83 FR 10536 - Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 11.270 (Clearly Erroneous Executions) To Preclude Members From Requesting a Review of a Volatility Auction as a Clearly Erroneous Execution

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 47 (March 9, 2018)

[Federal Register Volume 83, Number 47 (Friday, March 9, 2018)]
[Notices]
[Pages 10536-10538]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-04793]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82815; File No. SR-IEX-2018-05]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 11.270 (Clearly Erroneous Executions) To Preclude Members From 
Requesting a Review of a Volatility Auction as a Clearly Erroneous 
Execution

March 6, 2018.
    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 February 23, 2018, 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 
Securities and Exchange Commission (``Commission'') a proposed rule 
change to amend Rule 11.270 (Clearly Erroneous Executions) to preclude 
Members from requesting a review of a Volatility Auction \6\ as a 
clearly erroneous execution. The Exchange has designated this rule 
change as ``non-controversial'' under Section 19(b)(3)(A) of the Act 
\7\ and provided the Commission with the notice required by Rule 19b-
4(f)(6) thereunder.\8\
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
    \6\ See Rule 11.350(f).
    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4.
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    The text of the proposed rule change is available at the Exchange's 
website at www.iextrading.com, at the principal office of the Exchange, 
and at the Commission's Public Reference Room.

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

1. Purpose
    The purpose of this proposed rule change is to amend Rule 11.270 
(Clearly Erroneous Executions) to preclude Members from requesting a 
review of a Volatility Auction as a clearly erroneous execution.
    On September 19, 2016, Plan Participants, with input from the 
Advisory Committee and staff of the Commission, proposed the twelfth 
amendment to the Plan to Address Extraordinary Market Volatility 
Pursuant to Rule 608 of Regulation NMS under the Act (the ``Limit Up-
Limit Down Plan'' or ``Plan''),\9\ which contained certain enhancements 
to the reopening process following a Trading Pause (``Amendment No. 
12'').\10\ The Exchange is a Participant of the Plan and a member of 
the Operating Committee, and intends on launching a listings program 
for corporate issuers in 2018, at which point IEX will be a Primary 
Listing Exchange. In conjunction with Amendment No. 12, each Primary 
Listing Exchange filed proposed rule changes with the Commission under 
Section 19(b) of the Exchange Act to amend their respective rules for 
automated reopenings following a Trading Pause, and to preclude Members 
from requesting a review of reopening executions as clearly 
erroneous.\11\ On January 19, 2017, the Commission approved Amendment 
No. 12.\12\ On April 13, 2017, the Commission approved the Thirteenth 
Amendment to the Plan, which extended the pilot period of the Plan from 
April 21, 2017, to April 16, 2018, and required the Processor to 
publish certain data regarding the reopening processes of the Primary 
Listing Exchanges.\13\ On April 28, 2017, the Commission noticed for 
immediate effectiveness the Fourteenth Amendment to the Plan, which 
extended the implementation date of Amendment No. 12 to the end of the 
third quarter of 2017.\14\ Finally, on September 26, 2017, the 
Commission noticed for immediate effectiveness the Fifteenth Amendment 
to the Plan, which extended the implementation date of Amendment No. 12 
to no later than November 30, 2017.\15\
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    \9\ See also Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down 
Release''). Note, unless otherwise specified, capitalized terms used 
herein have the same meaning as set forth in the Plan or in Exchange 
rules.
    \10\ See letter from Elizabeth K. King, General Counsel, NYSE, 
to Brent J. Fields, Secretary, Commission, dated September 16, 2016.
    \11\ See Securities Exchange Act Release Nos. 79162 (October 26, 
2016), 81 FR 75875 (November 1, 2016) (SR-BatsBZX-2016-61); 79158 
(October 26, 2016), 81 FR 75879 (November 1, 2016) (SR-NASDAQ-2016-
131); and 79107 (October 18, 2016), 81 FR 73159 (October 24, 2016) 
(File No. SR-NYSEArca-2016-130). See also Cboe BZX Exchange, Inc. 
(``Cboe Bats'') Rule 11.17(a); the Nasdaq Stock Market LLC 
(``Nasdaq'') Rule 11890(a)(1); and NYSE Arca, Inc. (``Arca'') Rule 
7.10-E(a).
    \12\ See Securities Exchange Act Release No. 79845 (January 19, 
2017), 82 FR 8551 (January 26, 2017).
    \13\ See Securities Exchange Act Release No. 80455 (April 13, 
2017), 82 FR 18519 (April 19, 2017).
    \14\ See Securities Exchange Act Release No. 80549 (April 28, 
2017), 82 FR 20928 (May 4, 2017).
    \15\ See Securities Exchange Act Release No. 81720 (September 
26, 2017), 82 FR 45922 (October 2, 2017).
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    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 Trading Pause in an IEX-listed security pursuant to the 
Plan.\16\ The Exchange's rules governing auctions include the 
enhancements to the reopening process following a Trading Pause as set 
forth in Amendment No. 12, but do not include amendments to the 
Exchange's rules governing clearly erroneous executions.\17\ 
Accordingly, in order to ensure the Exchange's rules are consistent 
with the Plan and the rules of other Primary Listing Exchanges, the 
Exchange is proposing to amend Rule 11.270 (Clearly Erroneous 
Executions) to preclude Members from requesting a

