82 FR 51319 - Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Clarify the Eligibility of Market Orders and Limit Orders With a Time-In-Force of DAY for a Volatility Auction Occurring Outside of Regular Market Hours
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 212 (November 3, 2017)
Federal Register Volume 82, Issue 212 (November 3, 2017)
| Page Range | 51319-51322 | |
| FR Document | 2017-23928 |
[Federal Register Volume 82, Number 212 (Friday, November 3, 2017)] [Notices] [Pages 51319-51322] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-23928] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-81982; File No. SR-IEX-2017-36] Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Clarify the Eligibility of Market Orders and Limit Orders With a Time-In-Force of DAY for a Volatility Auction Occurring Outside of Regular Market Hours October 30, 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 October 19, 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. --------------------------------------------------------------------------- \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 (a)[sic] 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 clarify the eligibility of market orders and limit orders with a time-in-force of DAY \6\ for a Volatility Auction \7\ occurring outside of Regular Market Hours.\8\ The Exchange has designated this rule change as ``non- controversial'' under Section 19(b)(3)(A) of the Act \9\ and provided the Commission with the notice required by Rule 19b-4(f)(6) thereunder.\10\ --------------------------------------------------------------------------- \4\ 15 U.S.C. 78s(b)(1). \5\ 17 CRF 240.19b-4. \6\ See Rule 11.190(c)(3). \7\ See Rule 11.350(f). \8\ See Rule 1.160(gg). \9\ 15 U.S.C. 78s(b)(3)(A). \10\ 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. [[Page 51320]] II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statement [sic] may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this proposed rule change is to clarify the eligibility of market orders and limit orders with a time-in-force of DAY for a Volatility Auction occurring outside of Regular Market Hours. On August 4, 2017, the Commission approved a proposed rule change filed by the Exchange to adopt rules governing auctions in IEX-listed securities, including a Volatility Auction process to resume trading after a Limit Up-Limit Down trading pause in an IEX-listed security.\11\ The Exchange intends on launching a listings program for corporate issuers in the fourth quarter of 2017. --------------------------------------------------------------------------- \11\ See Securities Exchange Act Release No. 81316 (August 4, 2017), 82 FR 37474 (August 10, 2017). --------------------------------------------------------------------------- Pursuant to Rule 11.350(f), the Exchange will conduct a Volatility Auction to resume trading following a Limit Up-Limit Down trading pause in an IEX-listed security pursuant to IEX Rule 11.280(e). Furthermore, pursuant to Rule 11.350(f)(3), when an IEX-listed security is paused pursuant to IEX Rule 11.280(e) at or after the Closing Auction Lock-in Time,\12\ or the Order Acceptance Period \13\ of a Volatility Auction for a security paused before the Closing Auction Lock-in Time pursuant to IEX Rule 11.280(e) would otherwise be extended by the Exchange to a time after the Closing Auction Lock-in Time, no Closing Auction for the security will occur. Instead, the Exchange will conduct a Volatility Auction at the end of Regular Market Hours to determine the IEX Official Closing Price for the security. --------------------------------------------------------------------------- \12\ See Rule 11.350(a)(22). \13\ See Rule 11.350(a)(29)(C). --------------------------------------------------------------------------- When the Exchange is closing with a Volatility Auction pursuant to Rule 11.350(f)(3), Users may begin entering Auction Eligible Orders at the beginning of the Order Acceptance Period for participation in the Volatility Auction. Furthermore, Market-On-Close (``MOC'') \14\ and Limit-On-Close (``LOC'') \15\ orders queued for the Closing Auction will be incorporated into the Auction Book \16\ for the Volatility Auction. Moreover, non-displayed interest with a time-in-force of DAY and pegged orders are immediately canceled, in order to allow Users to re-enter such interest as Auction Eligible Orders.\17\ In contrast to the Closing Auction, there are no ``lock-in'' or ``lock-out'' restrictions on order entry, modification, or cancellation leading up to the Volatility Auction. --------------------------------------------------------------------------- \14\ See Rule 11.350(a)(24). \15\ See Rule 11.350(a)(20). \16\ See Rule 11.350(a)(1). \17\ See Rule 11.350(a)(2). --------------------------------------------------------------------------- At the end of Regular Market Hours, the Exchange will attempt to conduct the Volatility Closing auction using all Auction Eligible Orders. However, if there is a market order imbalance (i.e., one or more market order shares will not be executed in the auction), or the auction match price is outside of the Volatility Auction Collar \18\ (either resulting in an ``Impermissible Price'' \19\), the Order Acceptance Period is automatically extended for five minutes, and the Volatility Auction Collar is expanded in the direction of the Impermissible Price.\20\ Similarly, if the Indicative Clearing Price differs by the greater of five percent (5%) or fifty cents ($0.50) from any of the previous fifteen (15) Indicative Clearing Price disseminations, the Order Acceptance period will be extended for an additional five-minute period.\21\ Pursuant to Supplemental Material .03 of Rule 11.350(a), if a Volatility Auction originally scheduled to occur during Regular Market Hours receives an automatic extension which causes the auction to occur outside of Regular Market Hours, limit orders with a time-in-force of DAY, and market orders which were submitted during the Order Acceptance Period within Regular Market Hours are included in the Volatility Auction, and are only canceled by the System after the auction match, or if the auction is extended to the end of Post-Market Hours.