82 FR 14240 - Self-Regulatory Organizations; Investors Exchange, LLC; Order Granting Approval to a 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)(3)(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 Technical Changes To Conform Certain Terminology
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 51 (March 17, 2017)
Federal Register Volume 82, Issue 51 (March 17, 2017)
| Page Range | 14240-14243 | |
| FR Document | 2017-05338 |
[Federal Register Volume 82, Number 51 (Friday, March 17, 2017)] [Notices] [Pages 14240-14243] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-05338] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-80223; File No. SR-IEX-2016-18] Self-Regulatory Organizations; Investors Exchange, LLC; Order Granting Approval to a 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)(3)(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 Technical Changes To Conform Certain Terminology March 13, 2017. I. Introduction On November 29, 2016, the Investors Exchange LLC (``Exchange'') filed with [[Page 14241]] 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: (i) Amend IEX Rules 11.190(a)(3) and 11.190(b)(8) to modify the operation of the primary peg order type; (ii) amend IEX Rule 11.190(h)(3)(C)(ii) and (D)(ii) regarding price sliding in locked and crossed markets to modify the price sliding process for both primary peg orders and discretionary peg orders resting on or posting to the IEX order book; and (iii) make minor technical changes to conform certain terminology. The proposed rule change was published for comment in the Federal Register on December 13, 2016.\3\ On January 26, 2017, pursuant to Section 19(b)(2) of the Act,\4\ the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change.\5\ The Commission received no comment letters on the proposed rule change. This order approves the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 79502 (December 7, 2016), 81 FR 90035 (December 13, 2016) (``Notice''). \4\ 15 U.S.C. 78s(b)(2). \5\ See Securities Exchange Act Release No. 79883, 82 FR 9083 (February 2, 2017). The Commission designated March 13, 2017 as the date by which the Commission shall approve or disapprove, or institute proceedings to determine whether to approve or disapprove, the proposed rule change. --------------------------------------------------------------------------- II. Description of the Proposal Primary Peg Order Type Functionality The Exchange has proposed 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. Currently, a primary peg order is a non- displayed order that the Exchange system automatically adjusts (upon entry and when posting to the Exchange order book) to be equal to and ranked at the less aggressive of the near-side 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.\6\ While resting on the Exchange's order book, the order is automatically adjusted by the system in response to changes in the NBB (NBO) for buy (sell) orders up (down) to the order's limit price, if any.\7\ --------------------------------------------------------------------------- \6\ See Rules 11.190(a)(3) and (b)(8); see also Notice, supra note 3, at 90035. \7\ See id. --------------------------------------------------------------------------- Under the proposal, the operation of the primary peg order type would be amended such that the Exchange system would automatically adjust a primary peg order, upon entry and when the order is posting to the Exchange order book, to be equal to and ranked at the less aggressive of one (1) minimum price variant (``MPV'') 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.\8\ The primary peg order would continue to be a non-displayed order type, and the Exchange's system would continue to automatically adjust a primary peg order in response to changes in the NBB (NBO) for buy (sell) orders up (down) to the order's limit price, if any.\9\ --------------------------------------------------------------------------- \8\ See proposed Rules 11.190(a)(3) and (b)(8); see also Notice, supra note 3, at 90036. In its proposal, the Exchange noted that the BATS BZX exchange's primary pegged order type has an offset feature that allows primary pegged orders on that exchange to rest more passively than the primary quote. See Notice, supra note 3, at 90036-37. \9\ See proposed Rules 11.190(a)(3) and 11.190(b)(8). The Exchange has not proposed 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 continue apply to the amended primary peg order type. See Notice, supra note 3, at 90037 and n.13. --------------------------------------------------------------------------- In addition, under the proposal, in order to meet the limit price of active orders on the Exchange order book, a primary peg order would be able to exercise price discretion from its resting price to a discretionary price (defined as the primary quote), except during periods of quote instability as defined in Rule 11.190(g) \10\ or where the primary peg order is resting at its limit price.\11\ Specifically, as set forth in proposed Rule 11.190(b)(8)(K), if the Exchange system were to determine the NBB for a particular security to be an unstable quote in accordance with Rule 11.190(g), it would restrict buy primary peg orders in that security from exercising price discretion to trade against interest at the NBB (and thus they would be executable only at their resting price one MPV less aggressive than the NBB, subject to any limit price); likewise, if the Exchange system were to determine the NBO for a particular security to be an unstable quote in accordance with Rule 11.190(g), it would restrict sell primary peg orders in that security from exercising price discretion to trade against interest at the NBO (and thus they would be executable only at their resting price one MPV less aggressive than the NBO, subject to any limit price).