Notice2021-25753
Self-Regulatory Organizations: Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the Definition of a Retail Order for the 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
November 26, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 86 Issue 225 (Friday, November 26, 2021)</title>
</head>
<body><pre>
[Federal Register Volume 86, Number 225 (Friday, November 26, 2021)]
[Notices]
[Pages 67568-67571]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-25753]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93627; File No. SR-IEX-2021-16]
Self-Regulatory Organizations: Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Modify
the Definition of a Retail Order for the Retail Price Improvement
Program
November 19, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 12, 2021, 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, 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 modify the definition of a Retail
order set forth in IEX Rule 11.190(b)(15) to encourage the submission
of more Retail orders. The Exchange has designated this rule change as
``non-controversial'' under Section 19(b)(3)(A) of the Act \5\ and
provided the Commission with the notice required by Rule 19b-4(f)(6)
thereunder.\6\
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78s(b)(1).
\4\ 17 CFR 240.19b-4.
\5\ 15 U.S.C. 78s(b)(3)(A).
\6\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
The text of the proposed rule change is available at the Exchange's
website at <a href="http://www.iextrading.com">www.iextrading.com</a>, at the principal office of the Exchange,
and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statement 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 Exchange proposes to modify the definition of a Retail order
\7\ set forth in IEX Rule 11.190(b)(15) for the benefit of retail
investors. Specifically, IEX is proposing to revert a recent change to
IEX Rule 11.190(b)(15), so that Retail orders can once again be
submitted on behalf of all retail customers without the requirements
that the retail customer submits no more than 390 orders per day on
average (the ``390-order threshold''). The Exchange proposes to make
this change to offer the benefits of IEX's Retail Price Improvement
Program (``Retail Program'') to as many retail investors as possible.
---------------------------------------------------------------------------
\7\ See IEX Rule 11.190(b)(15).
---------------------------------------------------------------------------
Background
In 2019 the Commission approved the Retail Program,\8\ which is
designed to provide retail investors with meaningful price improvement
opportunities through trading at the Midpoint Price \9\ or better.\10\
The Exchange launched the Retail Program on October 1, 2019.\11\
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 86619 (August 9,
2019), 84 FR 41769 (August 15, 2019) (SR-IEX-2019-05) (SEC order
approving IEX's Retail Program).
\9\ The term ``Midpoint Price'' means the midpoint of the NBBO.
See IEX Rule 1.160(t). The term ``NBBO'' means the national best bid
or offer, as set forth in Rule 600(b) of Regulation NMS under the
Act, determined as set forth in IEX Rule 11.410(b).
\10\ On March 1, 2021, IEX filed an immediately effective rule
change proposal to provide that, in addition to executing at the
Midpoint Price, a Retail order can execute against a displayed
unprotected odd lot order that is resting on the Order Book at a
price more aggressive than the Midpoint Price (i.e., above the
Midpoint Price in the case of an odd lot buy order and below the
Midpoint Price in the case of an odd lot sell order). Executing
against such an odd lot order thus provides more price improvement
to the Retail order than executing at the Midpoint Price. See
Securities Exchange Act Release No. 91324 (March 15, 2021), 86 FR
15015 (March 19, 2021) (SR-IEX-2021-03).
\11\ See Trading Alert #2019-026, available at <a href="https://iextrading.com/alerts/#/82">https://iextrading.com/alerts/#/82</a>.
---------------------------------------------------------------------------
Under IEX's Retail Program, Members \12\ that qualify as Retail
Member Organizations (``RMOs'') \13\ are eligible to submit Retail
orders \14\ to the Exchange. Any Member is able to provide price
improvement to Retail orders through orders priced to execute at the
Midpoint Price or better, including Retail Liquidity Provider (``RLP'')
orders \15\ that are only eligible to execute against a Retail order at
the Midpoint Price and execute in price-time priority with other orders
resting on the Order Book priced to trade at the Midpoint Price.
---------------------------------------------------------------------------
\12\ See IEX Rule 1.160(s).
\13\ See IEX Rule 11.232(a)(1).
\14\ A Retail order is currently defined as an order submitted
by an RMO and designated with a ``Retail order'' modifier. A Retail
order must be an agency order, or riskless principal order that
satisfies the criteria of FINRA Rule 5320.03, and must reflect
trading interest of a natural person with no change made to the
terms of the underlying order of the natural person with respect to
price (except in the case of a market order that is changed to a
marketable limit order) or side of market and that does not
originate from a trading algorithm or any other computerized
methodology (a ``retail customer''). An order from a retail customer
can include orders submitted on behalf of accounts that are held in
a corporate legal form that have been established for the benefit of
an individual or group of related family members, provided that the
order is submitted by an individual. A Retail order 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). See IEX Rule 11.190(b)(15).
\15\ See IEX Rule 11.190(b)(14).
