81 FR 90035 - Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing of Proposed Rule Change to: (i) Amend Rules 11.190(a)(3) and 11.190(b)(8) To Modify the Operation of the Primary Peg Order Type; (ii) Amend Rule 11.190(h)(C)(ii) and (D)(ii) Regarding Price Sliding in Locked and Crossed Markets To Simplify the Price Sliding Process for Both Primary Peg Orders and Discretionary Peg Orders Resting on or Posting to the Order Book; and (iii) Make Minor Housekeeping Changes To Conform Certain Terminology
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 239 (December 13, 2016)
Federal Register Volume 81, Issue 239 (December 13, 2016)
| Page Range | 90035-90038 | |
| FR Document | 2016-29807 |
[Federal Register Volume 81, Number 239 (Tuesday, December 13, 2016)] [Notices] [Pages 90035-90038] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-29807] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79502; File No. SR-IEX-2016-18] Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing of Proposed Rule Change to: (i) Amend Rules 11.190(a)(3) and 11.190(b)(8) To Modify the Operation of the Primary Peg Order Type; (ii) Amend Rule 11.190(h)(C)(ii) and (D)(ii) Regarding Price Sliding in Locked and Crossed Markets To Simplify the Price Sliding Process for Both Primary Peg Orders and Discretionary Peg Orders Resting on or Posting to the Order Book; and (iii) Make Minor Housekeeping Changes To Conform Certain Terminology December 7, 2016. Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that, on November 29, 2016, the Investors Exchange LLC filed with the Securities and Exchange Commission the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the self- regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 15 U.S.C. 78a. \3\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change Pursuant to the provisions of Section 19(b)(1) under the Securities Exchange Act of 1934 (``Act''),\4\ and Rule 19b-4 thereunder,\5\ Investors Exchange LLC (``IEX'' or ``Exchange'') is filing with the Securities and Exchange Commission (``Commission'') proposed rule changes to (i) amend Rules 11.190(a)(3) and 11.190(b)(8) to modify the operation of the primary peg order type; (ii) amend Rule 11.190(h)(C)(ii) and (D)(ii) [sic] regarding price sliding in locked and crossed markets to simplify the price sliding process for both primary peg orders and Discretionary Peg orders resting on or posting to the Order Book; and (iii) make minor housekeeping changes to conform certain terminology. --------------------------------------------------------------------------- \4\ 15 U.S.C. 78s(b)(1). \5\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- The text of the proposed rule change is available at the Exchange's Web site 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 Background The purpose of the proposed rule change is to amend Rules 11.190(a)(3) and 11.190(b)(8) to modify the operation of the primary peg order type offered by the Exchange, and to amend Rule 11.190(h)(C)(ii) and (D)(ii) [sic] regarding price sliding in locked and crossed markets to simplify the price sliding process for both primary peg orders and Discretionary Peg orders resting on or posting to the Order Book. Currently, the Exchange offers three types of pegged orders-- primary peg, midpoint peg and discretionary peg--each of which are non- displayed orders that upon entry into the System and while resting on the Order Book, are pegged to a reference price based on the national best bid and offer (``NBBO'') and the price of the order is automatically adjusted by the System in response to changes in the NBBO. As set forth in Rule 11.190(b)(8), a primary peg order is a pegged order that upon entry and when posting to the Order Book, the price of the order is automatically adjusted by the System to be equal to and ranked at the less aggressive of the primary quote (i.e., the national best bid (``NBB'') for buy orders and the national best offer (``NBO'') for sell orders) or the order's limit price, if any. While resting on the Order Book, the order is automatically adjusted by the System in response to the changes in the NBB (NBO) for buy (sell) orders up (down) to the order's limit price, if any. In the event the NBBO becomes locked or crossed, primary peg orders, as well as Discretionary Peg orders, resting on or posting to the Order Book are priced to the less aggressive of either the prior non-locked or non-crossing near side quote (i.e., the prior unlocked [[Page 90036]] or uncrossed NBB (NBO) for buy (sell) orders), or one (1) MPV less aggressive than the locking or crossing price.\6\ --------------------------------------------------------------------------- \6\ See, Rule 11.190(h)(C)(ii) and (D)(ii) [sic]. --------------------------------------------------------------------------- Overview The Exchange proposes to modify the operation of the primary peg order type. The order type as revised is a non-displayed order designed to enable a Member (or customer thereof) to rest trading interest on the Order Book at a price inferior to the primary quote and remain available to execute against an incoming order seeking to cross the spread and execute at prices equal to or more aggressive (from the taker's perspective) than such quote, while avoiding adverse selection when the market appears to be moving against the resting primary peg order (i.e., moving lower in the case of a buy order or higher in the case of a sell order). As described more fully below, the primary peg order as proposed combines the offset feature of the Primary Pegged Order offered by BATS BZX Exchange, Inc (``BZX'') \7\ with the price improvement opportunities and protections offered by the Exchange's existing Discretionary Peg order.\8\ Specifically, the primary peg order as proposed offers Members an opportunity to rest one (1) MPV less aggressive than the primary quote (i.e., one (1) MPV below the NBB for buy orders or one (1) MPV above the NBO for sell orders) but remain eligible to exercise price discretion up (down) to the NBB (NBO) for buy (sell) orders, and is designed to protect such orders from unfavorable executions by preventing the exercise of such price discretion when the Exchange has determined that the market is moving against the order (i.e., a crumbling quote is detected). In addition, the Exchange proposes to simplify the price sliding process for both primary peg orders and Discretionary Peg orders resting on or posting to the Order Book so that such orders will slide to one MPV less aggressive than the locking or crossing price (i.e., higher for a sell order and lower for a buy order) rather than remaining at the prior non-locked or non-crossed price when such price is less