\12\ --------------------------------------------------------------------------- \10\ As set forth in Rule 11.190(g), 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''). See Rule 11.190(g); see also Notice, supra note 3, at 90036 n.12. 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''). See id. 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. See id. 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. See id. The system will only treat one side of the protected NBBO as unstable in a particular security at any given time. See id. \11\ See proposed Rules 11.190(a)(3) and (b)(8). In its proposal, the Exchange represented that the manner in which a primary peg order would exercise discretion is similar to the manner in which the Exchange's discretionary peg order exercises discretion. See Notice, supra note 3, at 90036. \12\ See proposed Rule 11.190(b)(8)(K). --------------------------------------------------------------------------- Further, as proposed, when exercising price discretion, a primary peg order would maintain its time priority position among non-displayed orders (and behind any displayed orders) at its resting price and would be prioritized behind any non-displayed (and displayed) interest resting at the discretionary price for the duration of that book processing action.\13\ If multiple primary peg orders were to exercise price discretion during the same book processing action, they would maintain their relative time priority at the discretionary price.\14\ --------------------------------------------------------------------------- \13\ See proposed Rule 11.190(b)(8); see also Notice, supra note 3, at 90036. Displayed orders have precedence over non-displayed orders at a given price level in the IEX order book. See Rule 11.220(a)(1)(B). \14\ See proposed Rule 11.190(b)(8); see also Notice, supra note 3, at 90036. In its proposal, the Exchange represented that the proposed priority rules for the primary peg order are identical to those for the Exchange's discretionary peg order. See Notice, supra note 3, at 90037. --------------------------------------------------------------------------- According to the Exchange, the primary peg order type, as proposed, is designed to offer Exchange members an opportunity to rest orders one MPV less aggressive than the primary quote but remain eligible to exercise price discretion up (down) to the NBB (NBO) for buy (sell) orders, and 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).\15\ --------------------------------------------------------------------------- \15\ See Notice, supra note 3, at 90036. --------------------------------------------------------------------------- Price Sliding in Locked or Crossed Markets The Exchange also has proposed to amend Rule 11.190(h)(3)(C)(ii) and [[Page 14242]] (D)(ii) regarding the price sliding process for both primary peg and discretionary peg orders in locked and crossed markets. Currently, in the event the NBBO becomes locked or crossed, primary peg and discretionary peg orders resting on or posting to the order book are priced to the less aggressive of either: (i) The prior non-locked or non-crossing near side quote (i.e., the prior unlocked or uncrossed NBB (NBO) for buy (sell) orders), or (ii) one MPV less aggressive than the locking or crossing price.\16\ Under the proposal, the first alternative under the current rule would be eliminated such that in locked or crossed markets, primary peg and discretionary peg orders would slide to one MPV less aggressive than the locking or crossing price rather than remaining at the prior non-locked or non-crossed price when such price is less aggressive.\17\ --------------------------------------------------------------------------- \16\ See Rule 11.190(h)(3)(C)(ii) and (D)(ii); see also Notice, supra note 3, at 90035-36. \17\ See proposed Rule 11.190(h)(3)(C)(ii) and (D)(ii); see also Notice, supra note 3, at 90036. --------------------------------------------------------------------------- Specifically, proposed Rule 11.190(h)(3)(C)(ii) would provide that in the event the market becomes locked, primary peg orders and discretionary peg orders resting on or posting to the order book would be priced one MPV less aggressive than the locking price.\18\ Proposed Rule 11.190(h)(3)(D)(ii) would provide that in the event that the market becomes crossed, primary peg orders and discretionary peg orders resting on or posting to the order book would be priced one MPV less aggressive than the crossing price, i.e., the lowest protected offer for buy orders and the highest protected bid for sell orders, before posting.\19\ In addition, proposed Rule 11.190(h)(3)(D)(ii) would specify that if a primary peg order is submitted to the Exchange while the market is crossed, the order would post to the order book priced one MPV less aggressive than the crossing price.\20\ In its proposal, the Exchange noted that its goal with respect to its rules for price sliding primary peg and discretionary peg orders in locked or crossed markets is to ensure that such orders do not rest at locking or crossing prices.