Notice2021-15199
Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To Revise the Definitions of Retail Orders and Retail Liquidity Provider Orders and Disseminate a Retail Liquidity Identifier Under the IEX Retail Price Improvement Program
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 19, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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[Federal Register Volume 86, Number 135 (Monday, July 19, 2021)]
[Notices]
[Pages 38166-38171]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-15199]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92398; File No. SR-IEX-2021-06]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, To Revise the
Definitions of Retail Orders and Retail Liquidity Provider Orders and
Disseminate a Retail Liquidity Identifier Under the IEX Retail Price
Improvement Program
July 13, 2021.
I. Introduction
On April 1, 2021, the Investors Exchange LLC (``IEX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to enhance its Retail Price
Improvement Program for the benefit of retail investors. The proposed
rule change was published for comment in the Federal Register on April
15, 2021.\3\ On May 26, 2021, pursuant to Section 19(b)(2) of the
Act,\4\
[[Page 38167]]
the Commission designated a longer period within which to either
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to disapprove the
proposed rule change.\5\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 91523 (April 9,
2021), 86 FR 19912 (April 15, 2021) (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 92029 (May 26,
2021), 86 FR 29608 (June 2, 2021).
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The Commission received two comment letters regarding the proposed
rule change, and one response to comments from the Exchange.\6\ On July
2, 2021, the Exchange filed Amendment No. 1 to the proposed rule
change.\7\ The Commission is publishing this notice to solicit comments
on Amendment No. 1 from interested persons, and issuing this order
approving the proposed rule change, as modified by Amendment No. 1, on
an accelerated basis.
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\6\ Comments received on the proposal are available on the
Commission's website at: <a href="https://www.sec.gov/comments/sr-iex-2021-06/sriex202106.htm">https://www.sec.gov/comments/sr-iex-2021-06/sriex202106.htm</a>.
\7\ In Amendment No. 1, the Exchange proposes to modify the
proposal to rank RLP orders (as defined below) in time priority with
non-displayed orders priced to execute at the Midpoint Price (as
defined below), rather than ahead of such orders as originally
proposed. The full text of Amendment No. 1 is available on the
Commission's website at: <a href="https://www.sec.gov/comments/sr-iex-2021-06/sriex202106-9041946-246227.pdf">https://www.sec.gov/comments/sr-iex-2021-06/sriex202106-9041946-246227.pdf</a>.
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II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1
The Exchange proposes several changes to its Retail Price
Improvement Program (the ``Program'').\8\ Under the Program, IEX
members that qualify as Retail Member Organizations (``RMOs'') are
eligible to submit certain agency or riskless principal orders that
reflect the trading interest of a natural person with a ``Retail
order'' modifier. Retail orders are only eligible to execute at the
midpoint price of the national best bid and national best offer
(``Midpoint Price'') or better. Any IEX member is able to provide price
improvement to Retail orders by submitting contra-side orders priced to
execute at the Midpoint Price or better, including Retail Liquidity
Provider (``RLP'') orders that are only eligible to execute against a
Retail order at the Midpoint Price.
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\8\ See Securities Exchange Act Release No. 86619 (August 9,
2019), 84 FR 41769 (August 15, 2019) (SR-IEX-2019-05) (order
approving the IEX Retail Price Improvement Program).
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Retail Order Definition
First, the Exchange proposes to revise the definition of ``Retail
order'' in IEX Rule 11.190(b)(15) such that Retail orders may only be
submitted on behalf of a retail customer that does not place more than
390 equity orders per day on average during a calendar month for its
own beneficial account(s) (the ``390-Order Limit'').\9\ Currently,
``Retail orders'' under the Exchange's Program must reflect the trading
interest of a natural person and meet other requirements, but they are
not classified based on a per-day order threshold. The Exchange's
proposal also specifies the counting methodology \10\ and supervisory
requirements \11\ to determine whether a retail customer has reached
the 390-Order Limit.
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\9\ See also proposed IEX Rule 11.190(b)(15), Supplementary
Material .01 (further defining ``Retail order'').