aggressive. --------------------------------------------------------------------------- \7\ See BZX Rule 11.9(c)(8). \8\ See, Rule 11.190(b)(10). --------------------------------------------------------------------------- The Exchange notes that the primary peg order type has received modest usage by Members, and at the same time, the Exchange has observed that spread crossing interest entered on the Exchange is sometimes unable to find sufficient resting interest willing to trade at the far-side primary quote. The Exchange believes (based in part on informal discussions with liquidity providing Members) that the primary peg order type as revised, which is designed to prevent adverse selection in unstable market conditions, will incentivize passive resting liquidity priced to execute at the primary quote on the Exchange, and consequently may result in greater execution opportunities at the far side quote for Members entering spread crossing orders. Description of Proposed Rule Change As proposed, Rule 11.190(b)(8) provides that (i) a primary peg order will, upon entry and when posting to the Order Book, be automatically adjusted by the System to be equal to and ranked at the less aggressive of one (1) minimum price variant (``MPV'') \9\ less aggressive than the primary quote (i.e., one MPV below (above) the NBB (NBO) for buy (sell) orders) or the order's limit price, as applicable; (ii) exercise price discretion up (down) to the NBB (NBO) for buy (sell) orders, except during periods of quote instability as defined in Rule 11.190(g); and (iii) in locked and crossed markets, slide one MPV less aggressive than the locking price or crossing price (i.e., the lowest Protected Offer for buy orders and the highest Protected Bid for sell orders).\10\ --------------------------------------------------------------------------- \9\ See, Rule 11.210. \10\ The proposed changes to the price sliding process in locked and crossed markets would also apply to Discretionary Peg orders. --------------------------------------------------------------------------- As is the case with Discretionary Peg orders, Rule 11.190(b)(8) would provide that a primary peg order would maintain time priority at its resting price, and be prioritized behind any non-displayed interest resting at the NBB (NBO) for buy (sell) orders (i.e., the ``primary quote'') for the duration of the book processing action in which it is exercising discretion. If multiple primary peg orders are exercising discretion during the same book processing action, they would maintain their relative time priority when executing at the primary quote. As proposed, the manner in which a primary peg order will exercise price discretion is similar to the manner in which a Discretionary Peg order exercises price discretion. As set forth in Rule 11.190(b)(10), a Discretionary Peg order pegs to the less aggressive of the primary quote (i.e., NBB for buy orders and NBO for sell orders) or the order's limit price, if any, but, in order to meet the limit price of an active order, will exercise price discretion up to the less aggressive of the Midpoint Price \11\ or the order's limit price, if any. However, a Discretionary Peg order will not exercise such price discretion during periods of quote instability as defined in Rule 11.190(g).\12\ Similarly, as proposed a primary peg order will exercise discretion in order to meet the limit price of an active order up to the NBB (for buy orders) or down to the NBO (for sell orders), except during periods of quote instability as defined in Rule 11.190(g), or if the order is resting at its limit price, if any. --------------------------------------------------------------------------- \11\ See, Rule 1.160(t). \12\ As set forth in Rule 11.190(g), in determining whether a crumbling quote exists, the Exchange utilizes real time relative quoting activity of Protected Quotations and a proprietary mathematical calculation (the ``quote instability calculation'') to assess the probability of an imminent change to the current Protected NBB to a lower price or Protected NBO to a higher price for a particular security (``quote instability factor''). When the quoting activity meets predefined criteria and the quote instability factor calculated is greater than the Exchange's defined threshold (``quote instability threshold''), the System treats the quote as not stable (``quote instability'' or a ``crumbling quote''). During all other times, the quote is considered stable (``quote stability''). The System independently assesses the quote stability of the Protected NBB and Protected NBO for each security. When the System determines that a quote, either the Protected NBB or the Protected NBO, is unstable, the determination remains in effect at that price level for ten (10) milliseconds. The System will only treat one side of the Protected NBBO as unstable in a particular security at any given time. By not permitting resting Discretionary Peg orders to execute at a price that is more aggressive than the near-side protected NBB or NBO (as applicable) during periods of quote instability, the Exchange System is intended to attempt to protect such orders from unfavorable executions when the market is moving against them. Once the market has moved and the Exchange System deems the near-side Protected NBB or NBO (as applicable) to be stable (pursuant to a pre-determined, objective set of conditions as described below), Discretionary Peg orders are permitted to exercise discretion up to (for buy orders) or down to (for sell orders) the midpoint of the NBBO in order to meet the limit price of active orders on the order book and thereby potentially provide price improvement to such active orders. Quote stability or instability (also referred to as a crumbling quote) is an assessment that the Exchange System makes on a real-time basis, based on a pre- determined, objective set of conditions specified in Rule 11.190(g)(1). --------------------------------------------------------------------------- The Exchange also proposes to amend Rule 11.190(h)(C)(ii) and (D)(ii) [sic] regarding price sliding in locked and crossed markets to simplify the price sliding process for both primary peg orders and Discretionary Peg orders resting on or posting to the Order Book. As proposed, such orders will slide to one MPV less aggressive than the locking or crossing price (i.e., higher for a sell order and lower for a buy order) rather than remaining at the prior non-locked or non- crossed price when such price is less aggressive. If a primary peg order is submitted while the market is crossed, the order would post to the Order Book priced one (1) MPV less aggressive than the crossing price, the [[Page 90037]] lowest Protected Offer for buy orders and the highest Protected