---------------------------------------------------------------------------
On July 13, 2021, the Commission approved an IEX rule change
proposal that revised its Retail Program (the ``Retail Program Update
Filing'').\16\ The Retail Program Update Filing was designed to further
support and enhance the ability of non-professional retail investors to
obtain meaningful price improvement by incentivizing market
participants to compete to provide such price improvement.\17\
Specifically, the
[[Page 67569]]
Retail Program Update Filing contained the following four enhancements
to the Retail Program: (i) Revised the definition of Retail order in
IEX Rule 11.190(b)(15) to apply only to the trading interest of a
natural person that does not place more than 390 equity orders per day
on average during a calendar month for its own beneficial account(s);
(ii) modified RLP orders from Discretionary Peg \18\ to midpoint peg
\19\ orders; (iii) modified RLP order priority so that they execute in
time priority with other orders priced to trade at the Midpoint Price;
and (iv) introduced a ``Retail Liquidity Identifier'' that is
disseminated through the Exchange's proprietary market data feeds and
the appropriate securities information processor when RLP order
interest aggregated to form at least one round lot for a particular
security is available in the System,\20\ provided that the RLP order
interest is resting at the Midpoint Price and is priced at least $0.001
better than the NBB \21\ or NBO.\22\
---------------------------------------------------------------------------
\16\ See Securities Exchange Act Release No. 92398 (July 13,
2021), 86 FR 38166 (July 19, 2021) (approving SR-IEX-2021-06).
\17\ See supra note 17.
\18\ See IEX Rule 11.190(b)(10).
\19\ See IEX Rule 11.190(b)(9).
\20\ See IEX Rule 1.160(nn).
\21\ See IEX Rule 1.160(u).
\22\ See IEX Rule 1.160(u).
---------------------------------------------------------------------------
IEX implemented the Retail Program Update Filing on October 13,
2021.\23\ Subsequently, and notwithstanding prior informal feedback
from Members and market participants, IEX became aware that several
existing and potential RMOs have not implemented a counting methodology
to determine the number of equities orders submitted by each of their
retail customers, as well as by the customers of broker-dealers that
route Retail orders through the RMO. As a result, such RMOs cannot
submit Retail orders to IEX because they are unable to reasonably
assure that such orders would be in compliance with the recent changes
to IEX Rule 11.190(b)(15) which specifies that Retail orders may only
be submitted on behalf of a natural person who submits no more than 390
equity orders per day on average during a calendar month for its own
beneficial account(s). Thus, while the 390-order threshold was intended
to limit the use of Retail orders to retail investors who do not appear
to be engaged in trading activity akin to that of a professional, it
has had the unintended consequence of limiting the number of actual
retail customers who are able to obtain the beneficial execution
opportunities offered by the Exchange's Retail Program. As discussed
more fully below, no other equities exchanges restrict retail orders in
the same manner as IEX, and IEX believes that this factor may impact
the willingness of Members representing retail orders to devote
technology resources to implementing a counting methodology.
---------------------------------------------------------------------------
\23\ See Trading Alert # 2021-036, available at <a href="https://iextrading.com/alerts/#/169">https://iextrading.com/alerts/#/169</a>.
---------------------------------------------------------------------------
Accordingly, IEX proposes to revert the recent changes to the
definition of a Retail order that limits Retail orders to customers who
place no more than 390 equity orders per day on average during a
calendar month for their own beneficial account(s). Thus, IEX proposes
to delete the last sentence in IEX Rule 11.190(b)(15) which imposes the
390-order threshold, as well as Supplementary Materials .01 and .02
appended thereto that specify how RMOs should count orders for purposes
of determining if a retail customer has placed no more than 390 orders
per day and establish new compliance requirements for the RMOs with
respect to the 390-order threshold.
IEX notes that no other exchange with a retail price improvement
program restricts retail orders based upon the volume of trading of the
retail customer, and that the proposed changes to IEX Rule
11.190(b)(15) will make it substantially similar to those exchanges'
definitions of a retail order.\24\ As noted in the Retail Program
Update Filing, the 390-order threshold is also used by Cboe EDGX
Exchange, Inc. (``EDGX'') with respect to its equity market, but EDGX
only uses the 390-order threshold to delineate retail priority orders
that receive execution priority over most other orders resting on its
order book.\25\ EDGX continues to allow its RMOs to submit regular
priority retail orders for retail customers without any assurance that
the retail customer submits no more than 390 orders per day on
average.\26\
---------------------------------------------------------------------------
\24\ See Cboe BYX Exchange, Inc. (``Cboe BYX'') Rule
11.24(a)(2); Nasdaq BX, Inc. (``Nasdaq BX'') Rule 4702(b)(6)(A); New
York Stock Exchange LLC (``NYSE'') Rule 7.44(a)(3); NYSE Arca, Inc.
(``NYSE Arca'') Rule 7.44-E(a)(3).
\25\ See EDGX Rule 11.9 Interpretations and Policies .01 and
.02. EDGX does not have a retail price improvement program, but does
offer both retail orders and retail priority orders.
\26\ See EDGX Rule 11.21(a)(2).