\10\ Under the proposal, certain ``parent'' orders that are
broken into multiple ``child'' orders will count as one order even
if the ``child'' orders are routed across multiple exchanges; with
certain exceptions, any order that cancels and replaces an existing
order will count as a separate order. See proposed IEX Rule
11.190(b)(15), Supplementary Material .01.
\11\ Under the proposal, RMOs (as defined in IEX Rule 11.232)
would be required to have reasonable policies and procedures in
place to ensure that Retail orders are appropriately represented on
the Exchange. Such policies and procedures would need to provide for
a review of retail customers' activity on at least a quarterly
basis. Orders from any retail customer that exceeded an average of
390 equity orders per day during any month of a calendar quarter may
not be entered as ``Retail orders'' for the next calendar quarter.
RMOs would be required to conduct a quarterly review and make any
appropriate changes to the way in which they are representing orders
within five business days after the end of each calendar quarter.
While RMOs would only be required to review their accounts on a
quarterly basis, if during a quarter the Exchange identifies a
retail customer for which orders are being represented as Retail
orders but that has averaged more than 390 equity orders per day
during a month, the Exchange will notify the RMO, and the RMO will
be required to change the manner in which it is representing the
retail customer's orders within five business days. See proposed IEX
Rule 11.190(b)(15), Supplementary Material .02.
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Retail Liquidity Identifier
Next, the Exchange proposes to disseminate a ``Retail Liquidity
Identifier'' to inform RMOs of the presence of RLP trading interest on
the Exchange in order to incentivize RMOs to send Retail orders to the
Exchange.\12\ Specifically, the Exchange proposes new IEX Rule
11.232(f) to disseminate a Retail Liquidity Identifier through the
Exchange's proprietary market data feeds and the appropriate securities
information processor (``SIP'') when resting available RLP order
interest aggregates to form at least one round lot for a particular
security,\13\ provided that the RLP order interest is resting at the
Midpoint Price \14\ and is priced at least $0.001 better \15\ than the
national best bid or national best offer. The Retail Liquidity
Identifier will reflect the symbol and the side (buy or sell) of the
RLP order interest, but will not include the price or size.\16\
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\12\ See Notice, supra note 3, at 19914.
\13\ The Exchange believes the one round lot requirement is
appropriate in order to limit dissemination to when there is a
material amount of RLP order interest available. See id. at 19915.
\14\ The Exchange notes that an RLP order could have a limit
price less aggressive than the Midpoint Price, in which case it
would not be eligible to trade with an incoming Retail order. Such
RLP orders would not be included in the Retail Liquidity Identifier
dissemination. See id.
\15\ The Exchange notes that, because the RLP orders will be
resting at the Midpoint Price, IEX's Retail Liquidity Identifier
will reflect at least $0.005 of price improvement for any orders
priced at or above $1.00 per share, unless the national best bid or
offer is locked or crossed. See id.
\16\ The Exchange notes that, while an explicit price will not
be disseminated, because RLP orders are only eligible to trade at
the Midpoint Price, dissemination will thus reflect the availability
of price improvement at the Midpoint Price. See id. at 19914-15.
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RLP Order Definition
In conjunction with the proposed Retail Liquidity Identifier, the
Exchange proposes to revise the definition of ``RLP order'' in IEX Rule
11.190(b)(14) so that such orders can only be midpoint peg orders (as
defined in IEX Rule 11.190(b)(9)) and cannot include a minimum quantity
restriction. Currently, an RLP order is a discretionary peg order (as
defined in IEX Rule 11.190(b)(10)). The Exchange believes that
continuing to have RLP orders be discretionary peg orders would
unnecessarily complicate the Retail Liquidity Identifier because, under
the Exchange's rules, discretionary peg orders do not explicitly post
to the Exchange's order book (``Order Book'') at the Midpoint
Price.\17\ The Exchange further notes that permitting an RLP order to
include a minimum quantity restriction would reduce the determinism of
the order's availability to trade at the Midpoint Price; the Exchange
believes that prohibiting quantity restrictions will increase execution
rates for Retail orders.\18\
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\17\ See id. at 19915.
\18\ See id.