Bid for sell orders. The Exchange notes that the goal of this provision is to ensure that primary peg and Discretionary Peg orders do not rest at locking or crossing prices. The Exchange believes that the variability of the existing approach is unnecessarily complicated, without any material benefit, and requires both the Exchange System and Member systems to keep track of the prior non-locked/non-crossed price. Therefore, the Exchange believes that simplifying the price sliding processing for primary peg and Discretionary Peg orders is appropriate in this respect since it would accomplish the goal of sliding such orders to a non-locked/non-crossed price. The Exchange does not propose to amend the order modifiers and parameters currently applicable to primary peg orders as set forth in Rule 11.190(b)(8)(A)-(J), and such order modifiers and parameters would apply to primary peg orders as revised. Specifically, currently and as proposed, a primary peg order: (i) Must be a pegged order; (ii) must have a time-in-force (``TIF'') of DAY, GTT, GTX, or SYS; \13\ (iii) is not eligible for routing; \14\ (iv) may not be an intermarket sweep order; \15\ (v) may be submitted with a limit price, or without a limit price; (vi) is eligible to trade only during the Regular Market Session; (vii) may be a minimum quantity order; \16\ (viii) is not eligible to be displayed by the System; (ix) may be an odd lot, round lot, or mixed lot; and (x) is not eligible to be invited by the System to Recheck, as described in Rule 11.230(a)(4)(D). --------------------------------------------------------------------------- \13\ See, Rule 11.190(a)(3). A primary peg order with a TIF of GTT, GTX or SYS entered before the opening of the Regular Market Session will be rejected. A primary peg order with a TIF of DAY entered before the opening of the Regular Market Session will be queued in the System until the start of the Regular Market Session. \14\ See, Rules 11.230(b) and (c)(2). \15\ See, Rule 11.190(b)(12). \16\ See, Rule 11.190(b)(11). --------------------------------------------------------------------------- Finally, the Exchange proposes to make a minor conforming housekeeping change to Rule 11.190(h)(D)(ii) [sic] to refer to the ``crossing price'' rather than ``crossed quote'' to be consistent with other references within the rule. Implementation The Exchange plans to implement the proposed changes during the first quarter of 2017 pending completion of necessary technology changes and subject to Commission approval. The Exchange will announce the implementation date of the proposed changes by Trader Alert at least 5 business days in advance of such implementation date and within 90 days of approval of this proposed rule change. 2. Statutory Basis IEX believes that the proposed rule change is consistent with Section 6(b) \17\ of the Act in general, and furthers the objectives of Section 6(b)(5) of the Act,\18\ in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. --------------------------------------------------------------------------- \17\ 15 U.S.C. 78f. \18\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- Specifically, IEX believes that the proposal is consistent with protection of investors and the public interest in that the primary peg order type is designed to assist Members in obtaining best execution for their customers (and proprietary orders) by providing an opportunity to execute at the NBBO, but limiting executions at the NBBO when the NBBO is not stable, thereby reducing the potential to execute at a stale price. Moreover, as discussed above, the primary peg order, as proposed, combines key attributes of the Primary Pegged Order offered by BZX, in that both order types offer Members an opportunity to rest more passively than the primary quote, and the discretionary price improvement attributes of the Exchange's Discretionary Peg order type. Thus, IEX does not believe that the primary peg order type raises any new or novel issues that have not already been considered by the Commission in connection with existing order types of IEX and BZX.\19\ In particular, IEX notes that, in connection with its grant of IEX's application for registration as a national securities exchange under Sections 6 and 19 of the Act, the Commission specifically found IEX's order type rules, including those providing for a Discretionary Peg order to exercise price discretion only when the quote appears to be stable, to be consistent with the Act and, in particular, the Section 6(b)(5) requirement that the Exchange's rules be designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system, and protect investors and the public interest.\20\ Accordingly, the Exchange believes that providing the same price discretion to primary peg orders is similarly consistent with the protection of investors and the public interest. --------------------------------------------------------------------------- \19\ See also NYSE Arca Equities Rule 7.31P(h) [sic] which provides for a Discretionary Pegged order type based on IEX's Disretionary Peg order type. \20\ See Securities Exchange Act Release No. 34-78101 at 47 (June 17, 2016), 81 FR 41142 (June 23, 2016) (File No. 10-222). --------------------------------------------------------------------------- The Exchange also believes that the proposed priority rules for primary peg orders are designed to protect investors and the public interest because the proposed priority rules are identical to those for Discretionary Peg orders.\21\ As noted above, the Commission has already considered the Exchange's Discretionary Peg order type in connection with its grant of IEX's application for registration as a national securities exchange under Sections 6 and 19 of the Act, and specifically found IEX's order type rules to be consistent with the Act and, in particular, the Section 6(b)(5) requirement that the exchange's rules be designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system, and protect investors and the public interest.