\22\ --------------------------------------------------------------------------- \18\ See Rule 11.350(a)(31). \19\ See Rule 11.350(a)(17). \20\ See Rule 11.350(f)(3)(B)(ii)(d). See also Rule 11.350(f)(2)(D) regarding the process for incremental extensions of the Order Acceptance Period. \21\ See Rule 11.350(f)(3)(B)(ii)(e). \22\ See Rule 1.160(aa). --------------------------------------------------------------------------- Proposed Clarifications During development and testing of the functionality for Volatility Auctions, the Exchange identified a minor ambiguity in Supplemental Material .03 of Rule 11.350(a) regarding the eligibility of market orders and limit orders with a time-in-force of DAY when closing with a Volatility Auction outside of Regular Market Hours. Specifically, Supplemental Material .03 does not distinguish between routable and non-routable orders. Thus, the Exchange proposes to clarify that only non-routable limit orders with a time-in-force of DAY, and non-routable market orders which were submitted during the Order Acceptance Period within Regular Market Hours, are included in the Volatility Auction. The Exchange's routing logic is one of numerous distributed components that together make up the Exchange's System, but is separate and distinct from the order book logic that is responsible for conducting the Volatility Auction match; however, the Exchange did not explicitly make this important distinction between such processes in the current Supplemental Material .03. Furthermore, the interactions between the routing logic and the order book are optimized for continuous trading, and the archetypal Opening, Closing, IPO, Halt, and Volatility Auctions, but supporting the extended expiration of routable orders with a time-in-force of DAY when the Exchange is closing with a Volatility Auction that is extended beyond Regular Market Hours requires complex technology changes that raise risks to the System. Accordingly, in the interest of investor protection and the public interest, the Exchange is proposing to instead clarify that such routable orders will not be included in the Volatility Auction, and will instead be canceled at the end of Regular Market Hours in accordance with their standard expiry instructions.\23\ --------------------------------------------------------------------------- \23\ Notably, based on an analysis conducted by the Exchange of trading activity year to date, there have been only ten (10) cases where a trading pause was in effect during the final ten (10) minutes of the trading day, eight (8) of which occurred on fully electronic markets causing such primary listing market to close the security using an auction equivalent to the IEX Volatility Auction, but in none of the eight cases was there an extension of such auction that pushed the auction match beyond Regular Market Hours. Thus, the Exchange believes this scenario to be an extremely rare edge case. --------------------------------------------------------------------------- The Exchange notes that Users intending to trade in a Volatility Auction which is extended that receive cancelations at the end of Regular Market Hours on routable orders with a time-in-force of DAY when the Exchange is closing with a Volatility Auction that is extended beyond [[Page 51321]] Regular Market Hours will have a five-minute opportunity to re-enter such orders as Auction Eligible Orders during the extended Order Acceptance Period. Thus, the Exchange believes that there will be no material adverse impact to Users that choose to interact with IEX Auctions using routable orders when the Exchange is closing with a Volatility Auction that is extended beyond Regular Market Hours. In addition to the proposed clarification discussed above, the Exchange proposes to further clarify that only non-routable market orders entered during the Order Acceptance Period within Regular Market Hours are included in the Volatility Auction when the Exchange is closing with a Volatility Auction that is extended beyond Regular Market Hours. On September 26, 2017, the Commission noticed an immediately effective Exchange rule filing to, in part, clarify that in the event an IEX-listed security is subject to a trading pause, the Router Constraint Reference Price \24\ is invalid.\25\ Furthermore, the Exchange clarified that pursuant to Rule 11.190(f)(2)(B), in the absence of a valid Router Constraint Reference Price, the Exchange will reject any routable orders for the security. Accordingly, consistent with Rule 11.190(f)(2)(B), the Exchange proposes to clarify that when the Exchange is closing with a Volatility Auction, only non-routable market orders entered during the Order Acceptance Period within Regular Market Hours will be included in the Volatility Auction, because routable market orders will be rejected. --------------------------------------------------------------------------- \24\ Rule 11.190(f)(2) sets forth the operation of the IEX Router Constraint, which prevents an order from routing at prices more aggressive than the Router Constraint price range. The Order Collar and Router Constraint price ranges are calculated by applying the numerical guidelines for clearly erroneous executions to the Order Collar Reference Price and Router Constraint Reference Price, respectively. \25\ See Securities and Exchange Act Release No. 81662 (September 20, 2017), 82 FR 44861 (September 26, 2017) (SR-IEX-2017- 31). --------------------------------------------------------------------------- Lastly, as announced in IEX Trading Alert #2017-015, the Exchange intends to become a primary listing exchange and support its first IEX- listed security in November of 2017.\26\ In addition, as part of the listings initiative, the Exchange is providing a series of industry wide weekend tests for the Exchange and its Members to exercise the various technology changes required to support IEX Auctions and listings functionality.\27\ Accordingly, in order to provide clarity to Members and other market participants regarding the handling of orders eligible for participation in the Volatility Auction when the Exchange is closing with a Volatility Auction, and such auction is extended past the end of Regular Market Hours, the Exchange is proposing to make the clarifying changes to Supplemental Material .03 of Rule 11.350(a), as described above. --------------------------------------------------------------------------- \26\ See IEX Trading Alert #2017-015 (Listings Specifications, Testing Opportunities, and Timelines), May 31, 2017. See also IEX Trading Alert #2017-040 (Rescheduled 4th Listing Functionality Industry Test), September 29, 2017. \27\ See, e.g., IEX Trading Alert #2017-028 (First Listings Functionality Industry Test on Saturday, August 26), August 17, 2017; IEX Trading Alert #2017-037 (Second Listings Functionality Industry Test on Saturday, September 9), September 7, 2017; IEX Trading Alert #2017-039 (Third Listings Functionality Industry Test on Saturday, September 23), September 18, 2017; IEX Trading Alert #2017-040 (Rescheduled 4th Listing Functionality Industry Test), September 