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RLP Order Priority
As originally proposed, the revised RLP orders would have been
given Order Book priority over non-displayed orders priced to execute
at the Midpoint Price.\19\ However, in Amendment No. 1, the Exchange
revised its proposal so that the Exchange's regular priority rules
(i.e., price/time) would apply equally to RLP orders and non-RLP orders
at the midpoint, thus eliminating the originally proposed Order Book
priority for RLP orders. Accordingly, under the revised proposal set
forth in Amendment No. 1, RLP orders resting at the Midpoint Price will
be ranked against resting non-displayed orders priced to execute at the
Midpoint Price
[[Page 38168]]
based on time priority since all such prices will be at the Midpoint
Price.\20\
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\19\ See id. at 19914.
\20\ See supra note 7.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\21\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\22\ which
requires, among other things, that the rules of a national securities
exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest, and not be designed to permit unfair discrimination
between customers, issuers, brokers or dealers; and with Section
6(b)(8) of the Act,\23\ which requires that the rules of a national
securities exchange not impose any burden on competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
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\21\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\22\ 15 U.S.C. 78f(b)(5).
\23\ 15 U.S.C. 78f(b)(8).
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Retail Order Definition
First, the Exchange proposes to amend the definition of Retail
order by adopting the 390-Order Limit and setting forth criteria to
determine when this limit is reached and how it is enforced. The
Exchange notes that one other equities exchange, Cboe EDGX Exchange,
Inc. (``EDGX''), uses the same 390 orders-per-day average in its retail
liquidity program to delineate EDGX Retail Priority Orders, and applies
a counting methodology and supervisory requirements that are
substantially similar to those being proposed by IEX.\24\ The Exchange
believes that the 390-Order Limit is reasonable and not overly
restrictive because it contemplates active trading, while not reaching
a level to indicate one is a professional trader.\25\ The Exchange
further believes that limiting the types of investors on whose behalf
Retail orders can be submitted to those who are less likely to be
professional market participants, will expand the pool of market
participants willing to provide contra-side liquidity because of the
Retail orders' non-professional characteristics, thereby increasing
price improvement opportunities for Retail orders at midpoint
prices.\26\
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\24\ See Notice, supra note 3, at 19914.
\25\ See id.
\26\ See id.
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The Commission received two letters from one commenter, both of
which focus on the 390-Order Limit,\27\ and the Exchange submitted a
single response to both letters.\28\ The commenter expresses concern
with the 390-Order Limit based on his experience with the use of
``professional'' customer rules in the options market. Specifically,
the commenter states that, in the present-day options market, there is
low likelihood that customer origin code orders enjoy a meaningful
priority advantage over market makers, and the 390-order threshold
effectively limits competition between non-professional liquidity
providers and market makers.\29\ The commenter suggests that the
``professional'' customer designation in the options market has over
time created a ``two-tiered'' market that benefits market makers and
limits how many orders a ``secondary'' liquidity provider will be
willing to display (before they trip the ``professional'' customer
threshold), and thus detracts from the incentive for market makers to
display their best price, which leads to wider bid/ask spreads for
options.\30\ In addition, the commenter believes that the
``professional'' customer designation in options limits the probability
of customer-to-customer trades, especially when accounting for the
likelihood of make vs. take orders posting on different exchanges
because of differing fee and rebate incentives.\31\ The commenter
further states that applying a 390-order threshold to equities, as IEX
proposes to do for its Program, would cater to preferred members by
giving them a more attractive pool of order flow to trade against, and
will provide a ``short lived'' benefit of better prices to retail
customers.\32\ The commenter is critical of payment for order flow and
the small amount of price improvement it often provides to customers,
and recommends that the quality of an execution should be based on all
liquidity in the market (including hidden liquidity) and not just
displayed liquidity that can be negatively impacted by competitive
dynamics.\33\ Further, the commenter is critical of the ambiguity
inherent in the application of the 390-order threshold across broker-
dealers in the options market, and believes similar interpretive
questions could be present in the equities context.\34\
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\27\ See letters to Vanessa Countryman, Secretary, Commission,
from Mike Ianni, dated May 5, 2021 (``Ianni Letter 1'') and May 30,
2021 (``Ianni Letter 2'').
\28\ See letter to Vanessa Countryman, Secretary, Commission,
from Claudia Crowley, Chief Regulatory Officer, IEX, dated June 29,
2021 (``IEX Response'').