\22\ Accordingly, the Exchange does not believe that applying these priority rules to primary peg orders raises any new or novel issues that have not already been considered by the Commission, and is thus consistent with the protection of investors and the public interest. --------------------------------------------------------------------------- \21\ See IEX Rule 11.190(b)(10). \22\ See supra, note 20. --------------------------------------------------------------------------- The Exchange also believes that simplifying the operation of price sliding primary peg orders in a locked or crossed market is consistent with the protection of investors and the public interest by making the Exchange's rules more clear and transparent, and removing the variability of a primary peg orders booked price in situations where the market becomes locked or crossed. Specifically, rather than price sliding such orders at the less aggressive of either the prior unlocked or uncrossed near side quotation, or one MPV less aggressive than the locking or crossing price, the Exchange will simply slide such orders one MPV less aggressive than the locking or crossing price, creating a simple, transparent process for price sliding such orders. Finally, the Exchange believes that the minor conforming housekeeping change to Rule 11.190(h)(D)(ii) [sic] to [[Page 90038]] refer to ``crossing price'' rather than ``crossed quote'' is consistent with the protection of investors and the public interest because it will make the applicable rule text more clear by eliminating inconsistent verbiage to describe the same concept. B. Self-Regulatory Organization's Statement on Burden on Competition IEX does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed change will offer the primary peg order type equally to all IEX Members. Furthermore, the Exchange does not believe that allowing primary peg orders to exercise discretion in stable markets, using the formula set forth in IEX Rule 11.190(g), will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Commission has already considered the Exchange's Discretionary Peg order type in connection with its grant of IEX's application for registration as a national securities exchange under Sections 6 and 19 of the Act.\23\ The proposed rule change is designed to extend the benefits of the quote stability calculation to Members using the primary peg order type to prevent unfavorable executions in crumbling markets; therefore, no new burdens are being proposed. --------------------------------------------------------------------------- \23\ See supra, note 20. --------------------------------------------------------------------------- The Exchange also does not believe that the proposed primary peg order type will result in any burden on Members seeking to cross the spread and execute at the far side quote (the NBO (NBB) for buy (sell) orders), because the benefits and protections offered by the proposed primary peg order type, which is designed to prevent adverse selection in unstable market conditions, is intended to incentivize passive resting liquidity priced to execute at the primary quote on the Exchange, and consequently may result in greater execution opportunities at the far side quote for Members entering spread crossing orders. 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 (i) as the Commission may designate up to 90 days of such date 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 CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File SR-IEX-2016-18 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-2016-18. 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 Web site (http://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 Web site 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 office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-IEX-2016-18 and should be submitted on or before January 3, 2017. --------------------------------------------------------------------------- \24\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\24\ Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2016-29807 Filed 12-12-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 239 / Tuesday, December 13, 2016 / Notices 90035
arguments concerning the foregoing, SECURITIES AND EXCHANGE II. Self-Regulatory Organization’s
including whether the proposed rule COMMISSION Statement of the Purpose of, and
change is consistent with the Act. Statutory Basis for, the Proposed Rule
Comments may be submitted by any of [Release No. 34–79502; File No. SR–IEX– Change
the following methods: 2016–18] In its filing with the Commission, the
Electronic Comments self-regulatory organization included
Self-Regulatory Organizations;
• Use the Commission’s Internet statements concerning the purpose of
Investors Exchange LLC; Notice of
comment form (http://www.sec.gov/ and basis for the proposed rule change
Filing of Proposed Rule Change to: (i)
rules/sro.shtml); or and discussed any comments it received
Amend Rules 11.190(a)(3) and
• Send an email to rule-comments@ on the proposed rule change. The text
11.190(b)(8) To Modify the Operation of
sec.gov. Please include File Number SR– of these statements may be examined at
the Primary Peg Order Type; (ii)
NYSEARCA–2016–157 on the subject the places specified in Item IV below.
Amend Rule 11.190(h)(C)(ii) and (D)(ii)
line. The self-regulatory organization has
Regarding Price Sliding in Locked and
prepared summaries, set forth in
Paper Comments Crossed Markets To Simplify the Price
Sections A, B, and C below, of the most
Sliding Process for Both Primary Peg
• Send paper comments in triplicate Orders and Discretionary Peg Orders
significant aspects of such statements.
to Brent J. Fields, Secretary, Securities Resting on or Posting to the Order A. Self-Regulatory Organization’s
and Exchange Commission, 100 F Street Book; and (iii) Make Minor Statement of the Purpose of, and
NE., Washington, DC 20549–1090. Housekeeping Changes To Conform Statutory Basis for, the Proposed Rule
All submissions should refer to File Certain Terminology Change
Number SR–NYSEARCA–2016–157.
This file number should be included on December 7, 2016. 1. Purpose
the subject line if email is used. To help Pursuant to Section 19(b)(1) 1 of the Background
the Commission process and review Securities Exchange Act of 1934 2 and
Rule 19b–4 thereunder,3 notice is The purpose of the proposed rule
your comments more efficiently, please change is to amend Rules 11.190(a)(3)
use only one method. The Commission hereby given that, on November 29,
2016, the Investors Exchange LLC filed and 11.190(b)(8) to modify the operation
will post all comments on the of the primary peg order type offered by
Commission’s Internet Web site (http:// with the Securities and Exchange
Commission the proposed rule change the Exchange, and to amend Rule
www.sec.gov/rules/sro.shtml). Copies of 11.190(h)(C)(ii) and (D)(ii) [sic]
the submission, all subsequent as described in Items I, II, and III below,
which Items have been prepared by the regarding price sliding in locked and
amendments, all written statements crossed markets to simplify the price
with respect to the proposed rule self-regulatory organization. The
Commission is publishing this notice to sliding process for both primary peg
change that are filed with the orders and Discretionary Peg orders
Commission, and all written solicit comments on the proposed rule
change from interested persons. resting on or posting to the Order Book.