---------------------------------------------------------------------------
Furthermore, IEX notes that nothing in this proposed rule change
will modify the pre-existing compliance obligations of RMOs to assure
they are only submitting Retail orders on behalf of actual retail
customers.\27\ IEX believes these ongoing compliance obligations of
RMOs will continue to assure that they only submit Retail orders to the
Exchange that represent the trading interest of natural persons.
---------------------------------------------------------------------------
\27\ See IEX Rule 11.232(b)(6).
---------------------------------------------------------------------------
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\28\ in general, and furthers the objectives of Section
6(b)(5),\29\ 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.
---------------------------------------------------------------------------
\28\ 15 U.S.C. 78f(b).
\29\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission has consistently emphasized that the U.S. capital
markets should be structured with the interests of retail investors in
mind \30\ and the proposed change to the Retail Program is explicitly
designed with that goal in mind. Specifically, reversing the recent
change to the definition of Retail orders at IEX is designed to benefit
retail investors by providing enhanced opportunities for as many retail
investors as possible to obtain meaningful price improvement. IEX
believes that encouraging the submission of more Retail orders to the
Exchange should attract increased contra-side liquidity seeking to
trade against and provide meaningful price improvement to such Retail
orders.
---------------------------------------------------------------------------
\30\ See U.S. Securities and Exchange Commission, Strategic
Plan, Fiscal Years 2018-2022, available at <a href="https://www.sec.gov/files/SEC_Strategic_Plan_FY18-FY22_FINAL_0.pdf">https://www.sec.gov/files/SEC_Strategic_Plan_FY18-FY22_FINAL_0.pdf</a>.
---------------------------------------------------------------------------
Additionally, the Exchange believes that the proposed rule change
is consistent with the protection of investors because, as described in
the Purpose section, it will align its definition of Retail orders with
that of all other exchanges that offer a retail price improvement
program, thereby reducing potential confusion to market participants
and increasing the ability of all market participants to participate in
IEX's Retail Program as well as those of its competitors.
The Exchange also believes that the proposed rule change is
consistent with the protection of investors because it is designed to
increase competition among execution venues by enhancing IEX's Retail
Program which offers the potential for meaningful price improvement to
orders of retail investors, including through incentivizing market
participants to provide additional liquidity to execute against the
orders of retail investors.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose
[[Page 67570]]
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. To the contrary, IEX believes
that the proposed enhancements to our Retail Program would continue to
enhance competition and execution quality for retail customers.
The Exchange does not believe that the proposed rule change will
impose any burden on intermarket competition since competing venues
have and can continue to adopt similar retail programs, subject to the
SEC rule change process. The Exchange operates in a highly competitive
market in which market participants can easily direct their orders to
competing venues, including off-exchange venues.
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. While orders
submitted by RMOs will be treated differently than orders submitted by
other Members, as described in the Purpose section, those differences
are not based on the type of Member entering orders but on whether the
order is for a retail customer, and there is no restriction on whether
a Member can handle retail customer orders. Further, any Member can
enter an RLP order.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \31\ and Rule 19b-4(f)(6) thereunder.\32\
Because the proposed rule change does not: (i) significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \33\ and Rule 19b-
4(f)(6) thereunder.\34\
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78s(b)(3)(A)(iii).
\32\ 17 CFR 240.19b-4(f)(6).
\33\ 15 U.S.C. 78s(b)(3)(A).
\34\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change, along with a
brief description and text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) \35\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\36\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become operative immediately. As explained above, the
Exchange believes that this proposal will allow a greater pool of
retail investors that were once able to participate in IEX's Retail
Program to again obtain the price improvement benefits thereunder. IEX
also states that allowing RMOs to begin submitting a greater pool of
Retail orders upon effectiveness of this rule change will benefit
retail investors who may be able to obtain meaningful price improvement
opportunities through IEX's Retail program. The Commission believes
that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest because the change is
intended to offer immediate benefit to retail investors by expanding
the pool of RMOs eligible to partake in IEX's Retail Program and thus,
allow additional retail orders to benefit from price improvement
opportunities. Further, by reverting to the previously-approved
definition of Retail order, the proposal does not raise any new or
novel issues. For these reasons, the Commission hereby waives the 30-
day operative delay and designates the proposal operative upon
filing.\37\
---------------------------------------------------------------------------
\35\ 17 CFR 240.19b-4(f)(6).
\36\ 17 CFR 240.19b-4(f)(6)(iii).
\37\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<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#4133342d246c222e2c2c242f3532013224226f262e37"><span class="__cf_email__" data-cfemail="a0d2d5ccc58dc3cfcdcdc5ced4d3e0d3c5c38ec7cfd6">[email protected]</span></a>. Please include
File Number SR-IEX-2021-16 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-2021-16. 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 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-2021-16, and should be submitted on
or before December 17, 2021.
[[Page 67571]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
---------------------------------------------------------------------------
\38\ 17 CFR 200.30-3(a)(12), (59).
---------------------------------------------------------------------------
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25753 Filed 11-24-21; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on November 26, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.