29, 2017. --------------------------------------------------------------------------- 2. Statutory Basis IEX believes that the proposed rule change is consistent with the provisions of Section 6(b) \28\ of the Act in general, and furthers the objectives of Section 6(b)(5) of the Act \29\ in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. --------------------------------------------------------------------------- \28\ 15 U.S.C. 78f. \29\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange believes that the proposed rule clarification does not alter the substantive functionality governing the process for closing with a Volatility Auction that is extended beyond Regular Market Hours, but instead clarifies the Exchanges [sic] handling of orders during such process, and makes the Exchanges [sic] rules more clear and complete. The Exchange further believes that the proposed clarifying rule change is consistent with the protection of investors and the public interest because the proposed clarifications are designed to avoid any potential confusion regarding the Exchange's handling of orders when closing with a Volatility Auction that is extended beyond Regular Market Hours as IEX continues industry-wide testing to exercise the technology changes being made by the Exchange and its Members to support IEX as a listings market. Additionally, the Exchange believes it is consistent with the Act to clarify the rule provisions governing the process for closing with a Volatility Auction that is extended beyond Regular Market Hours so that IEX's rules are accurate and descriptive of the System's functionality as approved by the Commission, and to avoid any potential confusion among Members and market participants regarding such functionality. Lastly, as discussed above, the Exchange believes that providing Users the proposed clarification regarding the Exchange's order handling is consistent with the protection of investors and the public interest, because supporting the extended expiration of routable orders with a time-in-force of DAY when the Exchange is closing with a Volatility Auction that is extended beyond Regular Market Hours requires complex technology changes that raise potential risks to the System. Accordingly, the Exchange is proposing to clarify the handling of such orders, rather than increase the technical complexities within the System that raise risks to Exchange operations, Members, and their investor clients. The Exchange also believes that the proposed rule change would not result in unfair discrimination, since all Members can enter routable or non-routable orders. Moreover, as discussed in the Burden on Competition section, Users intending to trade in the Closing Auction or the Volatility Auction that receive cancelations will have a five- minute opportunity to re-enter such orders as Auction Eligible Orders during the extended Order Acceptance Period. 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 Exchange believes that the proposed correction does not impact inter-market competition in any respect since it is designed to clarify the Exchange's handling of orders when closing with a Volatility Auction that is extended beyond Regular Market Hours, without substantively changing the approved Rules governing such process. In addition, the Exchange does not believe that the proposed changes will have any impact on intra-market competition. Specifically, the Exchange believes that although routable limit orders with a time- in-force of DAY will be canceled at the end of Regular Market Hours when the Exchange is closing with a Volatility Auction that is extended beyond Regular Market Hours, whereas non-routable limit orders with a time-in-force of DAY will be eligible to participate in the Auction, Users intending to trade in the Closing Auction or the Volatility Auction that receive cancelations will have a five-minute opportunity to re-enter such [[Page 51322]] orders as Auction Eligible Orders during the extended Order Acceptance Period. Similarly, the Exchange believes that although routable market orders entered during the Order Acceptance Period within Regular Market Hours will be rejected and therefore will not be eligible to participate in the auction when the Exchange is closing with a Volatility Auction, whereas non-routable market orders entered during the Order Acceptance Period within Regular Market Hours will be eligible to participate in the auction, Users intending to trade in the Volatility Auction that are rejected upon entry will have an opportunity to re-enter such orders as Auction Eligible Orders during the entire Order Acceptance Period. Thus, the Exchange believes that there will be no material adverse impact on competition between Members, or to any individual Member that chooses to interact with IEX Auctions using routable orders when the Exchange is closing with a Volatility Auction that is extended beyond Regular Market Hours. Furthermore, the Exchange notes that Users are free to enter both routable and non-routable orders on the Exchange, and therefore can optimize their interaction with the Exchange to avoid any unwanted cancelation. 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 Because the proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act \30\ and Rule 19b-4(f)(6) thereunder.\31\ --------------------------------------------------------------------------- \30\ 15 U.S.C. 78s(b)(3)(A). \31\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) requires the Exchange to give the Commission written notice of the Exchange's intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. --------------------------------------------------------------------------- A proposed rule change filed under Rule 19b-4(f)(6) \32\ normally does not become operative for 30 days after the date of filing. However, pursuant to Rule 19b-4(f)(6)(iii),\33\ the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission believes that waiver of the operative delay is consistent with the protection of investors and the public interest because the Exchange's proposal does not raise any new or novel issues. In addition, the Commission notes that, as described above, Users whose routable orders are cancelled pursuant to the proposed rule will have an opportunity to participate in the auction when IEX closes with a Volatility Auction that occurs outside Regular Market Hours by re-entering their orders as Auction Eligible Orders during the extended Order Acceptance Period. Accordingly, the Commission hereby waives the 30-day operative delay requirement and designates the proposed rule change as operative upon filing.