adjustment pursuant to IEX Rule 11.190(b)(7)(A)–(D) and is resting at a price that is less aggressive than the 22 A restatement message is an automated message from the Exchange System informing the Member that the price of its order has been adjusted. VerDate Sep<11>2014 18:43 Nov 23, 2022 Jkt 259001 NBBO ten (10) milliseconds after the most recent quote instability determination that resulted in the order being price adjusted, the order will either be canceled or re-priced to the less aggressive of the order’s limit price or the NBB (for a buy order) or NBO (for a sell order), as specified by the User. Additionally, displayed D-Limit orders that re-price to the NBB (for a buy order) or the NBO (for a sell order) will be subject to IEX’s Display-Price Sliding rule, 23 and will be displayed at the ‘‘most aggressive permissible price’’ without locking or crossing a Protected Quotation 24 of an away market, which means they will be priced one MPV less aggressive than the locking 25 or crossing 26 price. Non-displayed D-Limit orders that re-price to the NBB (for a buy order) or the NBO (or a sell order) will be subject to IEX’s Non-Displayed Price Sliding rule, which means they will be able to post at the locking or crossing price.27 Specifically, IEX proposes to add a new subsection (E) to IEX Rule 11.190(b)(7), to provide as follows: (E) Cancel/Re-price Functionality. Users may attach an optional instruction to a Discretionary Limit order to either re-price or cancel an order that was price adjusted pursuant to subparagraphs (A)–(D) above if the buy (sell) order is resting at a price that is less aggressive than the NBB (NBO) ten (10) milliseconds after the most recent quote instability determination, pursuant to paragraph (g) of this IEX Rule 11.190, that resulted in the order being price adjusted pursuant to subparagraphs (A)–(D) above, as set forth in subparagraph (i) or (ii) below. (i) Re-price. A buy (sell) order with the optional re-price instruction will be automatically re-priced to the less aggressive of the order’s limit price or the NBB (NBO). (ii) Cancel. An order with the optional cancel instruction will be automatically canceled.28 IEX also proposes to renumber subparagraph (E) of IEX Rule 11.190(b)(7) as subparagraph (F) of the rule, and to amend the new subparagraph (F) to reflect that price adjusted D-Limit orders will remain at the adjusted price, ‘‘unless subject to another automatic adjustment pursuant to subparagraphs (C)–(D) above, or the optional re-price functionality described in subparagraph (E), above.’’ 29 In determining how long to wait before applying the optional cancel or re-price functionality to a D-Limit order, IEX considered how long it would take 23 See IEX Rule 11.190(b)(h)(1). IEX Rule 1.160(bb). 25 See IEX Rule 11.190(b)(h)(3)(A)(ii). 26 See IEX Rule 11.190(b)(h)(3)(B)(ii). 27 See IEX Rule 11.190(b)(h)(2). 28 See Proposed IEX Rule 11.190(b)(7)(E). 29 See Proposed IEX Rule 11.190(b)(7)(F). 24 See PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 for a User to cancel or re-price a D-Limit order itself after receiving and processing a restatement message. Specifically, IEX selected a time frame that would not give Users utilizing the proposed cancel or pre-price functionality any speed advantage over Users handling the cancel or re-price process themselves. IEX notes that all outbound messages sent from the Exchange to Users are subject to 37 microseconds of latency,30 and all inbound messages sent from Users to the Exchange are subject to 350 microseconds latency, totaling 387 microseconds.31 This ‘‘round trip’’ latency is more than nine (9) milliseconds less than the 10millisecond time than the time frame proposed by IEX to trigger the optional cancel or re-price functionality as described herein. IEX believes that this time differential is materially longer than the amount of time needed for a User to ingest and process the restatement message and determine whether to cancel or re-price its D-Limit order. The timing differential is designed to ensure that orders canceled or re-priced by IEX have no advantage over orders canceled or repriced by a User that processed the restatement message. To the contrary, the Exchange would cancel or re-price orders more slowly than orders canceled or re-priced by a User. Additionally, IEX considered the fact that each time the CQI determines that a quote is unstable, that period of quote instability can last as long as two (2) milliseconds but that most price changes within the predicted direction happen within ten (10) milliseconds after the determination.32 Thus, IEX believes that a ten (10) millisecond waiting period before a D-Limit order that was subject to an automatic price adjustment is canceled or re-priced, if the User included the optional cancel or re-price instruction with the order, is reasonable. As noted above, this amount of time is materially longer than it would take for a User to adjust the terms of an order subject to price adjustment on its own, but not so long a time period that it would leave an impacted order at 30 See IEX Rule 11.510(a). IEX Rule 11.510(a). 32 See IEX Rule 11.190(g). In June 2022, for all CQI determinations where the relevant quote moved in the predicted direction, 67% did so within 10 milliseconds (i.e., to a lower price for an NBB determination or a higher price for an NBO determination). After 10 milliseconds, IEX observed significantly diminishing returns with respect to the rate of capturing additional quote moves and therefore believes that 10 milliseconds is a reasonable cutoff for the cancel/re-price functionality. 31 See E:\FR\FM\25NON1.SGM 25NON1 Federal Register / Vol. 87, No. 226 / Friday, November 25, 2022 / Notices a less competitive 33 price for an extended period of time. Moreover, based on informal feedback from Members that indicated they might use the proposed functionality, IEX believes that this time frame is consistent with their D-Limit trading strategies. The following example, demonstrates how this functionality would work: • Market is $10.10 × $10.20. • Order A, a non-displayed D-Limit buy order with limit price of $10.11 (and re-price instruction) arrives, and books at $10.11. • Order B, a displayed D-Limit buy order with limit price of $10.08 (and reprice instruction) arrives, and books at $10.08. • Order C, a non-displayed D-Limit buy order with limit price of $10.10 (and cancel instruction) arrives, and books at $10.10. • IEX makes a quote instability determination for the bid with a CQI Price of $10.10. • Orders A and C are price adjusted to $10.09, one MPV less than the CQI Price. Order B continues to rest at $10.08. • After 3 milliseconds, the NBB drops to $10.09. No changes to Orders A, B, or C. • After 3 more milliseconds, the NBB returns to $10.10. No changes to Orders A, B, or C. • After 4 more milliseconds (i.e., 10 milliseconds after the most recent quote instability determination that resulted in Orders A and C being price adjusted) the NBB remains at $10.10. Orders A and C are now resting at a price less aggressive than the NBB and therefore subject to re-pricing or cancellation pursuant to the User instructions. Order A re-prices to $10.10 (the less aggressive of the NBB or its limit price) and Order C cancels. Order B remains unchanged because it was never subject to an automatic price adjustment and, even though resting at a price less aggressive than the NBB, is not subject to repricing notwithstanding its User instruction. khammond on DSKJM1Z7X2PROD with NOTICES 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with 33 During periods of quote instability, D-Limit orders moved to a price