communications relating to the Currently, the Exchange offers three
proposed rule change between the I. Self-Regulatory Organization’s types of pegged orders—primary peg,
Commission and any person, other than Statement of the Terms of Substance of midpoint peg and discretionary peg—
those that may be withheld from the the Proposed Rule Change each of which are non-displayed orders
public in accordance with the that upon entry into the System and
provisions of 5 U.S.C. 552, will be Pursuant to the provisions of Section
19(b)(1) under the Securities Exchange while resting on the Order Book, are
available for Web site viewing and pegged to a reference price based on the
printing in the Commission’s Public Act of 1934 (‘‘Act’’),4 and Rule 19b-4
thereunder,5 Investors Exchange LLC national best bid and offer (‘‘NBBO’’)
Reference Room, 100 F Street NE., and the price of the order is
Washington, DC 20549 on official (‘‘IEX’’ or ‘‘Exchange’’) is filing with the
Securities and Exchange Commission automatically adjusted by the System in
business days between the hours of response to changes in the NBBO. As set
10:00 a.m. and 3:00 p.m. Copies of the (‘‘Commission’’) proposed rule changes
to (i) amend Rules 11.190(a)(3) and forth in Rule 11.190(b)(8), a primary peg
filing also will be available for order is a pegged order that upon entry
inspection and copying at the principal 11.190(b)(8) to modify the operation of
the primary peg order type; (ii) amend and when posting to the Order Book, the
office of the Exchange. All comments price of the order is automatically
received will be posted without change; Rule 11.190(h)(C)(ii) and (D)(ii) [sic]
regarding price sliding in locked and adjusted by the System to be equal to
the Commission does not edit personal and ranked at the less aggressive of the
identifying information from crossed markets to simplify the price
sliding process for both primary peg primary quote (i.e., the national best bid
submissions. You should submit only (‘‘NBB’’) for buy orders and the national
information that you wish to make orders and Discretionary Peg orders
resting on or posting to the Order Book; best offer (‘‘NBO’’) for sell orders) or the
available publicly. All submissions order’s limit price, if any. While resting
should refer to File Number SR– and (iii) make minor housekeeping
changes to conform certain terminology. on the Order Book, the order is
NYSEARCA–2016–157 and should be automatically adjusted by the System in
submitted on or before January 3, 2017. The text of the proposed rule change
is available at the Exchange’s Web site response to the changes in the NBB
For the Commission, by the Division of (NBO) for buy (sell) orders up (down) to
at www.iextrading.com, at the principal
Trading and Markets, pursuant to delegated
pmangrum on DSK3GDR082PROD with NOTICES
office of the Exchange, and at the the order’s limit price, if any.
authority.13 In the event the NBBO becomes
Commission’s Public Reference Room.
Eduardo A. Aleman, locked or crossed, primary peg orders,
Assistant Secretary. 1 15 as well as Discretionary Peg orders,
U.S.C. 78s(b)(1).
[FR Doc. 2016–29800 Filed 12–12–16; 8:45 am] 2 15 U.S.C. 78a. resting on or posting to the Order Book
BILLING CODE 8011–01–P 3 17 CFR 240.19b–4. are priced to the less aggressive of either
4 15 U.S.C. 78s(b)(1). the prior non-locked or non-crossing
13 17 CFR 200.30–3(a)(12). 5 17 CFR 240.19b–4. near side quote (i.e., the prior unlocked
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![90036 Federal Register / Vol. 81, No. 239 / Tuesday, December 13, 2016 / Notices
or uncrossed NBB (NBO) for buy (sell) Exchange believes (based in part on Price 11 or the order’s limit price, if any.
orders), or one (1) MPV less aggressive informal discussions with liquidity However, a Discretionary Peg order will
than the locking or crossing price.6 providing Members) that the primary not exercise such price discretion
peg order type as revised, which is during periods of quote instability as
Overview
designed to prevent adverse selection in defined in Rule 11.190(g).12 Similarly,
The Exchange proposes to modify the unstable market conditions, will as proposed a primary peg order will
operation of the primary peg order type. incentivize passive resting liquidity exercise discretion in order to meet the
The order type as revised is a non- priced to execute at the primary quote limit price of an active order up to the
displayed order designed to enable a on the Exchange, and consequently may NBB (for buy orders) or down to the
Member (or customer thereof) to rest result in greater execution opportunities NBO (for sell orders), except during
trading interest on the Order Book at a at the far side quote for Members periods of quote instability as defined in
price inferior to the primary quote and entering spread crossing orders. Rule 11.190(g), or if the order is resting
remain available to execute against an at its limit price, if any.
incoming order seeking to cross the Description of Proposed Rule Change The Exchange also proposes to amend
spread and execute at prices equal to or As proposed, Rule 11.190(b)(8) Rule 11.190(h)(C)(ii) and (D)(ii) [sic]
more aggressive (from the taker’s regarding price sliding in locked and
provides that (i) a primary peg order
perspective) than such quote, while crossed markets to simplify the price
will, upon entry and when posting to
avoiding adverse selection when the sliding process for both primary peg
the Order Book, be automatically
market appears to be moving against the orders and Discretionary Peg orders
adjusted by the System to be equal to
resting primary peg order (i.e., moving resting on or posting to the Order Book.
and ranked at the less aggressive of one
lower in the case of a buy order or As proposed, such orders will slide to
(1) minimum price variant (‘‘MPV’’) 9
higher in the case of a sell order). As one MPV less aggressive than the
less aggressive than the primary quote
described more fully below, the primary locking or crossing price (i.e., higher for
(i.e., one MPV below (above) the NBB
peg order as proposed combines the a sell order and lower for a buy order)
(NBO) for buy (sell) orders) or the
offset feature of the Primary Pegged rather than remaining at the prior non-
Order offered by BATS BZX Exchange, order’s limit price, as applicable; (ii)
locked or non-crossed price when such
Inc (‘‘BZX’’) 7 with the price exercise price discretion up (down) to
price is less aggressive. If a primary peg
improvement opportunities and the NBB (NBO) for buy (sell) orders,
order is submitted while the market is
protections offered by the Exchange’s except during periods of quote
crossed, the order would post to the
existing Discretionary Peg order.8 instability as defined in Rule 11.190(g);
Order Book priced one (1) MPV less
Specifically, the primary peg order as and (iii) in locked and crossed markets,
aggressive than the crossing price, the
proposed offers Members an slide one MPV less aggressive than the
opportunity to rest one (1) MPV less locking price or crossing price (i.e., the 11 See, Rule 1.160(t).