[[Page 10537]]

review of a Volatility Auction as a clearly erroneous execution.\18\
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    \16\ See Securities Exchange Act Release No. 81316 (August 4, 
2017), 82 FR 37474 (August 10, 2017).
    \17\ See supra note 6 [sic].
    \18\ See supra note 8 [sic].
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    In adopting and approving Amendment No. 12 and the related exchange 
filings, the Participants and the Commission, respectively, have agreed 
that the procedures for reopening trading following a Trading Pause 
reduces the potential that an order or orders entered by one or more 
Members caused such execution to be clearly erroneous. Specifically, 
the Participants believe that the proposed standardized procedures for 
reopening trading following a Trading Pause incorporates a methodology 
that allows for widened collars, which may result in a reopening price 
away from prior trading prices, but which reopening price would be a 
result of a measured and transparent process that eliminates the 
potential that such trade would be considered erroneous. Therefore, 
consistent with the Plan, and the rules of other Primary Listing 
Exchanges, the Exchange proposes to amend Rule 11.270 (Clearly 
Erroneous Executions) to preclude Members from requesting a review of a 
Volatility Auction as a clearly erroneous execution.\19\
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    \19\ The Exchange notes that Participants will be engaging in a 
more comprehensive review of Rule 11.270 in connection with 
amendments to the Plan relating to tiering of securities and 
applicable percentage parameters. The Exchange proposes to make this 
limited amendment to Rule 11.270 as an initial step to eliminating 
its clearly erroneous executions rules in their current form.
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    As announced in IEX Trading Alerts #2017-015 and #2017-046, the 
Exchange intends to become a Primary Listing Exchange and support its 
first IEX-listed security in 2018.\20\ 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.\21\ Accordingly, the Exchange is proposing to 
implement the proposed changes during the industry wide testing period 
in 2018 so that Members are on notice regarding the ineligibility of 
Volatility Auctions for review as a clearly erroneous execution as they 
optimize their systems to interact with IEX Auctions.
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    \20\ See IEX Trading Alert #2017-015 (Listings Specifications, 
Testing Opportunities, and Timelines), May 31, 2017. See also IEX 
Trading Alert #2017-046 (IEX Listings Timeline Update), originally 
published on Monday, October 30, 2017, and re-published on Tuesday, 
October 31, 2017.
    \21\ 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; IEX Trading Alert #2017-046 (IEX Listings 
Timeline Update), originally published on Monday, October 30, 2017, 
and re-published on Tuesday, October 31, 2017; and IEX Trading Alert 
#2017-047 (Fourth Listings Functionality Industry Test on Saturday, 
November 4), October 31, 2017.
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2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6(b) \22\ of the Act in general, and furthers the 
objectives of Section 6(b)(5) of the Act \23\ 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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    \22\ 15 U.S.C. 78f.
    \23\ 15 U.S.C. 78f(b)(5).
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    Specifically, the Exchange believes that precluding Members from 
requesting review of a Volatility Auction as a clearly erroneous 
execution would remove impediments to and perfect the mechanism of a 
free and open market and a national market system because the 
standardized procedures for reopening trading following a Trading Pause 
reduce the possibility that one or more orders from a Member caused a 
Volatility Auction to be clearly erroneous. Specifically, the Exchange 
believes that the standardized procedures for reopening trading 
following a Trading Pause incorporate a methodology that allows for 
widened collars, which may result in a reopening price away from prior 
trading prices, but which reopening price would be a result of a 
measured and transparent process that eliminates the potential that 
such trade would be considered erroneous.
    Furthermore, the Exchange believes the proposed rule change is 
consistent with the protection of investors and the public interest in 
that it is designed to ensure the Exchange's rules are consistent with 
the Plan and the rules of other Primary Listing Exchanges, which will 
increase transparency and create consistency regarding the rules 
governing clearly erroneous executions among Primary Listing Exchanges.
    Lastly, the Exchange believes the proposed rule change is 
consistent with the protection of investors and the public interest 
because, as discussed in the Purpose section, the Exchange is proposing 
to implement the proposed changes during the industry wide testing 
period in 2018 so that Members are on notice regarding the 
ineligibility of Volatility Auctions for review as a clearly erroneous 
execution as they optimize their systems to interact with IEX Auctions.

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 change does not impact inter-market competition in that it is 
designed to ensure the Exchange's rules are consistent with the Plan 
and the rules of other Primary Listing Exchanges, which will increase 
transparency and create consistency regarding the rules governing 
clearly erroneous executions among Primary Listing Markets.
    In addition, the Exchange does not believe that the proposed 
changes will have any impact on intra-market competition, because the 
proposed changes apply to all Members on a fair and equal basis.

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, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \24\ and Rule 19b-4(f)(6) thereunder.\25\
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    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \26\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \27\ permits the 
Commission to 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

[[Page 10538]]

operative delay. The Exchange stated that waiver of the operative delay 
is consistent with the protection of investors and the public interest 
because it would allow the Exchange to implement the proposed rule 
change upon effectiveness, thus immediately increasing transparency and 
creating consistency regarding the rules governing clearly erroneous 
executions among Primary Listing Exchanges. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. Accordingly, the 
Commission hereby waives the operative delay and designates the 
proposal as operative upon filing.\28\
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    \26\ 17 CFR 240.19b-4(f)(6).
    \27\ 17 CFR 240.19b-4(f)(6)(iii).
    \28\ 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).
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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 to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     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-2018-05 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-2018-05. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (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 website viewing and printing in 
the Commission's Public Reference Room, 100 F Street, NE, Washington, 
DC 20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-IEX-2018-05, and should be submitted on 
or before March 30, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-04793 Filed 3-8-18; 8:45 am]
 BILLING CODE 8011-01-P