less aggressive than the NBB (NBO) for bids (offers) are less likely to execute (although they could, for example, match with a large Intermarket Sweep Order that clears out all liquidity resting at more aggressive prices, see IEX Rule 11.190(b)(12)). Under this proposal, 10 milliseconds after the last quote instability determination, when the market for a particular security is likely more stable, IEX will act on the User’s instructions to either re-price the D-Limit order to a more competitive price (the NBB (NBO) for bids (offers)) or cancel the order back to the User. VerDate Sep<11>2014 18:43 Nov 23, 2022 Jkt 259001 section 6(b) of the Act,34 in general, and furthers the objectives of section 6(b)(5),35 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 both displayed and non-displayed liquidity to the Exchange. As noted in the Purpose section, the proposed rule change is responsive to informal feedback from some Members, stating that they cannot readily configure their trading systems to receive, process, and respond to D-Limit restatement messages IEX transmits to Members after each price adjustment. In these cases, the Members are unable to track whether their D-Limit orders have been re-priced, and if so, the price at which they are currently resting. Without this information, IEX understands that such Members are hindered in their ability to timely cancel or adjust the prices of their resting D-Limit orders to meet their trading objectives. To address this issue, impacted Members have requested that IEX provide optional functionality allowing a D-Limit order that has been subject to an automatic price adjustment to be automatically either canceled or re-priced in certain circumstances. Specifically, this option would allow the User to elect to automatically cancel or re-price the order when, ten (10) milliseconds following the most recent quote instability determination that resulted in a price adjustment, it is resting at a price less aggressive than the NBBO. By providing additional functionality to enable Members to more effectively manage D-Limit orders, IEX believes that the proposed rule change will promote more aggressive pricing that may attract additional 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 34 15 35 15 PO 00000 U.S.C. 78f(b). U.S.C. 78f(b)(5). Frm 00084 Fmt 4703 Sfmt 4703 72525 general, to protect investors and the public interest. Specifically, for Users that utilize the proposed optional reprice functionality, their D-Limit orders will be priced at more aggressive prices that are more likely to execute during periods of quote stability. Similarly, IEX believes that Users that utilize the proposed optional cancel functionality are more likely to resubmit some or all of those orders with more aggressive prices following cancelation, which are also more likely to execute during periods of quote stability. The Exchange further believes that the proposed rule change is consistent with the Act because it would be available to all Members on a fair, equal and nondiscriminatory basis regardless of their technological sophistication. Moreover, the proposal is designed to incentivize the entry of additional DLimit orders by providing the additional optional functionality to support Members’ ability to manage such orders. To the extent that such incentive is successful, all market participants, including takers of liquidity, will benefit. The Exchange also believes that the proposed rule change is consistent with the protection of investors and the public interest because the circumstances under which a D-Limit order will be adjusted are narrowly tailored, transparent, and predictable, as described in the Purpose section. Further, the Exchange believes that the proposed functionality is similar to existing functionality on IEX and other exchanges wherein the price of an order is adjusted based on user instructions. These include price sliding and cancellation provisions to address locked and crossed markets, LULD bands,36 Regulation SHO,37 antiinternalization, and pegged orders. As described more fully below, it is well established that exchanges can permit market participants to enter orders with a forward-looking instruction whereby the exchange will re-price or cancel an order in the future, under specified circumstances. IEX believes that the proposed rule change is substantially similar to these existing functionalities. IEX and other exchanges accept certain types of users’ order instructions to prevent an incoming displayed order 36 See IEX Rules 11.190(h)(5) and 11.280(e)(5)(B) (displayed and non-displayed limit orders priced above (below) the upper (lower) Limit Up-Limit Down (‘‘LULD’’) bands are automatically re-priced to the upper (lower) LULD price band. 37 See IEX Rule 11.190(h)(4) (short sale orders not marked short exempt that cannot be executed or displayed in compliance with Rule 201 of Regulation SHO are re-priced to a price equal to one MPV above the current NBB). E:\FR\FM\25NON1.SGM 25NON1 khammond on DSKJM1Z7X2PROD with NOTICES 72526 Federal Register / Vol. 87, No. 226 / Friday, November 25, 2022 / Notices from locking or crossing an away market’s Protected Quotation. While all exchanges have rules designed to prevent an incoming displayed order locking or crossing an away market’s Protected Quotation, as required by Regulation NMS, some exchanges also provide users with various options for price adjusting or canceling an order that would otherwise lock or cross an away market. For example, MEMX LLC (‘‘MEMX’’) and MIAX PEARL LLC (‘‘PEARL’’) allow users to specify that a displayed order subject to price sliding will be cancelled upon entry to avoid crossing the market, instead of being repriced.38 Additionally, MEMX and PEARL offer an optional ‘‘multiple price sliding’’ instruction for displayed orders. If one of their members does not opt in to ‘‘multiple price sliding’’, MEMX or PEARL will adjust the order’s price two times to prevent a lock or cross of an away market Protected Quotation, after which time it will cancel the order if a third re-pricing is required by changes in the NBBO.39 But if the User includes the ‘‘multiple price sliding’’ instruction, both MEMX and PEARL will continue to adjust the price indefinitely as required by NBBO changes.40 This logic also applies to displayed orders that are priced outside of the LULD Bands. Based on a user’s instructions, MEMX or PEARL will cancel an order priced outside of the LULD bands, re-price the displayed order up to two times and cancel the order if a third re-pricing is required by changes in the NBBO (if the order does not have a ‘‘multiple price sliding’’ instruction), or continue to adjust the order’s price.41 Further, IEX and other exchanges permit entry of a non-displayed order with a minimum quantity instruction to cancel remaining, which means a partial execution will result in the order being canceled if the number of shares remaining do not satisfy the order’s minimum quantity requirement.42 Additionally, some exchange order types allow a user to submit an order with specific instructions about how much the order’s price can be adjusted to match with contra-side interest. For example, Cboe BZX Exchange, Inc. (‘‘BZX’’) has a discretionary order type that is a displayed or non-displayed limit order with a user submitted ‘‘discretionary price,’’ which is a non38 See MEMX Rule 11.6(j)(A)(i) and PEARL Rule 2614(g)(1)(C). 39 See supra note 38. 40 See supra note 38. 41 See MEMX Rule 11.16(e)(5)(B) and PEARL Rule 2622(e). 