\21\ --------------------------------------------------------------------------- \18\ See proposed Rule 11.190(h)(3)(C)(ii). \19\ See proposed Rule 11.190(h)(3)(D)(ii). \20\ See id.; see also Notice, supra note 3, at 90036-37. \21\ See Notice, supra note 3, at 90037. --------------------------------------------------------------------------- Technical Change Lastly, the Exchange has proposed to make a technical change to Rule 11.190(h)(3)(D)(ii) to refer to the ``crossing price'' rather than the ``crossed quote'' in order to be consistent with other references within the rule.\22\ --------------------------------------------------------------------------- \22\ See proposed Rule 11.190(h)(3)(D)(ii); see also Notice, supra note 3, at 90037. --------------------------------------------------------------------------- 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.\23\ In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,\24\ 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. --------------------------------------------------------------------------- \23\ 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). \24\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange has described the proposed amendments to its primary peg order type as combining an offset feature offered by another exchange that allows primary pegged orders on that exchange to rest more passively than the primary quote, with the discretionary feature of the Exchange's discretionary peg order type.\25\ As noted above, according to the Exchange, its amended primary peg order type would be designed to enable a member (or customer thereof) to rest non-displayed trading interest on the Exchange 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 minimizing adverse selection to the poster (if its resting order were to ``jump'' to the primary quote) 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).\26\ The Exchange believes that adding to its primary peg order type both an offset feature and the discretionary functionality that currently is applied to the discretionary peg order type would incentivize members and their customers to post more passive resting liquidity on the Exchange that is priced to execute at the primary quote during periods of quote stability, and consequently may result in greater execution opportunities at the far side quote for members entering spread- crossing orders.\27\ --------------------------------------------------------------------------- \25\ See Notice, supra note 3, at 90036-37. \26\ See id. \27\ See Notice, supra note 3, at 90036. --------------------------------------------------------------------------- The Commission does not believe that the Exchange's proposed amendments to its primary peg order type raise any novel issues that the Commission has not previously considered, and notes in this regard that the Commission received no comments on the Exchange's proposed rule change. The Commission's approval of IEX's Form 1 application included, among other things, approval of IEX's discretionary peg order type, which utilizes the same discretionary feature (though a different discretionary price) that the Exchange proposes to apply to its primary peg order type.\28\ As with the Exchange's discretionary peg order type, the amended primary peg order type would be eligible to exercise price ``discretion'' to move itself to a price that is more aggressive than its resting/ranked price (subject to the constraints of a limit price, if any), except during periods of ``quote instability'' as defined in Rule 11.190(g).\29\ Rule 11.190(g) sets forth the formula that the Exchange utilizes for determining quote stability for purposes of exercising discretion to move a resting order to a more aggressive price, and is the same formula that the Exchange already utilizes for the quote stability determinations relative to it discretionary peg order type.\30\ In the IEX Form 1 Approval, the Commission stated that Rule 11.190(g) delineates the specific conditions under which IEX discretionary peg orders are eligible to exercise discretion by setting forth the mathematical formula that IEX uses to determine quote stability.\31\ The Commission believes that, as with the Exchange's discretionary peg order, the Exchange has set forth in its rule the totality of the discretionary feature of [[Page 14243]] the proposed primary peg order type, and that it is hardcoded conditionality based on pre-determined, objective factors.\32\ In addition, as the Commission observed in the IEX Form 1 Approval, other exchanges offer both discretion and pegging functionalities, including the combination of both of those functionalities in a single order type, and thus an order type that offers both discretion and pegging features is not novel.