\34\ --------------------------------------------------------------------------- \32\ 17 CFR 240.19b-4(f)(6). \33\ 17 CFR 240.19b-4(f)(6)(iii). \34\ For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) of the Act to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to rule-comments@sec.gov. Please include File Number SR-IEX-2017-36 on the subject line. Paper Comments Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-IEX-2017-36. 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 20549-1090. Copies of the filing will also be available for inspection and copying at the IEX's principal office and on its Internet Web site at www.iextrading.com. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-IEX-2017-36 and should be submitted on or before November 24, 2017. --------------------------------------------------------------------------- \35\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\35\ Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-23928 Filed 11-2-17; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 82, No. 212 / Friday, November 3, 2017 / Notices 51319
and facilitating transactions in change is consistent with the Act. SECURITIES AND EXCHANGE
securities, to remove impediments to Comments may be submitted by any of COMMISSION
and perfect the mechanism of a free and the following methods:
open market and a national market [Release No. 34–81982; File No. SR–IEX–
Electronic Comments
system, and, in general, to protect 2017–36]
investors and the public interest. • Use the Commission’s Internet
In particular, the proposed change is comment form (http://www.sec.gov/ Self-Regulatory Organizations;
a non-substantive change and does not rules/sro.shtml); or Investors Exchange LLC; Notice of
impact the governance, ownership or • Send an email to rule-comments@ Filing and Immediate Effectiveness of
operations of the Exchange. The sec.gov. Please include File Number SR– Proposed Rule Change To Clarify the
Exchange believes that by ensuring that C2–2017–028 on the subject line. Eligibility of Market Orders and Limit
its parent company’s governance
Paper Comments Orders With a Time-In-Force of DAY for
documents and the Exchanges operative
a Volatility Auction Occurring Outside
documents accurately reflect the new • Send paper comments in triplicate
legal names, the proposed rule change of Regular Market Hours
to Brent J. Fields, Secretary, Securities
would reduce potential investor or and Exchange Commission, 100 F Street October 30, 2017.
market participant confusion. NE., Washington, DC 20549–1090. Pursuant to Section 19(b)(1) 1 of the
B. Self-Regulatory Organization’s All submissions should refer to File Securities Exchange Act of 1934 (the
Statement on Burden on Competition Number SR–C2–2017–028. This file ‘‘Act’’) 2 and Rule 19b–4 thereunder,3
The Exchange does not believe that number should be included on the notice is hereby given that on October
the proposed rule change will impose subject line if email is used. To help the 19, 2017, the Investors Exchange LLC
any burden on competition that is not Commission process and review your (‘‘IEX’’ or the ‘‘Exchange’’) filed with the
necessary or appropriate in furtherance comments more efficiently, please use Securities and Exchange Commission
of the purposes of the Act. The only one method. The Commission will (the ‘‘Commission’’) the proposed rule
proposed rule change is not intended to post all comments on the Commission’s change as described in Items I and II
address competitive issues but rather is Internet Web site (http://www.sec.gov/ below, which Items have been prepared
concerned solely with updating the rules/sro.shtml). Copies of the by the self-regulatory organization. The
Company’s and Exchange’s governance submission, all subsequent
Commission is publishing this notice to
and operative documents to reflect the amendments, all written statements
solicit comments on the proposed rule
abovementioned name change. with respect to the proposed rule
change from interested persons.
change that are filed with the
C. Self-Regulatory Organization’s Commission, and all written I. Self-Regulatory Organization’s
Statement on Comments on the communications relating to the Statement of the Terms of Substance of
Proposed Rule Change Received From proposed rule change between the the Proposed Rule Change
Members, Participants, or Others Commission and any person, other than
The Exchange neither solicited nor those that may be withheld from the (a)[sic] Pursuant to the provisions of
received comments on the proposed public in accordance with the Section 19(b)(1) under the Securities
rule change. provisions of 5 U.S.C. 552, will be Exchange Act of 1934 (‘‘Act’’),4 and
available for Web site viewing and Rule 19b–4 thereunder,5 Investors
III. Date of Effectiveness of the printing in the Commission’s Public Exchange LLC (‘‘IEX’’ or ‘‘Exchange’’) is
Proposed Rule Change and Timing for Reference Room, 100 F Street NE.,
Commission Action filing with the Commission a proposed
Washington, DC 20549, on official rule change to clarify the eligibility of
The foregoing rule change has become business days between the hours of market orders and limit orders with a
effective pursuant to Section 19(b)(3)(A) 10:00 a.m. and 3:00 p.m. Copies of the time-in-force of DAY 6 for a Volatility
of the Act 7 and paragraph (f) of Rule filing also will be available for Auction 7 occurring outside of Regular
19b–4 8 thereunder. At any time within inspection and copying at the principal Market Hours.8 The Exchange has
60 days of the filing of the proposed rule office of the Exchange. All comments designated this rule change as ‘‘non-
change, the Commission summarily may received will be posted without change. controversial’’ under Section 19(b)(3)(A)
temporarily suspend such rule change if Persons submitting comments are of the Act 9 and provided the
it appears to the Commission that such cautioned that we do not redact or edit
action is necessary or appropriate in the Commission with the notice required by
personal identifying information from
public interest, for the protection of Rule 19b–4(f)(6) thereunder.10
comment submissions. You should
investors, or otherwise in furtherance of submit only information that you wish The text of the proposed rule change
the purposes of the Act. If the to make available publicly. All is available at the Exchange’s Web site
Commission takes such action, the submissions should refer to File at www.iextrading.com, at the principal
Commission will institute proceedings Number SR–C2–2017–028 and should office of the Exchange, and at the
to determine whether the proposed rule be submitted on or before November 24, Commission’s Public Reference Room.