42 See, e.g., IEX Rule 11.190(b)(11)(G)(i); see also MEMX Rule 11.6(f); PEARL Rule 2614(c)(7). VerDate Sep<11>2014 18:43 Nov 23, 2022 Jkt 259001 displayed offset amount at which the user is willing to buy or sell.43 The aggressiveness of the user-selected discretionary price will impact the likelihood that a discretionary order will execute. Similarly, Cboe EDGX Exchange Inc. (‘‘EDGX’’) offers a midpoint discretionary order (‘‘MDO’’) with optional quote depletion protection (‘‘QDP’’).44 A MDO behaves like IEX’s Discretionary Peg order type 45 in that the order is usually able to exercise discretion up to the Midpoint Price.46 However, EDGX users may submit their MDO orders with the optional QDP instruction, which will prevent the MDO from exercising any discretion for a period of two milliseconds after the best bid (offer) displayed on EDGX’s order book is executed for less than one round lot.47 Therefore, the EDGX user submitting the MDO order can instruct the exchange to not let the order execute at more aggressive prices under specific market conditions unknown to the user at the time the order was submitted. Finally, pegged orders such as Midpoint Peg 48 and Primary Peg 49 orders, which peg to the Midpoint Price 50 and one MPV less aggressive than the NBB (NBO) for buy (sell) orders, respectively, are examples of an IEX User instructing the Exchange to reprice orders in response to future changes in the NBBO. IEX believes that the proposed optional re-pricing functionality is analogous because, as with pegging orders, the re-pricing is to the best bid or best offer. And IEX notes that several other exchanges have displayed order types that are pegged to the NBBO and thus subject to price adjustments as the NBBO changes.51 IEX believes that these examples described above demonstrate there is precedent for exchanges providing an ability for market participants to enter orders with a forward-looking instruction whereby the exchange will re-price or cancel an order in the future, under specified circumstances. IEX further believes that the proposed rule change is consistent with these exchanges’ rule-based practices. As proposed, an IEX Member would simply 43 See BZX Rule 11.9(c)(10). EDGX Rule 11.8(g). 45 See IEX Rule 11.190(b)(10). 46 See IEX Rule 1.160(t). 47 See EDGX Rule 11.8(g)(10). By contrast an IEX Discretionary Peg order will never exercise discretion during a period of quote instability as defined in IEX Rule 11.190(b)(10)(K). 48 See IEX Rule 11.190(b)(9). 49 See IEX Rule 11.190(b)(8). 50 See IEX Rule 1.160(t). 51 See, e.g., Cboe EDGA, Inc. Equity (‘‘EDGA’’) Rule 11.8(e) and the Nasdaq Stock Market LLC (‘‘Nasdaq’’) Rule 4703(g). 44 See PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 be able to optionally instruct the Exchange to re-price or cancel a D-Limit order under specified circumstances. Accordingly, based on the forgoing, the Exchange does not believe that the proposed rule change raises any novel issues not already considered by the Commission. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not 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 further enhancing IEX’s D-Limit order type functionality. 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 including an optional instruction to either cancel or re-price a D-Limit order that has been price adjusted during a period of quote instability, if 10 milliseconds after the most recent quote instability determination that resulted in a price adjustment, the order is priced less aggressively than the NBB (NBO) for buy (sell) orders. By giving more opportunities to Members to make their D-Limit orders more competitive (if not canceled) after a period of quote instability ends, IEX believes this proposal will enhance opportunities for price discovery and increase the overall displayed (and non-displayed) liquidity profile on the Exchange, to the benefit of all market participants. 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 include the optional cancel or re-price instruction on any or all of their D-Limit 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 D-Limit orders attributable to the ability to enter such orders with optional cancellation or repricing instructions. E:\FR\FM\25NON1.SGM 25NON1 Federal Register / Vol. 87, No. 226 / Friday, November 25, 2022 / Notices C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days of such date (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission shall: (a) by order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Electronic Comments khammond on DSKJM1Z7X2PROD with NOTICES available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal offices of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–IEX–2022–10, and should be submitted on or before December 16, 2022. institute proceedings to determine whether to disapprove the proposed rule change.5 On November 11, 2022, the Exchange submitted Amendment No. 1 to the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. Amendment No. 1 amended and superseded the proposed rule change as originally filed.6 The Commission is publishing this notice and order to solicit comments on the proposed rule change, as modified by Amendment No. 1, from interested persons and to institute proceedings pursuant to section 19(b)(2)(B) of the Act 7 to determine whether to approve or disapprove the proposed rule change, as modified by Amendment No. 1. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.52 Sherry R. Haywood, Assistant Secretary. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change [FR Doc. 2022–25663 Filed 11–23–22; 8:45 am] 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: BILLING CODE P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–96359; File No. SR– CboeBZX–2022–038] • 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–2022–10 on the subject line. Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend Rule 11.28(a) To Extend the MOC Cut-Off Time Paper Comments November 18, 2022. • 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–2022–10. 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 On August 5, 2022, Cboe BZX Exchange, Inc. (‘‘BZX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend BZX Rule 11.28(a) to extend the cut-off time for accepting Market-on-Close orders entered for participation in the Cboe Market Close. The proposed rule change was published for comment in the Federal Register on August 24, 2022.3 On October 4, 2022, pursuant to section 19(b)(2) of the Act,4 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or VerDate Sep<11>2014 18:43 Nov 23, 2022 Jkt 259001 72527 52 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 95529 (August 17, 2022), 87 FR 52092. 4 15 U.S.C. 78s(b)(2). 1 15 PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 Cboe BZX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BZX’’) proposes to amend Rule 11.28(a) to extend the Cboe Market Close MOC Cut-Off Time from 3:35 p.m. Eastern Time to 3:49 p.m. Eastern Time. 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://markets.cboe.com/us/ equities/regulation/rule_filings/bzx/), at the Exchange’s Office of the Secretary, 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 Exchange 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 Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. 5 See Securities Exchange Act Release No. 95967, 87 FR 61425 (October 11, 2022). The Commission designated November 22, 2022, as the date by which the Commission shall approve or disapprove, or institute proceedings to determine whether to disapprove, the proposed rule change. 6 Amendment No. 1 is available on the Commission’s website at: https://www.sec.gov/ comments/sr-cboebzx-2022-038/ srcboebzx2022038.htm. 7 15 U.S.C. 78s(b)(2)(B). E:\FR\FM\25NON1.SGM 25NON1