\33\ --------------------------------------------------------------------------- \28\ See Securities Exchange Act Release No. 78101 (June 17, 2016), 81 FR 41142, 41152-53 (June 23, 2016) (File No. 10-222; In the Matter of the Application of: Investors' Exchange, LLC for Registration as a National Securities Exchange; Findings, Opinion, and Order of the Commission) (``IEX Form 1 Approval''); see also Rule 11.190(b)(10). \29\ See proposed Rule 11.190(b)(8); Rule 11.190(b)(10). See also Notice, supra note 3, at 90036. In addition, as the Exchange has noted, the priority scheme that would be applied to the proposed primary peg order when it exercises discretion is identical to that applied to the Exchange's discretionary peg order when it exercises discretion. See proposed Rule 11.190(b)(8); Rule 11.190(b)(10). See also Notice, supra note 3, at 90037. \30\ Compare proposed Rule 11.190(b)(8) and Rule 11.190(b)(10). \31\ See IEX Form 1 Approval, supra note 30, at 41153. \32\ See proposed Rule 11.190(b)(8) and Rule 11.190(g); see also IEX Form 1 Approval, supra note 28, at 41153. \33\ See IEX Form 1 Approval, supra note 28, at 41153; see also, e.g., Nasdaq Rule 4703(g); NYSE Arca Equities Rule 7.31P(h)(3). In addition, as the Exchange has noted, primary pegged orders on other exchanges may be pegged to prices less aggressive than the near-side primary quote. See Notice, supra note 3, at 90036-37; see also, e.g., BZX Rule 11.9(c)(8)(A). --------------------------------------------------------------------------- Importantly, the Commission notes that the Exchange's amended primary peg order type would remain a non-displayed order type, like all of the Exchange's pegged order types, including the discretionary peg order type.\34\ Thus, the proposed amended primary peg order type, with its added discretionary and crumbling quote determination functionalities, should not impact the Exchange's dissemination of a protected quotation, which must be displayed,\35\ or market participants' ability to execute against the Exchange's protection quotation, and does not appear otherwise designed to impede the mechanism of a free and open market. Accordingly, the Commission believes that the proposed amendments to the Exchange's primary peg order type are consistent with the Act and, in particular, the Section 6(b)(5) requirement that a national securities exchange's rules be designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanism of a free and open market and a national market system, and protect investors and the public interest.\36\ --------------------------------------------------------------------------- \34\ See Rules 11.190(a)(3) and (b)(8)(H). The Commission also notes that primary pegged orders on other exchanges may be non- displayed. See, e.g., BZX Rule 11.9(c)(8)(A). \35\ See 17 CFR 242.600(b)(57) and (58). \36\ The Commission notes that the Exchange would be required to submit a proposed rule change pursuant to Section 19(b) of the Act prior to implementing any changes to the proposed primary peg order type. --------------------------------------------------------------------------- The Commission also believes that the proposed amendments to the Exchange's price sliding process for primary peg orders and discretionary peg orders in locked or crossed markets are consistent with the Act. The Exchange has stated that its existing approach to price sliding for such orders in locked or crossed markets is unnecessarily complicated, without any material benefit, and that the proposed amendments to the approach would remove the variability of a primary peg order's booked price in locked or crossed market situations, and make the Exchange's rules more clear and transparent.\37\ The Commission believes these changes should help lessen the complexity in the Exchange's price sliding rules, which may reduce the potential for investor confusion as to how primary peg and discretionary peg orders would price slide in locked or crossed markets, and thereby help protect investors and the public interest consistent with Section 6(b)(5) of the Act. In addition, the proposed amendments appear to be consistent with the requirements of Rule 610(d) of Regulation NMS which, among other things, requires that the rules of a national securities exchange be reasonably designed to assure the reconciliation of locked or crossed quotations in an NMS stock.\38\ --------------------------------------------------------------------------- \37\ See Notice, 81 FR at 90037. \38\ See 17 CFR 242.610(d). --------------------------------------------------------------------------- Lastly, the Commission believes that the Exchange's proposed technical change to conform certain terminology in its proposed rules is intended to enhance the clarity of its rules, which should reduce the potential for investor confusion, and thereby help protect investors and the public interest consistent with Section 6(b)(5) of the Act. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\39\ that the proposed rule change (SR-IEX-2016-18) be and hereby is approved. --------------------------------------------------------------------------- \39\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\40\ --------------------------------------------------------------------------- \40\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-05338 Filed 3-16-17; 8:45 am] BILLING CODE 8011-01-P
![14240 Federal Register / Vol. 82, No. 51 / Friday, March 17, 2017 / Notices
C. Self-Regulatory Organization’s B data.17 Delaying publication of post all comments on the Commission’s
Statement on Comments on the Exchange’s Appendix B data 18 will Internet Web site (http://www.sec.gov/
Proposed Rule Change Received From prevent the publication of partial (i.e., rules/sro.shtml). Copies of the
Members, Participants, or Others Exchange-only) Appendix B data submission, all subsequent
required under the Plan. Therefore, the amendments, all written statements
No written comments were either with respect to the proposed rule
Commission hereby waives the 30-day
solicited or received. change that are filed with the
operative delay and designates the
III. Date of Effectiveness of the proposed rule change to be operative on Commission, and all written