change should be approved or 2017.
disapproved. For the Commission, by the Division of 1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
IV. Solicitation of Comments Trading and Markets, pursuant to delegated
ethrower on DSK3G9T082PROD with NOTICES
3 17 CFR 240.19b–4.
authority.9
Interested persons are invited to 4 15 U.S.C. 78s(b)(1).
Eduardo A. Aleman,
submit written data, views, and 5 17 CRF 240.19b–4.
Assistant Secretary.
arguments concerning the foregoing, 6 See Rule 11.190(c)(3).
including whether the proposed rule [FR Doc. 2017–23925 Filed 11–2–17; 8:45 am] 7 See Rule 11.350(f).
BILLING CODE 8011–01–P 8 See Rule 1.160(gg).
7 15 U.S.C. 78s(b)(3)(A). 9 15 U.S.C. 78s(b)(3)(A).
8 17 CFR 240.19b–4(f). 9 17 CFR 200.30–3(a)(12). 10 17 CFR 240.19b–4.
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![51320 Federal Register / Vol. 82, No. 212 / Friday, November 3, 2017 / Notices
II. Self-Regulatory Organization’s 11.350(f)(3), Users may begin entering Proposed Clarifications
Statement of the Purpose of, and Auction Eligible Orders at the beginning During development and testing of the
Statutory Basis for, the Proposed Rule of the Order Acceptance Period for functionality for Volatility Auctions, the
Change participation in the Volatility Auction. Exchange identified a minor ambiguity
In its filing with the Commission, the Furthermore, Market-On-Close in Supplemental Material .03 of Rule
self-regulatory organization included (‘‘MOC’’) 14 and Limit-On-Close 11.350(a) regarding the eligibility of
statements concerning the purpose of (‘‘LOC’’) 15 orders queued for the market orders and limit orders with a
and basis for the proposed rule change Closing Auction will be incorporated time-in-force of DAY when closing with
and discussed any comments it received into the Auction Book 16 for the a Volatility Auction outside of Regular
on the proposed rule change. The text Volatility Auction. Moreover, non- Market Hours. Specifically,
of these statement [sic] may be displayed interest with a time-in-force Supplemental Material .03 does not
examined at the places specified in Item of DAY and pegged orders are distinguish between routable and non-
IV below. The self-regulatory immediately canceled, in order to allow routable orders. Thus, the Exchange
organization has prepared summaries, Users to re-enter such interest as proposes to clarify that only non-
set forth in Sections A, B, and C below, Auction Eligible Orders.17 In contrast to routable limit orders with a time-in-
of the most significant aspects of such the Closing Auction, there are no ‘‘lock- force of DAY, and non-routable market
statements. in’’ or ‘‘lock-out’’ restrictions on order orders which were submitted during the
entry, modification, or cancellation Order Acceptance Period within Regular
A. Self-Regulatory Organization’s leading up to the Volatility Auction. Market Hours, are included in the
Statement of the Purpose of, and Volatility Auction. The Exchange’s
Statutory Basis for, the Proposed Rule At the end of Regular Market Hours,
the Exchange will attempt to conduct routing logic is one of numerous
Change distributed components that together
the Volatility Closing auction using all
1. Purpose Auction Eligible Orders. However, if make up the Exchange’s System, but is
there is a market order imbalance (i.e., separate and distinct from the order
The purpose of this proposed rule book logic that is responsible for
change is to clarify the eligibility of one or more market order shares will
not be executed in the auction), or the conducting the Volatility Auction
market orders and limit orders with a match; however, the Exchange did not
time-in-force of DAY for a Volatility auction match price is outside of the
Volatility Auction Collar 18 (either explicitly make this important
Auction occurring outside of Regular distinction between such processes in
Market Hours. On August 4, 2017, the resulting in an ‘‘Impermissible
the current Supplemental Material .03.