aggressive than the primary quote (i.e., lowest Protected Offer for buy orders 12 As set forth in Rule 11.190(g), in determining
one (1) MPV below the NBB for buy and the highest Protected Bid for sell whether a crumbling quote exists, the Exchange
orders or one (1) MPV above the NBO orders).10 utilizes real time relative quoting activity of
Protected Quotations and a proprietary
for sell orders) but remain eligible to As is the case with Discretionary Peg mathematical calculation (the ‘‘quote instability
exercise price discretion up (down) to orders, Rule 11.190(b)(8) would provide calculation’’) to assess the probability of an
that a primary peg order would imminent change to the current Protected NBB to
the NBB (NBO) for buy (sell) orders, and a lower price or Protected NBO to a higher price
is designed to protect such orders from maintain time priority at its resting for a particular security (‘‘quote instability factor’’).
unfavorable executions by preventing price, and be prioritized behind any When the quoting activity meets predefined criteria
the exercise of such price discretion non-displayed interest resting at the and the quote instability factor calculated is greater
NBB (NBO) for buy (sell) orders (i.e., the than the Exchange’s defined threshold (‘‘quote
when the Exchange has determined that instability threshold’’), the System treats the quote
the market is moving against the order ‘‘primary quote’’) for the duration of the as not stable (‘‘quote instability’’ or a ‘‘crumbling
(i.e., a crumbling quote is detected). In book processing action in which it is quote’’). During all other times, the quote is
addition, the Exchange proposes to exercising discretion. If multiple considered stable (‘‘quote stability’’). The System
primary peg orders are exercising independently assesses the quote stability of the
simplify the price sliding process for Protected NBB and Protected NBO for each security.
both primary peg orders and discretion during the same book When the System determines that a quote, either
Discretionary Peg orders resting on or processing action, they would maintain the Protected NBB or the Protected NBO, is
posting to the Order Book so that such their relative time priority when unstable, the determination remains in effect at that
executing at the primary quote. price level for ten (10) milliseconds. The System
orders will slide to one MPV less will only treat one side of the Protected NBBO as
aggressive than the locking or crossing As proposed, the manner in which a unstable in a particular security at any given time.
price (i.e., higher for a sell order and primary peg order will exercise price By not permitting resting Discretionary Peg orders
lower for a buy order) rather than to execute at a price that is more aggressive than
discretion is similar to the manner in the near-side protected NBB or NBO (as applicable)
remaining at the prior non-locked or which a Discretionary Peg order during periods of quote instability, the Exchange
non-crossed price when such price is exercises price discretion. As set forth System is intended to attempt to protect such orders
less aggressive. in Rule 11.190(b)(10), a Discretionary from unfavorable executions when the market is
The Exchange notes that the primary moving against them. Once the market has moved
Peg order pegs to the less aggressive of and the Exchange System deems the near-side
peg order type has received modest the primary quote (i.e., NBB for buy Protected NBB or NBO (as applicable) to be stable
usage by Members, and at the same orders and NBO for sell orders) or the (pursuant to a pre-determined, objective set of
time, the Exchange has observed that order’s limit price, if any, but, in order conditions as described below), Discretionary Peg
pmangrum on DSK3GDR082PROD with NOTICES
orders are permitted to exercise discretion up to (for
spread crossing interest entered on the to meet the limit price of an active buy orders) or down to (for sell orders) the
Exchange is sometimes unable to find order, will exercise price discretion up midpoint of the NBBO in order to meet the limit
sufficient resting interest willing to to the less aggressive of the Midpoint price of active orders on the order book and thereby
trade at the far-side primary quote. The potentially provide price improvement to such
active orders. Quote stability or instability (also
9 See,Rule 11.210. referred to as a crumbling quote) is an assessment
6 See, Rule 11.190(h)(C)(ii) and (D)(ii) [sic]. 10 The proposed changes to the price sliding that the Exchange System makes on a real-time
7 See BZX Rule 11.9(c)(8).
process in locked and crossed markets would also basis, based on a pre-determined, objective set of
8 See, Rule 11.190(b)(10). apply to Discretionary Peg orders. conditions specified in Rule 11.190(g)(1).
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![Federal Register / Vol. 81, No. 239 / Tuesday, December 13, 2016 / Notices 90037
lowest Protected Offer for buy orders business days in advance of such impediments to and perfect the
and the highest Protected Bid for sell implementation date and within 90 days mechanisms of a free and open market
orders. The Exchange notes that the goal of approval of this proposed rule and a national market system, and
of this provision is to ensure that change. protect investors and the public
primary peg and Discretionary Peg interest.20 Accordingly, the Exchange
2. Statutory Basis
orders do not rest at locking or crossing believes that providing the same price
prices. The Exchange believes that the IEX believes that the proposed rule discretion to primary peg orders is
variability of the existing approach is change is consistent with Section 6(b) 17 similarly consistent with the protection
unnecessarily complicated, without any of the Act in general, and furthers the of investors and the public interest.