Agencies

[Federal Register Volume 87, Number 226 (Friday, November 25, 2022)]
[Notices]
[Pages 72523-72527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-25663]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96352; File No. SR-IEX-2022-10]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing of Proposed Rule Change To Modify IEX Rule 11.190(b)(7)

November 18, 2022.
    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 November 4, 2022 the Investors Exchange LLC (``IEX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of section 19(b)(1) under the Act,\3\ 
and Rule 19b-4 thereunder,\4\ the Exchange is filing with the 
Commission a proposed rule change to provide Members \5\ the option of 
having Discretionary Limit orders automatically cancel or re-price in 
certain circumstances.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
    \5\ See IEX Rule 1.160(s).
---------------------------------------------------------------------------

    The text of the proposed rule change is available at the Exchange's 
website at www.iextrading.com, at the principal office of the Exchange, 
and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule filing is to amend IEX Rule 
11.190(b)(7) to allow Users \6\ to attach an optional instruction to 
any Discretionary Limit \7\ (``D-Limit'') order to either re-price or 
cancel an order that was price adjusted during a period of quote 
instability,\8\ if, ten (10) milliseconds after the most recent quote 
instability determination \9\ that resulted in the order being price 
adjusted, the order is resting at a price that is less aggressive than 
the NBB \10\ (NBO \11\) for buy (sell) orders.
---------------------------------------------------------------------------

    \6\ See IEX Rule 1.160(qq). Users include both Members and 
Sponsored Participants, see IEX Rule 1.160(ll), but the terms 
``Member'' and ``User'' are used interchangeably in this filing.
    \7\ See IEX Rule 11.190(b)(7).
    \8\ See IEX Rule 11.190(g).
    \9\ Id.
    \10\ See IEX Rule 1.160(u).
    \11\ See IEX Rule 1.160(u).
---------------------------------------------------------------------------

Background
    In October 2020,\12\ IEX introduced the D-Limit order type,\13\ 
which is designed to help protect liquidity providers from potential 
adverse selection during periods of quote instability in a fair and 
nondiscriminatory manner.\14\ A D-Limit order may be a displayed or 
non-displayed limit order that upon entry and when posting to the Order 
Book \15\ is priced to be equal to and ranked at the order's limit 
price, but will be adjusted to a less-aggressive price during periods 
of quote instability, as defined in IEX Rule 11.190(g).\16\
---------------------------------------------------------------------------

    \12\ See IEX Trading Alert 2020-029, available at https://iextrading.com/alerts/#/126.
    \13\ See Securities Exchange Act Release No. 89686 (August 26, 
2020), 85 FR 54438 (September 1, 2020) (SR-IEX-2019-15) (``D-Limit 
Approval Order'').
    \14\ See Securities Exchange Act Release No. 87814 (December 20, 
2019), 84 FR 71997, 71998 (December 30, 2019) (SR-IEX-2019-15) (``D-
Limit Proposal'').
    \15\ See IEX Rule 1.160(p).
    \16\ See IEX Rules 11.190(b)(7) and 11.190(g).
---------------------------------------------------------------------------