Commission approved a proposed rule Price’’ 19), the Order Acceptance Period
Furthermore, the interactions between
change filed by the Exchange to adopt is automatically extended for five
the routing logic and the order book are
rules governing auctions in IEX-listed minutes, and the Volatility Auction
optimized for continuous trading, and
securities, including a Volatility Collar is expanded in the direction of
the archetypal Opening, Closing, IPO,
Auction process to resume trading after the Impermissible Price.20 Similarly, if
Halt, and Volatility Auctions, but
a Limit Up-Limit Down trading pause in the Indicative Clearing Price differs by
supporting the extended expiration of
an IEX-listed security.11 The Exchange the greater of five percent (5%) or fifty
routable orders with a time-in-force of
intends on launching a listings program cents ($0.50) from any of the previous
DAY when the Exchange is closing with
for corporate issuers in the fourth fifteen (15) Indicative Clearing Price
a Volatility Auction that is extended
quarter of 2017. disseminations, the Order Acceptance beyond Regular Market Hours requires
Pursuant to Rule 11.350(f), the period will be extended for an complex technology changes that raise
Exchange will conduct a Volatility additional five-minute period.21 risks to the System. Accordingly, in the
Auction to resume trading following a Pursuant to Supplemental Material .03 interest of investor protection and the
Limit Up-Limit Down trading pause in of Rule 11.350(a), if a Volatility Auction public interest, the Exchange is
an IEX-listed security pursuant to IEX originally scheduled to occur during proposing to instead clarify that such
Rule 11.280(e). Furthermore, pursuant Regular Market Hours receives an routable orders will not be included in
to Rule 11.350(f)(3), when an IEX-listed automatic extension which causes the the Volatility Auction, and will instead
security is paused pursuant to IEX Rule auction to occur outside of Regular be canceled at the end of Regular Market
11.280(e) at or after the Closing Auction Market Hours, limit orders with a time- Hours in accordance with their standard
Lock-in Time,12 or the Order in-force of DAY, and market orders expiry instructions.23
Acceptance Period 13 of a Volatility which were submitted during the Order The Exchange notes that Users
Auction for a security paused before the Acceptance Period within Regular intending to trade in a Volatility
Closing Auction Lock-in Time pursuant Market Hours are included in the Auction which is extended that receive
to IEX Rule 11.280(e) would otherwise Volatility Auction, and are only cancelations at the end of Regular
be extended by the Exchange to a time canceled by the System after the auction Market Hours on routable orders with a
after the Closing Auction Lock-in Time, match, or if the auction is extended to time-in-force of DAY when the
no Closing Auction for the security will the end of Post-Market Hours.22 Exchange is closing with a Volatility
occur. Instead, the Exchange will Auction that is extended beyond
conduct a Volatility Auction at the end 14 See Rule 11.350(a)(24).
15 See Rule 11.350(a)(20).
of Regular Market Hours to determine 23 Notably, based on an analysis conducted by the
16 See Rule 11.350(a)(1). Exchange of trading activity year to date, there have
the IEX Official Closing Price for the 17 See Rule 11.350(a)(2). been only ten (10) cases where a trading pause was
ethrower on DSK3G9T082PROD with NOTICES
security. 18 See Rule 11.350(a)(31). in effect during the final ten (10) minutes of the
When the Exchange is closing with a 19 See Rule 11.350(a)(17). trading day, eight (8) of which occurred on fully
Volatility Auction pursuant to Rule 20 See Rule 11.350(f)(3)(B)(ii)(d). See also Rule
electronic markets causing such primary listing
market to close the security using an auction
11.350(f)(2)(D) regarding the process for equivalent to the IEX Volatility Auction, but in
11 See Securities Exchange Act Release No. 81316 incremental extensions of the Order Acceptance none of the eight cases was there an extension of
(August 4, 2017), 82 FR 37474 (August 10, 2017). Period. such auction that pushed the auction match beyond
12 See Rule 11.350(a)(22). 21 See Rule 11.350(f)(3)(B)(ii)(e).
Regular Market Hours. Thus, the Exchange believes
13 See Rule 11.350(a)(29)(C). 22 See Rule 1.160(aa). this scenario to be an extremely rare edge case.
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![Federal Register / Vol. 82, No. 212 / Friday, November 3, 2017 / Notices 51321
Regular Market Hours will have a five- functionality.27 Accordingly, in order to Commission, and to avoid any potential
minute opportunity to re-enter such provide clarity to Members and other confusion among Members and market
orders as Auction Eligible Orders during market participants regarding the participants regarding such
the extended Order Acceptance Period. handling of orders eligible for functionality.
Thus, the Exchange believes that there participation in the Volatility Auction Lastly, as discussed above, the
will be no material adverse impact to when the Exchange is closing with a Exchange believes that providing Users
Users that choose to interact with IEX Volatility Auction, and such auction is the proposed clarification regarding the
Auctions using routable orders when extended past the end of Regular Market Exchange’s order handling is consistent
the Exchange is closing with a Volatility Hours, the Exchange is proposing to with the protection of investors and the
Auction that is extended beyond make the clarifying changes to public interest, because supporting the
Regular Market Hours. Supplemental Material .03 of Rule extended expiration of routable orders
In addition to the proposed 11.350(a), as described above. with a time-in-force of DAY when the
clarification discussed above, the Exchange is closing with a Volatility
2. Statutory Basis Auction that is extended beyond
Exchange proposes to further clarify that
only non-routable market orders entered IEX believes that the proposed rule Regular Market Hours requires complex
during the Order Acceptance Period change is consistent with the provisions technology changes that raise potential
within Regular Market Hours are of Section 6(b) 28 of the Act in general, risks to the System. Accordingly, the
included in the Volatility Auction when and furthers the objectives of Section Exchange is proposing to clarify the
the Exchange is closing with a Volatility 6(b)(5) of the Act 29 in particular, in that handling of such orders, rather than
Auction that is extended beyond it is designed to prevent fraudulent and increase the technical complexities
Regular Market Hours. On September manipulative acts and practices, to within the System that raise risks to
26, 2017, the Commission noticed an promote just and equitable principles of Exchange operations, Members, and
immediately effective Exchange rule trade, to remove impediments to and their investor clients.