material benefit, and requires both the objectives of Section 6(b)(5) of the Act,18 The Exchange also believes that the
Exchange System and Member systems in particular, in that it is designed to proposed priority rules for primary peg
to keep track of the prior non-locked/ prevent fraudulent and manipulative orders are designed to protect investors
non-crossed price. Therefore, the acts and practices, to promote just and and the public interest because the
Exchange believes that simplifying the equitable principles of trade, to foster proposed priority rules are identical to
price sliding processing for primary peg cooperation and coordination with those for Discretionary Peg orders.21 As
and Discretionary Peg orders is persons engaged in facilitating noted above, the Commission has
appropriate in this respect since it transactions in securities, to remove already considered the Exchange’s
would accomplish the goal of sliding impediments to and perfect the Discretionary Peg order type in
such orders to a non-locked/non-crossed mechanism of a free and open market connection with its grant of IEX’s
price. and a national market system and, in application for registration as a national
The Exchange does not propose to general, to protect investors and the securities exchange under Sections 6
amend the order modifiers and public interest. and 19 of the Act, and specifically
parameters currently applicable to Specifically, IEX believes that the found IEX’s order type rules to be
primary peg orders as set forth in Rule proposal is consistent with protection of consistent with the Act and, in
11.190(b)(8)(A)–(J), and such order investors and the public interest in that particular, the Section 6(b)(5)
modifiers and parameters would apply the primary peg order type is designed requirement that the exchange’s rules be
to primary peg orders as revised. to assist Members in obtaining best designed to promote just and equitable
Specifically, currently and as proposed, execution for their customers (and principles of trade, remove
a primary peg order: (i) Must be a proprietary orders) by providing an impediments to and perfect the
pegged order; (ii) must have a time-in- opportunity to execute at the NBBO, but mechanisms of a free and open market
force (‘‘TIF’’) of DAY, GTT, GTX, or limiting executions at the NBBO when and a national market system, and
SYS; 13 (iii) is not eligible for routing; 14 the NBBO is not stable, thereby protect investors and the public
(iv) may not be an intermarket sweep reducing the potential to execute at a interest.22 Accordingly, the Exchange
order; 15 (v) may be submitted with a stale price. Moreover, as discussed does not believe that applying these
limit price, or without a limit price; (vi) above, the primary peg order, as priority rules to primary peg orders
is eligible to trade only during the proposed, combines key attributes of the raises any new or novel issues that have
Regular Market Session; (vii) may be a Primary Pegged Order offered by BZX, not already been considered by the
minimum quantity order; 16 (viii) is not in that both order types offer Members Commission, and is thus consistent with
eligible to be displayed by the System; an opportunity to rest more passively the protection of investors and the
(ix) may be an odd lot, round lot, or than the primary quote, and the public interest.
mixed lot; and (x) is not eligible to be discretionary price improvement The Exchange also believes that
invited by the System to Recheck, as attributes of the Exchange’s simplifying the operation of price
described in Rule 11.230(a)(4)(D). Discretionary Peg order type. Thus, IEX sliding primary peg orders in a locked
Finally, the Exchange proposes to does not believe that the primary peg or crossed market is consistent with the
make a minor conforming housekeeping order type raises any new or novel protection of investors and the public
change to Rule 11.190(h)(D)(ii) [sic] to issues that have not already been interest by making the Exchange’s rules
refer to the ‘‘crossing price’’ rather than considered by the Commission in more clear and transparent, and
‘‘crossed quote’’ to be consistent with connection with existing order types of removing the variability of a primary
other references within the rule. IEX and BZX.19 In particular, IEX notes peg orders booked price in situations
that, in connection with its grant of where the market becomes locked or
Implementation
IEX’s application for registration as a crossed. Specifically, rather than price
The Exchange plans to implement the national securities exchange under sliding such orders at the less aggressive
proposed changes during the first Sections 6 and 19 of the Act, the of either the prior unlocked or
quarter of 2017 pending completion of Commission specifically found IEX’s uncrossed near side quotation, or one
necessary technology changes and order type rules, including those MPV less aggressive than the locking or
subject to Commission approval. The providing for a Discretionary Peg order crossing price, the Exchange will simply
Exchange will announce the to exercise price discretion only when slide such orders one MPV less
implementation date of the proposed the quote appears to be stable, to be aggressive than the locking or crossing
changes by Trader Alert at least 5 consistent with the Act and, in price, creating a simple, transparent
particular, the Section 6(b)(5) process for price sliding such orders.
13 See, Rule 11.190(a)(3). A primary peg order
requirement that the Exchange’s rules be Finally, the Exchange believes that
pmangrum on DSK3GDR082PROD with NOTICES
with a TIF of GTT, GTX or SYS entered before the
opening of the Regular Market Session will be
designed to promote just and equitable the minor conforming housekeeping
rejected. A primary peg order with a TIF of DAY principles of trade, remove change to Rule 11.190(h)(D)(ii) [sic] to
entered before the opening of the Regular Market
Session will be queued in the System until the start 17 15 U.S.C. 78f. 20 See Securities Exchange Act Release No. 34–
of the Regular Market Session. 18 15 U.S.C. 78f(b)(5). 78101 at 47 (June 17, 2016), 81 FR 41142 (June 23,
14 See, Rules 11.230(b) and (c)(2). 19 See also NYSE Arca Equities Rule 7.31P(h) [sic] 2016) (File No. 10–222).
15 See, Rule 11.190(b)(12). 21 See IEX Rule 11.190(b)(10).
which provides for a Discretionary Pegged order
16 See, Rule 11.190(b)(11). type based on IEX’s Disretionary Peg order type. 22 See supra, note 20.
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![90038 Federal Register / Vol. 81, No. 239 / Tuesday, December 13, 2016 / Notices
refer to ‘‘crossing price’’ rather than III. Date of Effectiveness of the office of the Exchange. All comments
‘‘crossed quote’’ is consistent with the Proposed Rule Change and Timing for received will be posted without change;
protection of investors and the public Commission Action the Commission does not edit personal
interest because it will make the Within 45 days of the date of identifying information from
applicable rule text more clear by publication of this notice in the Federal submissions. You should submit only
eliminating inconsistent verbiage to Register or within such longer period (i) information that you wish to make
describe the same concept. as the Commission may designate up to available publicly. All submissions
should refer to File Number SR–IEX–
B. Self-Regulatory Organization’s 90 days of such date if it finds such
2016–18 and should be submitted on or
longer period to be appropriate and
Statement on Burden on Competition before January 3, 2017.