    Specifically, if the System \17\ receives a D-Limit buy (sell) 
order during a period of quote instability (i.e., the Crumbling Quote 
Indicator or ``CQI'' is on), and the D-Limit order has a limit price 
equal to or higher (lower) than the quote instability determination 
price level (``CQI Price''), the price of the order will be 
automatically adjusted by the System to one (1) minimum price variation 
(``MPV'') \18\ lower (higher) than the CQI Price.\19\ Similarly, when 
unexecuted shares of a D-Limit buy (sell) order are posted to the Order 
Book, if a quote instability determination is made and such shares are 
ranked and displayed (in the case of a displayed order) by the System 
at a price equal to or higher (lower) than the CQI Price, the price of 
the order will be automatically adjusted by the System to a price one 
MPV lower (higher) than the quote instability price level.\20\
---------------------------------------------------------------------------

    \17\ See IEX Rule 1.160(nn).
    \18\ See IEX Rule 11.210.
    \19\ See IEX Rule 11.190(b)(7)(A) and (B).
    \20\ See IEX Rule 11.190(b)(7)(C) and (D).
---------------------------------------------------------------------------

    Currently, a D-Limit order that has been subject to an automatic 
price adjustment will not revert to the price at which it was 
previously ranked and displayed (in the case of a displayed order). 
Rather, once the price of a D-Limit order that has been posted to the 
Order Book is automatically adjusted by the System, the order will 
continue to be ranked and displayed (in the case of a displayed order) 
at the adjusted price, unless subject to another automatic adjustment, 
or if the order is subject to the price sliding provisions of IEX Rule 
11.190(h).\21\ Whenever the price of a D-

[[Page 72524]]

Limit order is adjusted the order will receive a new time priority. If 
multiple D-Limit orders are adjusted at the same time, their relative 
time priority will be maintained. Further, when the price of a D-Limit 
order is adjusted, the Member that entered the order receives an order 
restatement message from the Exchange notifying the Member of the price 
adjustment.\22\
---------------------------------------------------------------------------

    \21\ See IEX Rule 11.190(b)(7)(E).
    \22\ A restatement message is an automated message from the 
Exchange System informing the Member that the price of its order has 
been adjusted.
---------------------------------------------------------------------------

    IEX is proposing optional functionality that will facilitate the 
ability of some Members to manage their use of D-Limit orders. Some 
Members that use D-Limit orders have informed IEX that they cannot 
readily configure their trading systems to receive, process, and 
respond to the restatement messages IEX transmits to Members after each 
price adjustment. They note that their trading systems are not 
currently configured to ingest the D-Limit restatement messages (and, 
in some cases, other restatement messages), and they would have to 
devote significant resources to build the logic in order to ingest, and 
respond to, the messages for this one order type. In these cases, the 
Members are unable to track whether their D-Limit orders have been re-
priced, and if so, the price at which they are currently resting. 
Without this information, IEX understands that such Members are 
hindered in their ability to timely cancel or adjust the prices of 
their resting D-Limit orders to meet their trading objectives. To 
address this issue, some Members have requested that IEX provide 
optional functionality allowing a D-Limit order that has been subject 
to an automatic price adjustment to be automatically either canceled or 
re-priced in certain circumstances. Specifically, this option would 
allow the User to elect to automatically cancel or re-price the order 
when, ten (10) milliseconds following the quote instability 
determination that resulted in a price adjustment, it is resting at a 
price less aggressive than the NBBO.
Proposal
    Based upon the Member feedback discussed above, IEX proposes to 
modify IEX Rule 11.190(b)(7) to allow Users to submit a D-Limit order 
with an optional cancel or re-price instruction. As proposed, if a D-
Limit order that is entered with the optional instruction was subject 
to an automatic price adjustment pursuant to IEX Rule 11.190(b)(7)(A)-
(D) and is resting at a price that is less aggressive than the NBBO ten 
(10) milliseconds after the most recent quote instability determination 
that resulted in the order being price adjusted, the order will either 
be canceled or re-priced to the less aggressive of the order's limit 
price or the NBB (for a buy order) or NBO (for a sell order), as 
specified by the User.
    Additionally, displayed D-Limit orders that re-price to the NBB 
(for a buy order) or the NBO (for a sell order) will be subject to 
IEX's Display-Price Sliding rule,\23\ and will be displayed at the 
``most aggressive permissible price'' without locking or crossing a 
Protected Quotation \24\ of an away market, which means they will be 
priced one MPV less aggressive than the locking \25\ or crossing \26\ 
price. Non-displayed D-Limit orders that re-price to the NBB (for a buy 
order) or the NBO (or a sell order) will be subject to IEX's Non-
Displayed Price Sliding rule, which means they will be able to post at 
the locking or crossing price.\27\
---------------------------------------------------------------------------

    \23\ See IEX Rule 11.190(b)(h)(1).
    \24\ See IEX Rule 1.160(bb).
    \25\ See IEX Rule 11.190(b)(h)(3)(A)(ii).
    \26\ See IEX Rule 11.190(b)(h)(3)(B)(ii).
    \27\ See IEX Rule 11.190(b)(h)(2).
---------------------------------------------------------------------------

    Specifically, IEX proposes to add a new subsection (E) to IEX Rule 
11.190(b)(7), to provide as follows:

    (E) Cancel/Re-price Functionality. Users may attach an optional 
instruction to a Discretionary Limit order to either re-price or 
cancel an order that was price adjusted pursuant to subparagraphs 
(A)-(D) above if the buy (sell) order is resting at a price that is 
less aggressive than the NBB (NBO) ten (10) milliseconds after the 
most recent quote instability determination, pursuant to paragraph 
(g) of this IEX Rule 11.190, that resulted in the order being price 
adjusted pursuant to subparagraphs (A)-(D) above, as set forth in 
subparagraph (i) or (ii) below.
    (i) Re-price. A buy (sell) order with the optional re-price 
instruction will be automatically re-priced to the less aggressive 
of the order's limit price or the NBB (NBO).
    (ii) Cancel. An order with the optional cancel instruction will 
be automatically canceled.\28\
---------------------------------------------------------------------------

    \28\ See Proposed IEX Rule 11.190(b)(7)(E).