Proposed Rule Change and Timing for February 28, 2017.19 communications relating to the
Commission Action At any time within 60 days of the proposed rule change between the
filing of the proposed rule change, the Commission and any person, other than
Because the foregoing proposed rule Commission summarily may those that may be withheld from the
change does not: (i) Significantly affect temporarily suspend such rule change if public in accordance with the
the protection of investors or the public it appears to the Commission that such provisions of 5 U.S.C. 552, will be
interest; (ii) impose any significant action is necessary or appropriate in the available for Web site viewing and
burden on competition; and (iii) become public interest, for the protection of printing in the Commission’s Public
operative for 30 days from the date on investors, or otherwise in furtherance of Reference Room, 100 F Street NE.,
which it was filed, or such shorter time the purposes of the Act. If the Washington, DC 20549, on official
as the Commission may designate, it has Commission takes such action, the business days between the hours of
become effective pursuant to Section Commission shall institute proceedings 10:00 a.m. and 3:00 p.m. Copies of the
19(b)(3)(A) of the Act 14 and Rule 19b– to determine whether the proposed rule filing also will be available for
4(f)(6) thereunder.15 should be approved or disapproved. inspection and copying at the principal
A proposed rule change filed under office of the Exchange. All comments
Rule 19b–4(f)(6) normally does not IV. Solicitation of Comments received will be posted without change;
become operative prior to 30 days after Interested persons are invited to the Commission does not edit personal
the date of the filing. However, pursuant submit written data, views, and identifying information from
to Rule 19b–4(f)(6)(iii), the Commission arguments concerning the foregoing, submissions. You should submit only
may designate a shorter time if such including whether the proposed rule information that you wish to make
action is consistent with the protection change is consistent with the Act. available publicly. All submissions
of investors and the public interest. The Comments may be submitted by any of should refer to File Number SR–Phlx–
Exchange has filed the proposed rule the following methods: 2017–22, and should be submitted on or
change for immediate effectiveness and before April 7, 2017.
has requested that the Commission Electronic Comments
For the Commission, by the Division of
waive the requirement that the proposed • Use the Commission’s Internet Trading and Markets, pursuant to delegated
rule change not become operative for 30 comment form (http://www.sec.gov/ authority.20
days after the date of the filing so that rules/sro.shtml); or Eduardo A. Aleman,
it may become operative on February • Send an email to rule-comments@ Assistant Secretary.
28, 2017. sec.gov. Please include File Number SR– [FR Doc. 2017–05341 Filed 3–16–17; 8:45 am]
The Exchange notes that the proposed Phlx–2017–22 on the subject line. BILLING CODE 8011–01–P
rule change is intended to address Paper Comments
confidentiality concerns raised in
connection with the publication of OTC • Send paper comments in triplicate SECURITIES AND EXCHANGE
Appendix B data by permitting the to Secretary, Securities and Exchange COMMISSION
Exchange to delay Web site publication Commission, 100 F Street NE.,
Washington, DC 20549–1090. [Release No. 34–80223; File No. SR–IEX–
of its Appendix B data from February 2016–18]
28, 2017 to April 28, 2017.16 The All submissions should refer to File
Exchange notes that the delay would Number SR–Phlx–2017–22. This file Self-Regulatory Organizations;
provide additional time to assess a number should be included on the Investors Exchange, LLC; Order
means of addressing the confidentiality subject line if email is used. To help the Granting Approval to a Proposed Rule
concerns. The Exchange notes that it Commission process and review your Change To: (i) Amend Rules
expects Participants to file proposed comments more efficiently, please use 11.190(a)(3) and 11.190(b)(8) To Modify
rule changes related to publishing only one method. The Commission will the Operation of the Primary Peg Order
Appendix B data. Type; (ii) Amend Rule
17 The Commission notes that FINRA has filed a
The Commission believes that 11.190(h)(3)(C)(ii) and (D)(ii) Regarding
proposed rule change that is intended to mitigate
waiving the 30-day operative delay is confidentiality concerns raised by commenters Price Sliding in Locked and Crossed
consistent with the protection of regarding the publication of OTC Appendix B data. Markets To Simplify the Price Sliding
investors and the public interest See SR–FINRA–2017–006. Process for Both Primary Peg Orders
18 The Commission notes that other Participants
because it will allow the Exchange to and Discretionary Peg Orders Resting
have proposed to delay the publication of their
delay publication of its Appendix B data Appendix B data until April 28, 2017. See SR–
on or Posting to the Order Book; and
until April 28, 2017. As noted above, BatsBYX–2017–05; SR–BatsBZX–2017–15; SR– (iii) Make Minor Technical Changes To
asabaliauskas on DSK3SPTVN1PROD with NOTICES
commenters continue to raise concerns BatsEDGA–2017–05; SR–BatsEDGX–2017–13; SR– Conform Certain Terminology
about the publication of OTC Appendix BX–2017–016; SR–CHX–2017–05; SR–FINRA–
2017–005; SR–IEX–2017–07; SR–NASDAQ–2017– March 13, 2017.