\29\ See Ianni Letter 1, supra note 27, at 2-3; and Ianni Letter
2, supra note 27, at 2.
\30\ See Ianni Letter 1, supra note 27, at 4; and Ianni Letter
2, supra note 27, at 4 and 7-8.
\31\ See Ianni Letter 2, supra note 27, at 2.
\32\ See Ianni Letter 1, supra note 27, at 3.
\33\ See id.
\34\ See Ianni Letter 2, supra note 27, at 6.
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In its response letter, IEX states its belief that the commenter's
concerns about options market practices ``cannot be reasonably
extrapolated to the use of retail liquidity provider programs for
equity exchanges, or to IEX's Retail Program in particular.'' \35\ IEX
points out that the commenter focuses on the impact of the 390-order
threshold on options orders seeking to provide liquidity, but IEX
explains that the 390-Order Limit only applies to Retail orders under
the Program, which are never displayed and can only take resting
liquidity.\36\ Accordingly, Retail orders will never post to the Order
Book, will never be flagged as Retail orders in any market data, and do
not directly contribute to or impact IEX's bid/ask spread.\37\ Thus,
IEX argues that the commenter's concerns with the 390-Order Limit ``are
not at issue in our proposal.'' \38\
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\35\ See IEX Response, supra note 28, at 3.
\36\ See id. at 4.
\37\ See id. at 4-5.
\38\ See id. at 4.
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Further in response to the commenter's concerns about how the 390-
order threshold in options can harm non-professionals who limit their
trading to avoid crossing the threshold, the Exchange argues that the
market for retail order flow is already ``two-tiered'' in that the
preponderance of retail orders are executed on non-exchange venues, and
that this proposal seeks to enhance IEX's ability to compete for retail
order flow while providing meaningful price improvement to retail
customers.\39\
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\39\ See id. at 5-6. The Exchange also points to existing
precedent for applying the 390-Order Limit to an equity exchange.
See id. at 5 (citing Securities Exchange Act Release No. 87200
(October 2, 2019), 84 FR 53788 (October 8, 2019) (SR-CboeEDGX-2019-
012)).
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The Commission believes that the commenter raises concerns that
merit further consideration about the application of a 390-order
threshold for ``professional'' customer status in the options market,
particularly as that market has continued to evolve since those
designations were first introduced. In the options market,
[[Page 38169]]
particularly those that offer to the ``customer'' origin code the
highest priority (including over market makers) and often low or no
fees, there can potentially be a meaningful difference between being
classified as a ``customer'' or a ``professional'' customer, as the
latter is typically subject to the same priority and fee levels as
other broker-dealers, including those with the most sophisticated and
costly trading resources. Thus, in the options market, crossing the
390-order threshold and being labeled as a ``professional'' customer
can potentially matter to some frequent traders.
However, IEX is not proposing to use the 390-Order Limit to
classify order origin codes into ``customer'' and ``professional''
customer for general trading purposes. IEX is not creating a new class
of ``professional'' customer for the equities market. Rather, the 390-
Order Limit will only be used to classify certain orders seeking to
take liquidity in the exclusive context of IEX's Program. IEX's
proposal provides a bright-line test that broker-dealers can use to
ascertain whether orders they route to IEX under IEX's Program are
individual retail investor orders or are orders from market
participants that IEX believes trade with a frequency that is
uncharacteristic of a typical individual retail investor trading for
her personal investment account. Moreover, whether a retail investor
exceeds the 390-Order Limit or not, IEX's proposal will not change the
priority status or fees of any customer order outside of the Program.
Instead, the new threshold only further restricts what types of
incoming take orders can interact with a resting RLP order.\40\
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\40\ While RLP orders will only execute with incoming Retail
orders, an incoming Retail order can interact with any order (i.e.,
not just RLP orders) priced to execute at the Midpoint Price or
better.
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While the commenter acknowledges the potential for price
improvement for retail investors under IEX's proposal, the commenter
believes that any such benefits will be ``short lived,'' and that this
proposal opens up the possibilities for similar rules by other equity
exchanges that could have negative consequences to liquidity in the
equity market over the longer term, such as higher fees for
``professional'' customers.\41\ The Commission does not believe that
the proposal's benefits of providing midpoint prices (or better) to
retail investors under the Program will be short-lived because midpoint
prices can provide meaningful price improvement under different market
conditions.\42\ Further, because IEX's proposal is limited to
classifying incoming retail orders that remove liquidity for the narrow
purpose of its Program, it is not comparable to a broader
``professional'' customer rule as currently exists in the options
market.