    IEX also proposes to renumber subparagraph (E) of IEX Rule 
11.190(b)(7) as subparagraph (F) of the rule, and to amend the new 
subparagraph (F) to reflect that price adjusted D-Limit orders will 
remain at the adjusted price, ``unless subject to another automatic 
adjustment pursuant to subparagraphs (C)-(D) above, or the optional re-
price functionality described in subparagraph (E), above.'' \29\
---------------------------------------------------------------------------

    \29\ See Proposed IEX Rule 11.190(b)(7)(F).
---------------------------------------------------------------------------

    In determining how long to wait before applying the optional cancel 
or re-price functionality to a D-Limit order, IEX considered how long 
it would take for a User to cancel or re-price a D-Limit order itself 
after receiving and processing a restatement message. Specifically, IEX 
selected a time frame that would not give Users utilizing the proposed 
cancel or pre-price functionality any speed advantage over Users 
handling the cancel or re-price process themselves. IEX notes that all 
outbound messages sent from the Exchange to Users are subject to 37 
microseconds of latency,\30\ and all inbound messages sent from Users 
to the Exchange are subject to 350 microseconds latency, totaling 387 
microseconds.\31\ This ``round trip'' latency is more than nine (9) 
milliseconds less than the 10-millisecond time than the time frame 
proposed by IEX to trigger the optional cancel or re-price 
functionality as described herein. IEX believes that this time 
differential is materially longer than the amount of time needed for a 
User to ingest and process the restatement message and determine 
whether to cancel or re-price its D-Limit order. The timing 
differential is designed to ensure that orders canceled or re-priced by 
IEX have no advantage over orders canceled or repriced by a User that 
processed the restatement message. To the contrary, the Exchange would 
cancel or re-price orders more slowly than orders canceled or re-priced 
by a User.
---------------------------------------------------------------------------

    \30\ See IEX Rule 11.510(a).
    \31\ See IEX Rule 11.510(a).
---------------------------------------------------------------------------

    Additionally, IEX considered the fact that each time the CQI 
determines that a quote is unstable, that period of quote instability 
can last as long as two (2) milliseconds but that most price changes 
within the predicted direction happen within ten (10) milliseconds 
after the determination.\32\ Thus, IEX believes that a ten (10) 
millisecond waiting period before a D-Limit order that was subject to 
an automatic price adjustment is canceled or re-priced, if the User 
included the optional cancel or re-price instruction with the order, is 
reasonable. As noted above, this amount of time is materially longer 
than it would take for a User to adjust the terms of an order subject 
to price adjustment on its own, but not so long a time period that it 
would leave an impacted order at

[[Page 72525]]

a less competitive \33\ price for an extended period of time. Moreover, 
based on informal feedback from Members that indicated they might use 
the proposed functionality, IEX believes that this time frame is 
consistent with their D-Limit trading strategies.
---------------------------------------------------------------------------

    \32\ See IEX Rule 11.190(g). In June 2022, for all CQI 
determinations where the relevant quote moved in the predicted 
direction, 67% did so within 10 milliseconds (i.e., to a lower price 
for an NBB determination or a higher price for an NBO 
determination). After 10 milliseconds, IEX observed significantly 
diminishing returns with respect to the rate of capturing additional 
quote moves and therefore believes that 10 milliseconds is a 
reasonable cutoff for the cancel/re-price functionality.
    \33\ During periods of quote instability, D-Limit orders moved 
to a price less aggressive than the NBB (NBO) for bids (offers) are 
less likely to execute (although they could, for example, match with 
a large Intermarket Sweep Order that clears out all liquidity 
resting at more aggressive prices, see IEX Rule 11.190(b)(12)). 
Under this proposal, 10 milliseconds after the last quote 
instability determination, when the market for a particular security 
is likely more stable, IEX will act on the User's instructions to 
either re-price the D-Limit order to a more competitive price (the 
NBB (NBO) for bids (offers)) or cancel the order back to the User.
---------------------------------------------------------------------------