024; SR–NYSE–2017–10; SR–NYSEArca–2017–19;
14 15 U.S.C. 78s(b)(3)(A). SR–NYSEMKT–2017–11. I. Introduction
15 17 CFR 240.19b–4(f)(6). 19 For purposes only of waiving the operative
16 See supra note 9. The Commission notes that
On November 29, 2016, the Investors
delay for this proposal, the Commission has
FINRA has submitted a proposed rule change to considered the proposed rule’s impact on Exchange LLC (‘‘Exchange’’) filed with
delay the publication of OTC Appendix B data. See efficiency, competition, and capital formation. See
SR–FINRA–2017–005. 15 U.S.C. 78c(f). 20 17 CFR 200.30–3(a)(12).
VerDate Sep<11>2014 20:02 Mar 16, 2017 Jkt 241001 PO 00000 Frm 00043 Fmt 4703 Sfmt 4703 E:\FR\FM\17MRN1.SGM 17MRN1](https://thefederalregister.org/doc/82_FR_14291/page/1.svg)
![Federal Register / Vol. 82, No. 51 / Friday, March 17, 2017 / Notices 14243
the proposed primary peg order type, in locked or crossed markets is SECURITIES AND EXCHANGE
and that it is hardcoded conditionality unnecessarily complicated, without any COMMISSION
based on pre-determined, objective material benefit, and that the proposed
factors.32 In addition, as the [Release No. 34–80225; File No. SR–ISE–
amendments to the approach would 2017–02]
Commission observed in the IEX Form remove the variability of a primary peg
1 Approval, other exchanges offer both order’s booked price in locked or Self-Regulatory Organizations;
discretion and pegging functionalities, crossed market situations, and make the International Securities Exchange,
including the combination of both of Exchange’s rules more clear and LLC; Order Approving Proposed Rule
those functionalities in a single order transparent.37 The Commission believes Change, as Modified by Amendment
type, and thus an order type that offers these changes should help lessen the No. 1, To Amend the Exchange
both discretion and pegging features is complexity in the Exchange’s price Opening Process
not novel.33 sliding rules, which may reduce the
Importantly, the Commission notes March 13, 2017.
that the Exchange’s amended primary potential for investor confusion as to
how primary peg and discretionary peg I. Introduction
peg order type would remain a non-
displayed order type, like all of the orders would price slide in locked or On January 13, 2017, the International
Exchange’s pegged order types, crossed markets, and thereby help Securities Exchange, LLC (‘‘ISE’’ or
including the discretionary peg order protect investors and the public interest ‘‘Exchange’’) filed with the Securities
type.34 Thus, the proposed amended consistent with Section 6(b)(5) of the and Exchange Commission
primary peg order type, with its added Act. In addition, the proposed (‘‘Commission’’), pursuant to Section
discretionary and crumbling quote amendments appear to be consistent 19(b)(1) of the Securities Exchange Act
determination functionalities, should with the requirements of Rule 610(d) of of 1934 (‘‘Act’’),1 and Rule 19b–4
not impact the Exchange’s Regulation NMS which, among other thereunder,2 a proposed rule change to
dissemination of a protected quotation, things, requires that the rules of a amend the Exchange’s opening process.
which must be displayed,35 or market national securities exchange be The proposed rule change was
participants’ ability to execute against reasonably designed to assure the published for comment in the Federal
the Exchange’s protection quotation, reconciliation of locked or crossed Register on January 27, 2017.3 On
and does not appear otherwise designed quotations in an NMS stock.38 March 3, 2017, the Exchange filed
to impede the mechanism of a free and Amendment No. 1 to the proposed rule
Lastly, the Commission believes that change.4 The Commission received no
open market. Accordingly, the
the Exchange’s proposed technical comment letters on the proposed rule
Commission believes that the proposed
change to conform certain terminology change. This order approves the
amendments to the Exchange’s primary
peg order type are consistent with the in its proposed rules is intended to proposed rule change, as modified by
Act and, in particular, the Section enhance the clarity of its rules, which Amendment No. 1.