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\41\ See Ianni Letter 1, supra note 27, at 3-4.
\42\ With respect to the commenter's statement that the quality
of a fill should be based on all liquidity available in the market
(including hidden liquidity) (see Ianni Letter 1, supra note 27, at
3), the Commission recently adopted rules to require that certain
displayable odd-lot orders be included in core consolidated market
data and thus reflected in the best bid and ask prices. See
Securities Exchange Act Release No. 90610 (December 9, 2020), 86 FR
18596 (April 9, 2021) (S7-03-20) at 18611-14.
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The commenter also points to what the commenter believes to be
competitive harm that the options market versions of a 390-order
threshold have caused. The commenter believes that some retail traders
in the options market may stop trading as they approach the 390-order
threshold, often after being warned by their retail broker that they
are approaching the threshold, so as to avoid losing ``regular''
customer status should they exceed that limit.\43\ The commenter also
cautions that a desire to limit trading to stay under the 390-order
threshold in the options market can limit the ability of traders to use
small orders to seek out the best hidden prices \44\ and can
potentially result in wider options spreads if secondary liquidity
providers do not compete to provide liquidity in order to limit their
trading to stay under the threshold.\45\ The Commission agrees with the
Exchange that it is difficult to definitely ascribe, without more
evidence, a causal link between the adoption of professional customer
status in the options markets with wider spreads.\46\ Nevertheless, the
proposal's 390-Order Limit should not constrain the ability or
willingness of liquidity providers to provide liquidity. First, any
liquidity-providing market participant can submit RLP orders and
exceeding 390 orders per day would have no effect on the participant's
ability to do so. Second, RLP orders are non-displayed orders that
yield priority to displayed orders, including displayable odd lot
orders at executable prices, and thus should not directly impact IEX's
bid/ask spreads.\47\ While a program that segments retail order flow
away from displayed exchange quotes could theoretically impact spreads
if it impacts the willingness of liquidity providers to display tighter
quotes, IEX correctly notes that much of the retail volume today
executes away from exchanges, and thus, IEX's proposal is appropriately
regarded as a way to compete to bring that flow back onto an exchange.
Third, while the proposed threshold could impact liquidity takers
(i.e., retail traders that exceed the 390-Order Limit) because they
would lose the ability to interact with resting RLP orders on IEX,
liquidity takers' orders could still be submitted to IEX or other
exchanges for potential midpoint executions (e.g., against midpoint peg
orders).
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\43\ See Ianni Letter 2, supra note 27, at 4. In both letters,
the commenter also provides analysis of problems within the options
market structure as it applies to giving retail customers priority.
See, e.g., Ianni Letter 1, supra note 27, at 1 (stating that ``there
is NO real customer `priority' advantage gained by retail options
customers because of the following: (1) More strikes and volatile
markets (2) Payment for order flow accounting for a majority of
customer orders (3) Market fragmentation (4) Price Improvement
rules''). The Commission appreciates the commenter taking time to
provide such an analysis. However, any such issues related to the
options market structure are outside the scope of this approval
order, and thus, cannot be addressed by the Commission herein.
\44\ See Ianni Letter 1, supra note 27, at 4 (``I will knowingly
pay a `likely' higher price for an option just to save on the number
of orders I send. I would argue that there is no such thing as `best
execution' for retail customers in the equity options market today
because of the 390-order rule. You are asking all investors to
sacrifice `best execution' over customer status.'')
\45\ See Ianni Letter 2, supra note 27, at 7.
\46\ See IEX Response, supra note 28, at 3-4.
\47\ Retail orders cannot affect the IEX bid-ask spread because
those orders neither display nor rest on the Order Book.