    The following example, demonstrates how this functionality would 
work:
     Market is $10.10 x $10.20.
     Order A, a non-displayed D-Limit buy order with limit 
price of $10.11 (and re-price instruction) arrives, and books at 
$10.11.
     Order B, a displayed D-Limit buy order with limit price of 
$10.08 (and re-price instruction) arrives, and books at $10.08.
     Order C, a non-displayed D-Limit buy order with limit 
price of $10.10 (and cancel instruction) arrives, and books at $10.10.
     IEX makes a quote instability determination for the bid 
with a CQI Price of $10.10.
     Orders A and C are price adjusted to $10.09, one MPV less 
than the CQI Price. Order B continues to rest at $10.08.
     After 3 milliseconds, the NBB drops to $10.09. No changes 
to Orders A, B, or C.
     After 3 more milliseconds, the NBB returns to $10.10. No 
changes to Orders A, B, or C.
     After 4 more milliseconds (i.e., 10 milliseconds after the 
most recent quote instability determination that resulted in Orders A 
and C being price adjusted) the NBB remains at $10.10. Orders A and C 
are now resting at a price less aggressive than the NBB and therefore 
subject to re-pricing or cancellation pursuant to the User 
instructions. Order A re-prices to $10.10 (the less aggressive of the 
NBB or its limit price) and Order C cancels. Order B remains unchanged 
because it was never subject to an automatic price adjustment and, even 
though resting at a price less aggressive than the NBB, is not subject 
to re-pricing notwithstanding its User instruction.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\34\ in general, and furthers the 
objectives of section 6(b)(5),\35\ 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 both 
displayed and non-displayed liquidity to the Exchange. As noted in the 
Purpose section, the proposed rule change is responsive to informal 
feedback from some Members, stating that they cannot readily configure 
their trading systems to receive, process, and respond to D-Limit 
restatement messages IEX transmits to Members after each price 
adjustment. In these cases, the Members are unable to track whether 
their D-Limit orders have been re-priced, and if so, the price at which 
they are currently resting. Without this information, IEX understands 
that such Members are hindered in their ability to timely cancel or 
adjust the prices of their resting D-Limit orders to meet their trading 
objectives. To address this issue, impacted Members have requested that 
IEX provide optional functionality allowing a D-Limit order that has 
been subject to an automatic price adjustment to be automatically 
either canceled or re-priced in certain circumstances. Specifically, 
this option would allow the User to elect to automatically cancel or 
re-price the order when, ten (10) milliseconds following the most 
recent quote instability determination that resulted in a price 
adjustment, it is resting at a price less aggressive than the NBBO.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78f(b).
    \35\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    By providing additional functionality to enable Members to more 
effectively manage D-Limit orders, IEX believes that the proposed rule 
change will promote more aggressive pricing that may attract additional 
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. Specifically, for Users 
that utilize the proposed optional re-price functionality, their D-
Limit orders will be priced at more aggressive prices that are more 
likely to execute during periods of quote stability. Similarly, IEX 
believes that Users that utilize the proposed optional cancel 
functionality are more likely to resubmit some or all of those orders 
with more aggressive prices following cancelation, which are also more 
likely to execute during periods of quote stability.
    The Exchange further believes that the proposed rule change is 
consistent with the Act because it would be available to all Members on 
a fair, equal and nondiscriminatory basis regardless of their 
technological sophistication. Moreover, the proposal is designed to 
incentivize the entry of additional D-Limit orders by providing the 
additional optional functionality to support Members' ability to manage 
such orders. To the extent that such incentive is successful, all 
market participants, including takers of liquidity, will benefit.
    The Exchange also believes that the proposed rule change is 
consistent with the protection of investors and the public interest 
because the circumstances under which a D-Limit order will be adjusted 
are narrowly tailored, transparent, and predictable, as described in 
the Purpose section.
    Further, the Exchange believes that the proposed functionality is 
similar to existing functionality on IEX and other exchanges wherein 
the price of an order is adjusted based on user instructions. These 
include price sliding and cancellation provisions to address locked and 
crossed markets, LULD bands,\36\ Regulation SHO,\37\ anti-
internalization, and pegged orders. As described more fully below, it 
is well established that exchanges can permit market participants to 
enter orders with a forward-looking instruction whereby the exchange 
will re-price or cancel an order in the future, under specified 
circumstances. IEX believes that the proposed rule change is 
substantially similar to these existing functionalities.
---------------------------------------------------------------------------

    \36\ See IEX Rules 11.190(h)(5) and 11.280(e)(5)(B) (displayed 
and non-displayed limit orders priced above (below) the upper 
(lower) Limit Up-Limit Down (``LULD'') bands are automatically re-
priced to the upper (lower) LULD price band.
    \37\ See IEX Rule 11.190(h)(4) (short sale orders not marked 
short exempt that cannot be executed or displayed in compliance with 
Rule 201 of Regulation SHO are re-priced to a price equal to one MPV 
above the current NBB).
---------------------------------------------------------------------------

    IEX and other exchanges accept certain types of users' order 
instructions to prevent an incoming displayed order

[[Page 72526]]

from locking or crossing an away market's Protected Quotation. While 
all exchanges have rules designed to prevent an incoming displayed 
order locking or crossing an away market's Protected Quotation, as 
required by Regulation NMS, some exchanges also provide users with 
various options for price adjusting or canceling an order that would 
otherwise lock or cross an away market. For example, MEMX LLC 
(``MEMX'') and MIAX PEARL LLC (``PEARL'') allow users to specify that a 
displayed order subject to price sliding will be cancelled upon entry 
to avoid crossing the market, instead of being re-priced.\38\ 
Additionally, MEMX and PEARL offer an optional ``multiple price 
sliding'' instruction for displayed orders. If one of their members 
does not opt in to ``multiple price sliding'', MEMX or PEARL will 
adjust the order's price two times to prevent a lock or cross of an 
away market Protected Quotation, after which time it will cancel the 
order if a third re-pricing is required by changes in the NBBO.\39\ But 
if the User includes the ``multiple price sliding'' instruction, both 
MEMX and PEARL will continue to adjust the price indefinitely as 
required by NBBO changes.\40\ This logic also applies to displayed 
orders that are priced outside of the LULD Bands. Based on a user's 
instructions, MEMX or PEARL will cancel an order priced outside of the 
LULD bands, re-price the displayed order up to two times and cancel the 
order if a third re-pricing is required by changes in the NBBO (if the 
order does not have a ``multiple price sliding'' instruction), or 
continue to adjust the order's price.\41\
---------------------------------------------------------------------------