publishes its reasons for so finding or
IEX does not believe that the (ii) as to which the Exchange consents, For the Commission, by the Division of
the Commission shall: (a) By order Trading and Markets, pursuant to delegated
proposed rule change will result in any authority.24
burden on competition that is not approve or disapprove such proposed
rule change, or (b) institute proceedings Eduardo A. Aleman,
necessary or appropriate in furtherance Assistant Secretary.
of the purposes of the Act. The to determine whether the proposed rule
change should be disapproved. [FR Doc. 2016–29807 Filed 12–12–16; 8:45 am]
proposed change will offer the primary
BILLING CODE 8011–01–P
peg order type equally to all IEX IV. Solicitation of Comments
Members. Furthermore, the Exchange Interested persons are invited to
does not believe that allowing primary submit written data, views and SECURITIES AND EXCHANGE
peg orders to exercise discretion in arguments concerning the foregoing, COMMISSION
stable markets, using the formula set including whether the proposed rule
forth in IEX Rule 11.190(g), will result change is consistent with the Act. Sunshine Act Meeting
in any burden on competition that is not Comments may be submitted by any of Notice is hereby given, pursuant to
necessary or appropriate in furtherance the following methods: the provisions of the Government in the
of the purposes of the Act. The Sunshine Act, Public Law 94–409, that
Commission has already considered the Electronic Comments
the Securities and Exchange
Exchange’s Discretionary Peg order type • Use the Commission’s Internet Commission will hold a closed meeting
in connection with its grant of IEX’s comment form (http://www.sec.gov/ on Thursday, December 15, 2016 at 2
application for registration as a national rules/sro.shtml); or p.m.
securities exchange under Sections 6 • Send an email to rule-comments@ Commissioners, Counsel to the
and 19 of the Act.23 The proposed rule sec.gov. Please include File SR–IEX– Commissioners, the Secretary to the
change is designed to extend the 2016–18 on the subject line. Commission, and recording secretaries
benefits of the quote stability Paper Comments will attend the closed meeting. Certain
calculation to Members using the staff members who have an interest in
• Send paper comments in triplicate the matters also may be present.
primary peg order type to prevent
to Secretary, Securities and Exchange The General Counsel of the
unfavorable executions in crumbling Commission, 100 F Street NE., Commission, or her designee, has
markets; therefore, no new burdens are Washington, DC 20549–1090. certified that, in her opinion, one or
being proposed. more of the exemptions set forth in 5
All submissions should refer to File
The Exchange also does not believe Number SR–IEX–2016–18. This file U.S.C. 552b(c)(3), (5), (7), 9(B) and (10)
that the proposed primary peg order number should be included on the and 17 CFR 200.402(a)(3), (a)(5), (a)(7),
type will result in any burden on subject line if email is used. To help the (a)(9)(ii) and (a)(10), permit
Members seeking to cross the spread Commission process and review your consideration of the scheduled matter at
and execute at the far side quote (the comments more efficiently, please use the closed meeting.
NBO (NBB) for buy (sell) orders), only one method. The Commission will Commissioner Stein, as duty officer,
because the benefits and protections post all comments on the Commission’s voted to consider the items listed for the
offered by the proposed primary peg Internet Web site (http://www.sec.gov/ closed meeting in closed session.
order type, which is designed to prevent rules/sro.shtml). Copies of the The subject matter of the closed
submission, all subsequent meeting will be:
adverse selection in unstable market
conditions, is intended to incentivize amendments, all written statements • Institution and settlement of
with respect to the proposed rule injunctive actions;
passive resting liquidity priced to
change that are filed with the • Institution and settlement of
execute at the primary quote on the administrative proceedings;
Exchange, and consequently may result Commission, and all written
communications relating to the • Formal order of investigations;
in greater execution opportunities at the • Resolution of litigation claims;
far side quote for Members entering proposed rule change between the • Adjudicatory matters; and
spread crossing orders. Commission and any person, other than • Other matters relating to
those that may be withheld from the enforcement proceedings.
C. Self-Regulatory Organization’s public in accordance with the At times, changes in Commission
Statement on Comments on the provisions of 5 U.S.C. 552, will be priorities require alterations in the
pmangrum on DSK3GDR082PROD with NOTICES
Proposed Rule Change Received From available for Web site viewing and scheduling of meeting items.
Members, Participants, or Others printing in the Commission’s Public For further information and to
Reference Room, 100 F Street NE., ascertain what, if any, matters have been
Written comments were neither Washington, DC 20549, on official added, deleted or postponed; please
solicited nor received. business days between the hours of contact Brent J. Fields from the Office of
10:00 a.m. and 3:00 p.m. Copies of the the Secretary at (202) 551–5400.
filing also will be available for
23 See supra, note 20. inspection and copying at the principal 24 17 CFR 200.30–3(a)(12).
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Document Created: 2016-12-13 02:44:09
Document Modified: 2016-12-13 02:44:09
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 81 FR 90035 |
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