83 FR 17467 - Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 11.190(g) To Incrementally Optimize and Enhance the Effectiveness of the Quote Instability Calculation in Determining Whether a Crumbling Quote Exists

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 76 (April 19, 2018)

Page Range		17467-17472
FR Document		2018-08155
Federal Register, Volume 83 Issue 76 (Thursday, April 19, 2018)
[Federal Register Volume 83, Number 76 (Thursday, April 19, 2018)]
[Notices]
[Pages 17467-17472]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-08155]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83048; File No. SR-IEX-2018-07]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 11.190(g) To Incrementally Optimize and Enhance the Effectiveness 
of the Quote Instability Calculation in Determining Whether a Crumbling 
Quote Exists

April 13, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on April 3, 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\ 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 Act,\3\ 
and Rule 19b-4 thereunder,\4\ IEX is filing with the Commission a 
proposed rule change to amend Rule 11.190(g) to incrementally optimize 
and enhance the effectiveness of the quote instability calculation in 
determining whether a crumbling quote exists. The Exchange has 
designated this proposal as non-controversial and

[[Page 17468]]

provided the Commission with the notice required by Rule 19b-
4(f)(6)(iii) under the Act.\5\
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
    \5\ 17 CFR 240.19b-4(f)(6)(iii).
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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 
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
Overview
    The purpose of the proposed rule change is to amend Rule 11.190(g) 
to incrementally optimize and enhance the effectiveness of the quote 
instability calculation in determining whether a crumbling quote 
exists. The Exchange utilizes real time relative quoting activity of 
certain Protected Quotations \6\ and a proprietary mathematical 
calculation (the ``quote instability calculation'') to assess the 
probability of an imminent change to the current Protected NBB to a 
lower price or Protected NBO to a higher price for a particular 
security (``quote instability factor''). When the quoting activity 
meets predefined criteria and the quote instability factor calculated 
is greater than the Exchange's defined quote instability threshold, the 
System treats the quote as unstable and the crumbling quote indicator 
(``CQI'') is on at that price level for two milliseconds. During all 
other times, the quote is considered stable, and the CQI is off. The 
System independently assesses the stability of the Protected NBB and 
Protected NBO for each security.
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    \6\ Pursuant to Rule 11.190(g), the Protected Quotations of the 
New York Stock Exchange, Nasdaq Stock Market, NYSE Arca, Nasdaq BX, 
Bats BZX Exchange, Bats BYX Exchange, Bats EDGX Exchange, and Bats 
EDGA Exchange.
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    When CQI is on, Discretionary Peg orders \7\ and primary peg orders 
\8\ do not exercise price discretion to meet the limit price of an 
active (i.e., taking) order. Specifically, as set forth in Rule 
11.190(b)(10), a Discretionary Peg order pegs to the less aggressive of 
the primary quote (i.e., NBB for buy orders and NBO for sell orders) or 
the order's limit price, if any, but, will exercise price discretion in 
order to meet the limit price of an active order up to the less 
aggressive of the Midpoint Price or the order's limit price, if any. 
However, a Discretionary Peg order will not exercise such price 
discretion when the CQI is on. Similarly, as set forth in Rule 
11.190(b)(8), a primary peg order pegs to a price that is the less 
aggressive of one (1) minimum price variant (``MPV'') less aggressive 
than the primary quote (i.e., one MPV below (above) the NBB (NBO) for 
buy (sell) orders) or the order's limit price, if any, but will 
exercise price discretion in order to meet the limit price of an active 
order up to the NBB (for buy orders) or down to the NBO (for sell 
orders), except when the CQI is on or if the order is resting at its 
limit price, if any.
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    \7\ See Rule 11.190(b)(10).
    \8\ See Rule 11.190(b)(8).
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    In addition, when the CQI is on buy (sell) orders that take 
liquidity at prices at or below (above) the NBO (NBB) are subject to 
the Crumbling Quote Remove Fee (``CQRF'') for executions that exceed 
the CQRF Threshold.
Discretionary Peg Order
    The manner in which Discretionary Peg orders operate is described 
in Rule 11.190(b)(10). Specifically, a Discretionary Peg order is a 
non-displayed, pegged order that upon entry into the System, the price 
of the order is automatically adjusted by the System to be equal to the 
less aggressive of the Midpoint Price or the order's limit price, if 