    \38\ See MEMX Rule 11.6(j)(A)(i) and PEARL Rule 2614(g)(1)(C).
    \39\ See supra note 38.
    \40\ See supra note 38.
    \41\ See MEMX Rule 11.16(e)(5)(B) and PEARL Rule 2622(e).
---------------------------------------------------------------------------

    Further, IEX and other exchanges permit entry of a non-displayed 
order with a minimum quantity instruction to cancel remaining, which 
means a partial execution will result in the order being canceled if 
the number of shares remaining do not satisfy the order's minimum 
quantity requirement.\42\
---------------------------------------------------------------------------

    \42\ See,  e.g., IEX Rule 11.190(b)(11)(G)(i); see also MEMX 
Rule 11.6(f); PEARL Rule 2614(c)(7).
---------------------------------------------------------------------------

    Additionally, some exchange order types allow a user to submit an 
order with specific instructions about how much the order's price can 
be adjusted to match with contra-side interest. For example, Cboe BZX 
Exchange, Inc. (``BZX'') has a discretionary order type that is a 
displayed or non-displayed limit order with a user submitted 
``discretionary price,'' which is a non-displayed offset amount at 
which the user is willing to buy or sell.\43\ The aggressiveness of the 
user-selected discretionary price will impact the likelihood that a 
discretionary order will execute. Similarly, Cboe EDGX Exchange Inc. 
(``EDGX'') offers a midpoint discretionary order (``MDO'') with 
optional quote depletion protection (``QDP'').\44\ A MDO behaves like 
IEX's Discretionary Peg order type \45\ in that the order is usually 
able to exercise discretion up to the Midpoint Price.\46\ However, EDGX 
users may submit their MDO orders with the optional QDP instruction, 
which will prevent the MDO from exercising any discretion for a period 
of two milliseconds after the best bid (offer) displayed on EDGX's 
order book is executed for less than one round lot.\47\ Therefore, the 
EDGX user submitting the MDO order can instruct the exchange to not let 
the order execute at more aggressive prices under specific market 
conditions unknown to the user at the time the order was submitted.
---------------------------------------------------------------------------

    \43\ See BZX Rule 11.9(c)(10).
    \44\ See EDGX Rule 11.8(g).
    \45\ See IEX Rule 11.190(b)(10).
    \46\ See IEX Rule 1.160(t).
    \47\ See EDGX Rule 11.8(g)(10). By contrast an IEX Discretionary 
Peg order will never exercise discretion during a period of quote 
instability as defined in IEX Rule 11.190(b)(10)(K).
---------------------------------------------------------------------------

    Finally, pegged orders such as Midpoint Peg \48\ and Primary Peg 
\49\ orders, which peg to the Midpoint Price \50\ and one MPV less 
aggressive than the NBB (NBO) for buy (sell) orders, respectively, are 
examples of an IEX User instructing the Exchange to re-price orders in 
response to future changes in the NBBO. IEX believes that the proposed 
optional re-pricing functionality is analogous because, as with pegging 
orders, the re-pricing is to the best bid or best offer. And IEX notes 
that several other exchanges have displayed order types that are pegged 
to the NBBO and thus subject to price adjustments as the NBBO 
changes.\51\
---------------------------------------------------------------------------

    \48\ See IEX Rule 11.190(b)(9).
    \49\ See IEX Rule 11.190(b)(8).
    \50\ See IEX Rule 1.160(t).
    \51\ See, e.g., Cboe EDGA, Inc. Equity (``EDGA'') Rule 11.8(e) 
and the Nasdaq Stock Market LLC (``Nasdaq'') Rule 4703(g).
---------------------------------------------------------------------------

    IEX believes that these examples described above demonstrate there 
is precedent for exchanges providing an ability for market participants 
to enter orders with a forward-looking instruction whereby the exchange 
will re-price or cancel an order in the future, under specified 
circumstances. IEX further believes that the proposed rule change is 
consistent with these exchanges' rule-based practices. As proposed, an 
IEX Member would simply be able to optionally instruct the Exchange to 
re-price or cancel a D-Limit order under specified circumstances.
    Accordingly, based on the forgoing, the Exchange does not believe 
that the proposed rule change raises any novel issues not already 
considered by the Commission.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not 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 further enhancing IEX's D-Limit order type functionality. 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 including an optional 
instruction to either cancel or re-price a D-Limit order that has been 
price adjusted during a period of quote instability, if 10 milliseconds 
after the most recent quote instability determination that resulted in 
a price adjustment, the order is priced less aggressively than the NBB 
(NBO) for buy (sell) orders. By giving more opportunities to Members to 
make their D-Limit orders more competitive (if not canceled) after a 
period of quote instability ends, IEX believes this proposal will 
enhance opportunities for price discovery and increase the overall 
displayed (and non-displayed) liquidity profile on the Exchange, to the 
benefit of all market participants.
    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 include the optional cancel or re-price 
instruction on any or all of their D-Limit 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 D-Limit orders attributable to the ability to enter 
such orders with optional cancellation or re-pricing instructions.

[[Page 72527]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days of such 
date (i) as the Commission may designate if it finds such longer period 
to be appropriate and publishes its reasons for so finding or (ii) as 
to which the Exchange consents, the Commission shall: (a) by order 
approve or disapprove such proposed rule change, or (b) institute 
proceedings to determine whether the proposed rule change should be 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-IEX-2022-10 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-2022-10. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal offices of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-IEX-2022-10, and should be submitted on 
or before December 16, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\52\
---------------------------------------------------------------------------

    \52\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-25663 Filed 11-23-22; 8:45 am]
BILLING CODE P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.