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Finally, citing to his experience in the options market, the
commenter believes that interpretation and enforcement of the 390-Order
Limit could be difficult because, for example, he has observed
ambiguity and inconsistency among broker-dealers in the options market
with respect to how orders should be counted towards the 390
threshold.\48\ IEX has represented that its regulatory program will be
enhanced for this proposal.\49\ The Commission believes that the
proposed threshold is clear and applies to an investor that places
``more than 390 equity orders per day on average during a calendar
month for its own beneficial account(s)''.\50\ To the extent that
market participants have interpretive questions, the Exchange should
address them and, if necessary, amend its rule to provide additional
clarity.
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\48\ See Ianni Letter 2, supra note 27, at 5.
\49\ See Notice, supra note 3, at 19916.
\50\ See proposed IEX Rule 11.190(b)(15) and Supplementary
Material .01 thereto.
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Accordingly, and based on the foregoing, the Commission finds that
the proposed changes to the Exchange's definition of Retail order,
including the proposed new 390-Order Limit, are consistent with the
Act.
[[Page 38170]]
Retail Liquidity Identifier and Revisions to RLP Orders
Next, the Exchange proposes to disseminate a Retail Liquidity
Identifier when RLP orders resting on the Order Book aggregate to form
at least one round lot, provided that the RLP order interest is resting
at the Midpoint Price and is priced at least $0.001 better than the
national best bid or national best offer. According to the Exchange,
the purpose of the Retail Liquidity Identifier is to provide relevant
market information to RMOs that there is some RLP trading interest at
the Midpoint Price on the Exchange, thereby incentivizing RMOs to send
Retail orders to IEX.\51\ In conjunction with its proposal to
disseminate the Retail Liquidity Identifier, the Exchange proposes to
amend the definition of RLP orders so such orders can only be midpoint
peg orders without a minimum quantity restriction. The Exchange
believes that disseminating a Retail Liquidity Identifier to indicate
RLP orders resting at the Midpoint Price would be unnecessarily
complicated if RLP orders were to continue to be discretionary peg
orders, because discretionary peg orders do not explicitly post to the
Order Book at the Midpoint Price.\52\ Likewise, the Exchange believes
that attaching a minimum quantity to an RLP order would hinder a market
participant's ability to determine the availability of trading interest
at the Midpoint Price, given that the interest would only be available
to counterparties able to meet the minimum quantities.\53\
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\51\ See Notice, supra note 3, at 19914.
\52\ See id. at 19915.
\53\ See id.
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As noted by the Exchange, similar retail liquidity identifiers are
currently disseminated by other exchanges that offer retail programs,
though other exchange programs typically allow the equivalent to RLP
orders to rest undisplayed at prices that improve the displayed quote
by subpenny increments.\54\ The Commission believes that IEX's Retail
Liquidity Identifier will serve a similar purpose as the identifiers
currently disseminated by other exchanges, as it will inform market
participants that have or control retail order flow about the
availability of price improvement opportunities for Retail orders. In
turn, market participants that have or control retail order flow would
normally be expected to use that information as they assess the best
prices available for the customer. Given the potential benefits to
individual investors and any increased likelihood that they may be able
to obtain midpoint executions, the Commission believes that the Retail
Liquidity Identifier is appropriately designed to remove impediments to
and perfect the mechanism of a free and open market and a national
market system.\55\
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\54\ See id.
\55\ In connection with this proposal, the Exchange states that
it plans to submit a letter requesting that the staff of the
Division of Trading and Markets not recommend any enforcement action
under Rule 602 of Regulation NMS (``Quote Rule'') based on the
Exchange's and its members' participation in the Program. See id. at
19914 n.39. In its filing, the Exchange asserts that the information
proposed to be contained in the Retail Liquidity Identifier does not
constitute a ``quote'' within the meaning of Regulation NMS because
it would not include a specific price or size of the interest. See
id. at 19914.
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Furthermore, the Commission finds that limiting RLP orders to be
midpoint peg orders without a minimum quantity option is an appropriate
compliment to the proposed Retail Liquidity Identifier. As explained
above, the Retail Liquidity Identifier is meant to notify RMOs that
there is Midpoint-Priced liquidity available on the Exchange. As such,
the Commission believes that requiring RLP orders to be midpoint peg
orders without the option to designate a minimum quantity condition
provides an increased chance of execution to incoming Retail orders and
makes the Retail Liquidity Identifier a more reliable indicator of
available midpoint liquidity.
