82 FR 36837 - Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt a Policy Relating to Its Treatment of Trade Reports That It Determines To Be Inconsistent With the Prevailing Market

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 150 (August 7, 2017)

[Federal Register Volume 82, Number 150 (Monday, August 7, 2017)]
[Notices]
[Pages 36837-36839]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-16513]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81278; File No. SR-IEX-2017-24]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Adopt a 
Policy Relating to Its Treatment of Trade Reports That It Determines To 
Be Inconsistent With the Prevailing Market

August 1, 2017.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 18, 2017, the Investors Exchange LLC (``IEX'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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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 
Commission a proposed rule change to adopt a policy relating to its 
treatment of trade reports that it determines to be inconsistent with 
the prevailing market. The Exchange has designated this rule change as 
``non-controversial'' under Section 19(b)(3)(A) of the Act \6\ and 
provided the Commission with the notice required by Rule 19b-4(f)(6) 
thereunder.\7\ 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.
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CRF 240.19b-4.
    \6\ 15 U.S.C. 78s(b)(3)(A).
    \7\ 17 CFR 240.19b-4.
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II. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

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

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

1. Purpose
    Trades in listed securities occasionally occur at prices that 
deviate from prevailing market prices and those trades sometimes 
establish a high, low or last sale price for a security that does not 
reflect the true market for the security. The Consolidated Tape 
Association (``CTA'') Plan and the Nasdaq UTP Plan (``UTP Plan'') each 
offer participants in such plans with the discretion to append an 
Aberrant Report Indicator to a trade report to indicate that the market 
believes that the trade price of a particular trade executed on the 
participant's market does not accurately reflect the prevailing market 
for the security in question.\8\ The New York Stock Exchange 
(``NYSE''), Nasdaq Stock Market (``Nasdaq'') and several other national 
securities exchanges have adopted policies related to use of the 
Aberrant Report Indicator for equities trades that, while not eligible 
for cancellation pursuant to applicable exchange rules governing 
clearly erroneous executions, are determined not to accurately reflect 
the prevailing market for the security in question.\9\ The Exchange 
believes that such policies are appropriate in order to identify such 
trades to vendors and market participants so that they may exclude such 
trades from relevant pricing metrics (e.g., high, low and last sale 
prices). Accordingly, IEX is proposing to adopt a policy substantially 
similar to the existing policies of such other national securities 
exchanges as described below.\10\
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    \8\ The CTA recommends that data recipients should exclude the 
price of any trade to which the Aberrant Report Indicator has been 
appended from any calculation of the high, low and last sale prices 
for the security.
    \9\ See, e.g., Securities Exchange Act Release No. 59151 
(December 23, 2008), 74 FR 158 (January 2, 2009) (SR-NASDAQ-2008-
100) and Securities Exchange Act Release No. 58736 (October 6, 
2008), 73 FR 60380 (October 10, 2008) (SR-NYSE-2008-91).
    \10\ See note 9 supra.
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    During the course of surveillance by the Exchange or as a result of 
notification by another market, listed company,\11\ or market 
participant, the Exchange may become aware of trade prices that do not 
accurately reflect the prevailing market for a security. In such a 
case, the Exchange will contact the listing exchange (if the Exchange 
is not the listing exchange) and other markets (in the case of 
executions that take place across multiple markets) to seek consensus 
as to whether the trade price is consistent with the prevailing market 
for the security. If the Exchange determines that the trade price is 
inconsistent with the prevailing market for the security after 
considering the factors discussed below, the Exchange will append an 
Aberrant Report Indicator to the trade pursuant to applicable CTA and 
UTP procedures. Appending an Aberrant Report Indicator to the trade 
will have no effect on the validity of the underlying trade.
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    \11\ On June 17, 2016 the Commission granted IEX's application 
for registration as a national securities exchange under Section 6 
of the Act including approval of rules applicable to the 
qualification, listing and delisting of companies on the Exchange. 
(See Securities Exchange Act Release No. 34-78101 (June 17, 2016), 
81 FR 41141 (June 23, 2016) (File No. 10-222)). The Exchange plans 
to begin a listing program in 2017.
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    IEX currently trades securities on an unlisted trading privilege 
(``UTP'') basis, that are listed on other exchanges. IEX also intends 
to become a primary listing exchange. The proposed policy would be 
applicable to trades that occur on IEX, whether traded on a UTP basis 
or listed on IEX.
    In making the determination to append the Aberrant Report Indicator 
to a particular trade, the Exchange shall consider all factors related 
to a trade, including, but not limited to, the following:
     Material news released for the security;
     Suspicious trading activity;
     System malfunctions or disruptions;
     Locked or crossed markets;
     A recent trading halt or resumption of trading in the 
security;
     Whether the security is in its initial public offering;
     Volume and volatility for the security;

[[Page 36838]]

     Whether the trade represents a 52-week high or low for the 
security;
     Whether the trade price deviates significantly from recent 
trading patterns in the security;
     Whether the trade price reflects a stock-split, 
reorganization or other corporate action;
     The validity of consolidated tape trades and quotes in 
comparison to national best bids and offers; and
     The general volatility of market conditions.
    In determining whether trade prices are inconsistent with the 
prevailing market, the Exchange proposes that its policy shall be to 
follow the following general guidelines: The Exchange will review 
whether a trade price does not reflect the prevailing market for a 
security if the trade occurs during regular trading hours (i.e., 9:30 
a.m. to 4 p.m.) and occurs at a price that deviates from the 
``Reference Price'' by an amount that meets or exceeds the following 
thresholds:

------------------------------------------------------------------------
                                                               Numerical
                         Trade price                           threshold
                                                               (percent)
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Between $0 and $15.00.......................................           7
Between $15.01 and $50.00...................................           5
In excess of $50.00.........................................           3
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    The ``Reference Price'' refers to (a) if the primary market for the 
security is open at the time of the trade, the national best bid or 
offer for the security, or (b) if the primary market for the security 
is not open at the time of the trade, the first executable quote or 
print for the security on the primary market after execution of the 
trade in question. However, if the circumstances suggest that a 
different Reference Price would be more appropriate, the Exchange will 
use the different Reference Price. For instance, if the national best 
bid and offer for the security are so wide apart as to fail to reflect 
the market for the security, the Exchange might use as the Reference 
Price a trade price or best bid or offer that was available prior to 
the trade in question.
    If IEX determines that a trade price does not reflect the 
prevailing market for a security and the trade represented the last 
sale of the security on the Exchange during a trading session, the 
Exchange may also determine to remove that trade's designation as the 
last sale and the preceding last sale eligible trade would become the 
new last sale. IEX may do so either on the day of the trade or at a 
later date, so as to provide reasonable time for the Exchange to 
conduct due diligence regarding the trade, including the consideration 
of input from markets and other market participants.
    In connection with the proposed policy, IEX shall discourage 
vendors and other data recipients from using prices to which the 
Exchange has appended the Aberrant Report Indicator in any calculation 
of the high, low or last sale price of a security; and will urge 
vendors to disclose the exclusion from high, low or last sale price 
data of ay trades with an Aberrant Report Indicator and exclude them 
from high, low or last sale price information they disseminate and to 
provide to data users an explanation of the parameters used in the 
Exchange's aberrant trade policy.\12\
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    \12\ Once its listing program begins, the Exchange will advise 
each listed company of the aberrant trade policy, including that any 
trade for which the Aberrant report Indicator is applied will remain 
a valid trade.
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2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6(b) \13\ of the Act in general, and furthers the 
objectives of Section 6(b)(5) of the Act \14\ in particular, in that it 
is 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.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(5).
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    In particular, and as described in rule change proposals of NYSE, 
Nasdaq and other national securities exchanges to adopt a policy on the 
use of the Aberrant Report Indicator, the Exchange believes that the 
Aberrant Report Indicator is consistent with the protection of 
investors and the public interest in that the Exchange will seek to 
ensure a proper understanding of the Aberrant Report Indicator among 
securities market participants by: (i) Urging vendors to disclose the 
exclusion from high, low or last sale price data of any aberrant trades 
excluded from high, low or last sale price information they disseminate 
and to provide to data users an explanation of the parameters used in 
the Exchange's aberrant trade policy; (ii) once the Exchange's listing 
program begins, informing the affected listed company each time the 
Exchange or another market appends the Aberrant Report Indicator to an 
Exchange listed stock; and (iii) reminding the users of the information 
that these are still valid trades in that they were executed an not 
unwound as in the case of a clearly erroneous trade.
    Additionally, the Exchange believes that the proposed rule change 
is a reasonable means to alert investors and others that the Exchange 
believes that the trade price for a particular trade executed in its 
market does not accurately reflect the prevailing market for the 
security. Further, the Exchange will use the same factors, including 
objective numerical thresholds in determining whether a trade report is 
eligible to have an Aberrant Trade Indictor appended to it. As 
discussed in the Purpose Section and above, other national securities 
exchanges have adopted substantially similar policies. Accordingly, the 
proposed rule change does not raise any new or novel issues that have 
not already been considered by the Commission.

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. The proposed rule change is designed to 
enable the Exchange to apply the Aberrant Report Indicator in a manner 
consistent with its existing use by other national securities 
exchanges, thereby increasing transparency regarding trades executed at 
prices that do not reflect the prevailing market, and not to address 
any competitive issues. The Exchange will utilize the indicator in a 
consistent manner with respect to all Members and listed companies. The 
Exchange thus does not believe the proposal will burden competition 
because it will provide for consistency between the Exchange's policy 
related to use of the Aberrant Trade Indicator and those of other 
national securities exchanges.

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

    Written comments were neither solicited nor received.

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

    The Exchange has designated this rule filing as non-controversial 
under Section 19(b)(3)(A) \15\ of the Act and Rule 19b-4(f)(6) \16\ 
thereunder. Because the proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the

[[Page 36839]]

Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\18\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay. The Exchange 
represents that waiver will allow it to append promptly, without the 
need to wait for the expiration of the 30-day operative delay period, 
an Aberrant Report Indicator to trades that occur that do not reflect 
the prevailing market, thereby avoiding confusion regarding pricing of 
those trades. The Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. The Commission notes that IEX has represented that its 
proposal is substantially similar to the policies of other exchanges 
\19\ that are currently operative and therefore the proposal does not 
raise any new or novel issues that have not already been considered by 
the Commission. Allowing IEX to attach Aberrant Report Indicators will 
therefore allow IEX to utilize the approach used by other exchanges to 
flag that information for investors, which should help protect 
investors by disclosing important information without delay for any 
such trades that occur on IEX. Accordingly, the Commission hereby 
waives the 30-day operative delay requirement and designates the 
proposed rule change operative upon filing.\20\
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ See note 9 supra.
    \20\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \21\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \21\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-IEX-2017-24 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-2017-24. This file 
number should be included in 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 Section, 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 will also 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-2017-24 and should be 
submitted on or before August 28, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-16513 Filed 8-4-17; 8:45 am]
BILLING CODE 8011-01-P