filing to, in part, clarify that in the event perfect the mechanism of a free and The Exchange also believes that the
open market and a national market proposed rule change would not result
an IEX-listed security is subject to a
system, and, in general, to protect in unfair discrimination, since all
trading pause, the Router Constraint
investors and the public interest. Members can enter routable or non-
Reference Price 24 is invalid.25 The Exchange believes that the routable orders. Moreover, as discussed
Furthermore, the Exchange clarified that proposed rule clarification does not in the Burden on Competition section,
pursuant to Rule 11.190(f)(2)(B), in the alter the substantive functionality Users intending to trade in the Closing
absence of a valid Router Constraint governing the process for closing with a Auction or the Volatility Auction that
Reference Price, the Exchange will reject Volatility Auction that is extended receive cancelations will have a five-
any routable orders for the security. beyond Regular Market Hours, but minute opportunity to re-enter such
Accordingly, consistent with Rule instead clarifies the Exchanges [sic] orders as Auction Eligible Orders during
11.190(f)(2)(B), the Exchange proposes handling of orders during such process, the extended Order Acceptance Period.
to clarify that when the Exchange is and makes the Exchanges [sic] rules
closing with a Volatility Auction, only more clear and complete. The Exchange B. Self-Regulatory Organization’s
non-routable market orders entered further believes that the proposed Statement on Burden on Competition
during the Order Acceptance Period clarifying rule change is consistent with IEX does not believe that the
within Regular Market Hours will be the protection of investors and the proposed rule change will result in any
included in the Volatility Auction, public interest because the proposed burden on competition that is not
because routable market orders will be clarifications are designed to avoid any necessary or appropriate in furtherance
rejected. potential confusion regarding the of the purposes of the Act. The
Lastly, as announced in IEX Trading Exchange’s handling of orders when Exchange believes that the proposed
Alert #2017–015, the Exchange intends closing with a Volatility Auction that is correction does not impact inter-market
to become a primary listing exchange extended beyond Regular Market Hours competition in any respect since it is
and support its first IEX-listed security as IEX continues industry-wide testing designed to clarify the Exchange’s
in November of 2017.26 In addition, as to exercise the technology changes being handling of orders when closing with a
part of the listings initiative, the made by the Exchange and its Members Volatility Auction that is extended
Exchange is providing a series of to support IEX as a listings market. beyond Regular Market Hours, without
industry wide weekend tests for the Additionally, the Exchange believes it is substantively changing the approved
Exchange and its Members to exercise consistent with the Act to clarify the Rules governing such process.
the various technology changes required rule provisions governing the process In addition, the Exchange does not
to support IEX Auctions and listings for closing with a Volatility Auction that believe that the proposed changes will
is extended beyond Regular Market have any impact on intra-market
24 Rule 11.190(f)(2) sets forth the operation of the
Hours so that IEX’s rules are accurate competition. Specifically, the Exchange
IEX Router Constraint, which prevents an order and descriptive of the System’s believes that although routable limit
from routing at prices more aggressive than the
Router Constraint price range. The Order Collar and functionality as approved by the orders with a time-in-force of DAY will
Router Constraint price ranges are calculated by be canceled at the end of Regular Market
applying the numerical guidelines for clearly 27 See, e.g., IEX Trading Alert #2017–028 (First Hours when the Exchange is closing
erroneous executions to the Order Collar Reference Listings Functionality Industry Test on Saturday, with a Volatility Auction that is
Price and Router Constraint Reference Price, August 26), August 17, 2017; IEX Trading Alert
extended beyond Regular Market Hours,
ethrower on DSK3G9T082PROD with NOTICES
respectively. #2017–037 (Second Listings Functionality Industry
25 See Securities and Exchange Act Release No. Test on Saturday, September 9), September 7, 2017; whereas non-routable limit orders with
81662 (September 20, 2017), 82 FR 44861 IEX Trading Alert #2017–039 (Third Listings a time-in-force of DAY will be eligible
(September 26, 2017) (SR–IEX–2017–31). Functionality Industry Test on Saturday, September to participate in the Auction, Users
26 See IEX Trading Alert #2017–015 (Listings 23), September 18, 2017; IEX Trading Alert #2017–
040 (Rescheduled 4th Listing Functionality
intending to trade in the Closing
Specifications, Testing Opportunities, and
Timelines), May 31, 2017. See also IEX Trading Industry Test), September 29, 2017. Auction or the Volatility Auction that
Alert #2017–040 (Rescheduled 4th Listing 28 15 U.S.C. 78f. receive cancelations will have a five-
Functionality Industry Test), September 29, 2017. 29 15 U.S.C. 78f(b)(5). minute opportunity to re-enter such
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![51322 Federal Register / Vol. 82, No. 212 / Friday, November 3, 2017 / Notices
orders as Auction Eligible Orders during A proposed rule change filed under • Send an email to rule-comments@
the extended Order Acceptance Period. Rule 19b–4(f)(6) 32 normally does not sec.gov. Please include File Number SR–
Similarly, the Exchange believes that become operative for 30 days after the IEX–2017–36 on the subject line.
although routable market orders entered date of filing. However, pursuant to
Rule 19b–4(f)(6)(iii),33 the Commission Paper Comments
during the Order Acceptance Period
within Regular Market Hours will be may designate a shorter time if such • Send paper comments in triplicate
rejected and therefore will not be action is consistent with the protection to Brent J. Fields, Secretary, Securities
eligible to participate in the auction of investors and the public interest. The
and Exchange Commission, 100 F Street
when the Exchange is closing with a Exchange has asked the Commission to
NE., Washington, DC 20549–1090.