Finally, as originally proposed, the revised RLP orders would have
been given Order Book priority over non-displayed orders priced to
execute at the Midpoint Price.\56\ However, in Amendment No. 1, the
Exchange revised its proposal so that the Exchange's regular priority
rules (i.e., price/time) would apply equally to RLP orders and such
non-displayed orders, thus eliminating the originally proposed Order
Book priority for RLP orders. IEX cites to precedent from at least one
other exchange's retail program providing that when a retail liquidity
providing order is at the same price as a non-displayed order, the
orders will be ranked together with time priority.\57\ The Commission
finds that IEX's revised proposal to not provide a priority advantage
to RLP orders over other non-displayed orders priced to execute at the
Midpoint Price is not unfairly discriminatory as it does not provide an
advantage to an order that will only interact with incoming Retail
orders (i.e., RLP orders) over orders that are not so restricted (e.g.,
midpoint peg orders). Treating both in time priority and allowing
incoming Retail orders to interact with either is designed to promote
just and equitable principles of trade and not impose an inappropriate
burden on competition.
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\56\ See Notice, supra note 3, at 19914.
\57\ See Amendment No. 1, supra note 7, at 8 (citing NYSE Arca
Rule 7.44-E(l)).
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For the foregoing reasons, the Commission believes that IEX's
proposed changes to its Program are consistent with the Act in that
they are reasonably designed to promote just and equitable principles
of trade, to remove impediments to and perfect the mechanism of a free
and open market and a national market system, and, in general, to
protect investors and the public interest, and are not designed to
permit unfair discrimination between customers, issuers, brokers or
dealers.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
to the proposed rule change is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#9ae8eff6ffb7f9f5f7f7fff4eee9dae9fff9b4fdf5ec"><span class="__cf_email__" data-cfemail="7604031a135b15191b1b131802053605131558111900">[email protected]</span></a>. Please include
File Number SR-IEX-2021-06 on the subject line.
Paper Comments
<bullet> 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-2021-06. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 this filing will also be available for inspection
and copying at the principal
[[Page 38171]]
office of the Exchange. All comments received will be posted without
change. Persons submitting comments are cautioned that we do not redact
or edit personal identifying information from comment submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-IEX-2021-06
and should be submitted on or before August 9, 2021.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the 30th day after the
date of publication of notice of Amendment No. 1 in the Federal
Register. Amendment No. 1 revises the original proposal by amending IEX
Rule 11.232(e)(3)(A) to provide that RLP orders now will be ranked in
time priority with non-displayed orders priced to execute at the
Midpoint Price, rather than ahead of such orders as was originally
proposed. Thus, at the priority level specified in IEX Rule
11.232(e)(3)(A)(iii), incoming Retail orders will execute against RLP
orders and non-displayed orders priced to trade at the Midpoint Price
in price/time priority.
In Amendment No. 1, the Exchange states that based on additional
analysis of the potential benefits and burdens of RLP orders and non-
displayed orders priced to trade at the Midpoint Price, it determined
that RLP orders should be ranked in time priority with such other
orders, consistent with the Exchange's regular price/time priority. The
Exchange states that the proposed priority change does not raise any
new or novel issues as it is consistent with the rules of other
exchanges' retail liquidity programs, including NYSE Arca, as noted
above.\58\
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\58\ See supra note 57 and accompanying text.
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The changes to the proposal do not raise any novel regulatory
issues, as they are consistent with the rules of other exchange retail
programs previously approved by the Commission. Further, the changes
assist the Commission in evaluating the Exchange's proposal and in
determining that it is consistent with the Act as discussed above.
Accordingly, the Commission finds good cause, pursuant to Section
19(b)(2) of the Act,\59\ to approve the proposed rule change, as
modified by Amendment No. 1, on an accelerated basis.
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\59\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\60\ that the proposed rule change (SR-IEX-2021-06), as
modified by Amendment No. 1, be, and hereby is, approved on an
accelerated basis.
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\60\ 15 U.S.C. 78s(b)(2).
\61\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\61\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15199 Filed 7-16-21; 8:45 am]
BILLING CODE 8011-01-P
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