6(b)(5) requirement that a national should reduce the potential for investor
confusion, and thereby help protect II. Description of the Proposal, as
securities exchange’s rules be designed Modified by Amendment No. 1
to promote just and equitable principles investors and the public interest
of trade, remove impediments to and consistent with Section 6(b)(5) of the The Exchange proposes to delete the
perfect the mechanism of a free and Act. entirety of current ISE Rule 701 and
open market and a national market replace the current Exchange opening
IV. Conclusion process with an opening process
system, and protect investors and the
public interest.36 It is therefore ordered, pursuant to reflected in proposed ISE Rules 701 and
The Commission also believes that the Section 19(b)(2) of the Act,39 that the 715(t).5 The new opening process is
proposed amendments to the proposed rule change (SR–IEX–2016– 1 15 U.S.C. 78s(b)(1).
Exchange’s price sliding process for 18) be and hereby is approved. 2 17 CFR 240.19b–4.
primary peg orders and discretionary 3 See Securities Exchange Act Release No. 79887
peg orders in locked or crossed markets For the Commission, by the Division of
Trading and Markets, pursuant to delegated (February 2, 2017), 82 FR 9090 (‘‘Notice’’).
are consistent with the Act. The 4 In Amendment No. 1, the Exchange provided
Exchange has stated that its existing authority.40
clarifying details to its proposal, including: (i)
approach to price sliding for such orders Expanding its proposed definition of ‘‘Quality
Eduardo A. Aleman, Opening Market’’; (ii) clarifying that only Public
Customer interest is routable during the Opening
32 See proposed Rule 11.190(b)(8) and Rule Assistant Secretary. Process; (iii) clarifying that when routing orders
11.190(g); see also IEX Form 1 Approval, supra note [FR Doc. 2017–05338 Filed 3–16–17; 8:45 am] during the Opening Process the Exchange will do
28, at 41153. so based on price/time priority of routable interest;
33 See IEX Form 1 Approval, supra note 28, at BILLING CODE 8011–01–P
and (iv) clarifying that the proposed opening rule
41153; see also, e.g., Nasdaq Rule 4703(g); NYSE will not provide for after-hours trading rotations.
Arca Equities Rule 7.31P(h)(3). In addition, as the The Exchange also made technical corrections and
Exchange has noted, primary pegged orders on revisions to the proposed rule text for readability
other exchanges may be pegged to prices less and consistency. Amendment No. 1 amends and
aggressive than the near-side primary quote. See replaces the original filing in its entirety. Because
Notice, supra note 3, at 90036–37; see also, e.g., Amendment No. 1 does not materially alter the
BZX Rule 11.9(c)(8)(A). substance of the proposed rule change or raise
asabaliauskas on DSK3SPTVN1PROD with NOTICES
34 See Rules 11.190(a)(3) and (b)(8)(H). The
unique or novel regulatory issues, it is not subject
Commission also notes that primary pegged orders to notice and comment. The amendment is
on other exchanges may be non-displayed. See, e.g., available at: https://www.sec.gov/comments/sr-ise-
BZX Rule 11.9(c)(8)(A). 2017-02/ise201702.htm.
35 See 17 CFR 242.600(b)(57) and (58). 5 The Exchange represents that this proposed rule
36 The Commission notes that the Exchange change is being made in connection with a
37 See Notice, 81 FR at 90037.
would be required to submit a proposed rule change 38 See
technology migration to a Nasdaq, Inc. (‘‘Nasdaq’’)
17 CFR 242.610(d).
pursuant to Section 19(b) of the Act prior to supported architecture called INET which is
39 15 U.S.C. 78s(b)(2).
implementing any changes to the proposed primary utilized on The NASDAQ Options Market LLC,
peg order type. 40 17 CFR 200.30–3(a)(12). Continued
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Document Created: 2017-03-17 02:49:00
Document Modified: 2017-03-17 02:49:00
| 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 | 82 FR 14240 |
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