Volatility Auction, whereas non- waive the 30-day operative delay so that
routable market orders entered during the proposal may become operative All submissions should refer to File
the Order Acceptance Period within immediately upon filing. The Number SR–IEX–2017–36. This file
Regular Market Hours will be eligible to Commission believes that waiver of the number should be included in the
participate in the auction, Users operative delay is consistent with the subject line if email is used. To help the
intending to trade in the Volatility protection of investors and the public Commission process and review your
Auction that are rejected upon entry interest because the Exchange’s comments more efficiently, please use
will have an opportunity to re-enter proposal does not raise any new or only one method. The Commission will
such orders as Auction Eligible Orders novel issues. In addition, the post all comments on the Commission’s
during the entire Order Acceptance Commission notes that, as described Internet Web site (http://www.sec.gov/
Period. Thus, the Exchange believes that above, Users whose routable orders are rules/sro.shtml). Copies of the
there will be no material adverse impact cancelled pursuant to the proposed rule submission, all subsequent
on competition between Members, or to will have an opportunity to participate
amendments, all written statements
any individual Member that chooses to in the auction when IEX closes with a
with respect to the proposed rule
interact with IEX Auctions using Volatility Auction that occurs outside
change that are filed with the
routable orders when the Exchange is Regular Market Hours by re-entering
their orders as Auction Eligible Orders Commission, and all written
closing with a Volatility Auction that is communications relating to the
extended beyond Regular Market Hours. during the extended Order Acceptance
Period. Accordingly, the Commission proposed rule change between the
Furthermore, the Exchange notes that Commission and any person, other than
Users are free to enter both routable and hereby waives the 30-day operative
delay requirement and designates the those that may be withheld from the
non-routable orders on the Exchange,
proposed rule change as operative upon public in accordance with the
and therefore can optimize their
filing.34 provisions of 5 U.S.C. 552, will be
interaction with the Exchange to avoid
any unwanted cancelation. At any time within 60 days of the available for Web site viewing and
filing of the proposed rule change, the printing in the Commission’s Public
C. Self-Regulatory Organization’s Commission summarily may Reference Section, 100 F Street NE.,
Statement on Comments on the temporarily suspend such rule change if Washington, DC 20549–1090. Copies of
Proposed Rule Change Received From it appears to the Commission that such the filing will also be available for
Members, Participants, or Others action is necessary or appropriate in the inspection and copying at the IEX’s
public interest, for the protection of principal office and on its Internet Web
Written comments were neither
investors, or otherwise in furtherance of site at www.iextrading.com. All
solicited nor received.
the purposes of the Act. If the comments received will be posted
III. Date of Effectiveness of the Commission takes such action, the without change. Persons submitting
Proposed Rule Change and Timing for Commission shall institute proceedings comments are cautioned that we do not
Commission Action under Section 19(b)(2)(B) of the Act to redact or edit personal identifying
determine whether the proposed rule information from comment submissions.
Because the proposed rule change change should be approved or
does not (i) significantly affect the You should submit only information
disapproved. that you wish to make available
protection of investors or the public
interest; (ii) impose any significant IV. Solicitation of Comments publicly. All submissions should refer
burden on competition; and (iii) become to File Number SR–IEX–2017–36 and
Interested persons are invited to
operative for 30 days from the date on should be submitted on or before
submit written data, views and
which it was filed, or such shorter time November 24, 2017.
arguments concerning the foregoing,
as the Commission may designate if including whether the proposed rule For the Commission, by the Division of
consistent with the protection of change is consistent with the Act. Trading and Markets, pursuant to delegated
investors and the public interest, the Comments may be submitted by any of authority.35
proposed rule change has become the following methods: Eduardo A. Aleman,
effective pursuant to Section 19(b)(3)(A)
Electronic Comments Assistant Secretary.
of the Act 30 and Rule 19b–4(f)(6)
[FR Doc. 2017–23928 Filed 11–2–17; 8:45 am]
thereunder.31 • Use the Commission’s Internet
BILLING CODE 8011–01–P
comment form (http://www.sec.gov/
30 15 U.S.C. 78s(b)(3)(A). rules/sro.shtml); or
ethrower on DSK3G9T082PROD with NOTICES
31 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires the Exchange to give the
32 17 CFR 240.19b–4(f)(6).
Commission written notice of the Exchange’s intent
33 17 CFR 240.19b–4(f)(6)(iii).
to file the proposed rule change, along with a brief
description and text of the proposed rule change, 34 For purposes only of waiving the 30-day
at least five business days prior to the date of filing operative delay, the Commission has also
of the proposed rule change, or such shorter time considered the proposed rule’s impact on
as designated by the Commission. The Exchange efficiency, competition, and capital formation. See
has satisfied this requirement. 15 U.S.C. 78c(f). 35 17 CFR 200.30–3(a)(12).
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Document Created: 2018-10-25 10:20:57
Document Modified: 2018-10-25 10:20:57
| 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 51319 |
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