any. When unexecuted shares of such order are posted to the Order Book, 
the price of the order is automatically adjusted by the System to be 
equal to and ranked at the less aggressive of the primary quote or the 
order's limit price and is automatically adjusted by the System in 
response to changes in the NBB (NBO) for buy (sell) orders up (down) to 
the order's limit price, if any. In order to meet the limit price of 
active orders on the Order Book, a Discretionary Peg order will 
exercise the least amount of price discretion necessary from the 
Discretionary Peg order's resting price to its discretionary price 
(defined as the less aggressive of the Midpoint Price or the 
Discretionary Peg order's limit price, if any), except during periods 
of quote instability (i.e., when a crumbling quote exists) as defined 
in paragraph Rule 11.190(g).
Primary Peg Orders
    The manner in which primary peg orders operate is described in 
Rules 11.190(a)(3) and 11.190(b)(8). Specifically, a primary peg order 
is a non-displayed, pegged order that upon entry and when posting to 
the Order Book the price of the order is automatically adjusted by the 
System to be equal to and ranked at the less aggressive of one (1) MPV 
less aggressive than the primary quote (i.e., the NBB for buy orders 
and the NBO for sell orders) or the order's limit price, if any. While 
resting on the Order Book, the order is automatically adjusted by the 
System in response to changes in the NBB (NBO) for buy (sell) orders up 
(down) to the order's limit price, if any. In order to meet the limit 
price of active orders on the Order Book a primary peg order will 
exercise price discretion to its discretionary [sic] (defined as the 
primary quote), except during periods of quote instability as defined 
in paragraph 11.190(g).
CQRF
    The CQRF is designed to incentivize resting liquidity, including 
displayed liquidity, on IEX, and is applicable to orders that remove 
resting liquidity when the CQI is on if such orders constitute at least 
5% of the Member's volume executed on IEX and at least 1,000,000 
shares, on a monthly basis, measured on a per market participant 
identifier (``MPID'') basis. Thus, orders that exceed the 5% and 
1,000,000 share thresholds are assessed a fee of $0.0030 per each 
incremental share executed (or 0.3% of the total dollar value of the 
transaction for securities priced below $1.00) that exceeds the 
threshold.
Crumbling Quote Calculation
    In determining whether a crumbling quote exists, the Exchange 
utilizes real time relative quoting activity of certain Protected 
Quotations and a proprietary mathematical calculation (the ``quote 
instability calculation'') to assess the probability of an imminent 
change to the current Protected NBB to a lower price or Protected NBO 
to a higher price for a particular security (``quote instability 
factor''). When the quoting activity meets predefined criteria and the 
quote instability factor calculated is greater than the Exchange's 
defined threshold (``quote instability threshold''), the System treats 
the quote as not stable (``quote instability'' or a ``crumbling 
quote''). During all other times, the quote is considered stable

[[Page 17469]]

(``quote stability''). The System independently assesses the stability 
of the Protected NBB and Protected NBO for each security.
    When the System determines that a quote, either the Protected NBB 
or the Protected NBO, is unstable, the determination remains in effect 
at that price level for two (2) milliseconds. The System will only 
treat one side of the Protected NBBO as unstable in a particular 
security at any given time.\9\ By not permitting resting Discretionary 
Peg orders and primary peg orders to exercise price discretion during 
periods of quote instability, the Exchange is designed to protect such 
orders from unfavorable executions when its probabilistic model 
identifies that the market appears to be moving adversely to them. 
Similarly, the CQRF is designed to protect liquidity providing orders 
by disincentivizing trading strategies that target resting liquidity 
during periods of quote instability seeking to trade at prices that are 
about to become stale.
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    \9\ See, Rule 11.190(g).
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    Quote stability or instability (also referred to as a crumbling 
quote) is an assessment that the Exchange System makes on a real-time 
basis, based on a pre-determined, objective set of conditions specified 
in Rule 11.190(g)(1). Specifically, quote instability, or the presence 
of a crumbling quote, is determined by the System when:
    (A) the quote instability factor result from the quote stability 
calculation is greater than the defined quote instability threshold.
    (i) Quote Instability Factor. The Exchange's proprietary quote 
stability calculation used to determine the current quote instability 
factor is defined by the following formula that utilizes the quote 
stability coefficients and quote stability variables defined below:

1/(1 + e [supcaret] -(C0 + C1 * N + C2 
* F + C3 * NC + C4 * FC + C5 * EPos + 
C6 * ENeg + C7 * EPosPrev + C8 * 
ENegPrev + C9 * Delta))

(a) Quote Stability Coefficients. The Exchange utilizes the values 
below for the quote stability coefficients.

(1) C0 = -1.2867
(2) C1 = -0.7030
(3) C2 = 0.0143
(4) C3 = -0.2170
(5) C4 = 0.1526
(6) C5 = -0.4771
(7) C6 = 0.8703
(8) C7 = 0.1830
(9) C8 = 0.5122
(10) C9 = 0.4645

(b) Quote Stability Variables. The Exchange utilizes the quote 
stability variables defined below to calculate the current quote 
instability factor.

(1) N = the number of Protected Quotations on the near side of the 
market, i.e. Protected NBB for buy orders and Protected NBO for sell 
orders.
(2) F = the number of Protected Quotations on the far side of the 
market, i.e. Protected NBO for buy orders and Protected NBB for sell 
orders.
(3) NC = the number of Protected Quotations on the near side of the 
market minus the maximum number of Protected Quotations on the near 
side at any point since one (1) millisecond ago or the most recent 
PBBO change, whichever happened more recently.
(4) FC = the number of Protected Quotations on the far side of the 
market minus the minimum number of Protected Quotations on the far 
side at any point since one (1) millisecond ago or the most recent 
PBBO change, whichever happened more recently.
(5) EPos = a Boolean indicator that equals 1 if the most recent 
quotation update was a quotation of a protected market joining the 
near side of the market at the same price.
(6) ENeg = a Boolean indicator that equals 1 if the most recent 
quotation update was a quotation of a protected market moving away 
from the near side of market that was previously at the same price.
(7) EPosPrev = a Boolean indicator that equals 1 if the second most 
recent quotation update was a quotation of a protected market 
joining the near side of the market at the same price AND the second 
most recent quotation update occurred since one (1) millisecond ago 
or the most recent PBBO change, whichever happened more recently.
(8) ENegPrev = a Boolean indicator that equals 1 if the second most 
recent quotation update was a quotation of a protected market moving 
away from the near side of market that was previously at the same 
price AND the second most recent quotation update occurred since one 
(1) millisecond ago or the most recent PBBO change, whichever 
happened more recently.
(9) Delta = the number of these three (3) venues that moved away 
from the near side of the market on the same side of the market and 
were at the same price at any point since one (1) millisecond ago or 
the most recent PBBO change, whichever happened more recently: XNGS, 
EDGX, BATS.

    (ii) Quote Instability Threshold. The Exchange utilizes a quote 
instability threshold of 0.39 for securities whose current spread is 
less than or equal to $0.01; 0.45 for securities for which the current 
spread (i.e., the Protected Best Offer minus Protected Best Bid) is 
greater than $0.01 and less than or equal to $0.02; 0.51 for securities 
for which the current spread is greater than $0.02 and less than or 
equal to $0.03; and 0.39 for securities for which the current spread is 
greater than $0.03.
    Rule 11.190(g)(1)(D)(iii) provides that the Exchange reserves the 
right to modify the quote instability coefficients or quote instability 
threshold at any time, subject to a filing of a proposed rule change 
with the SEC. The Exchange is proposing such changes in this rule 
filing.
Changes To Quote Instability Coefficients and Quote Instability 
Threshold
    IEX conducted an analysis of the effectiveness of the existing 
factors in predicting whether a crumbling quote would occur, by 
reviewing market data from randomly selected days in the period from 
October 2016 through October 2017. These results were then validated by 
testing different randomly selected dates from the same time period. 
Based on this analysis, the Exchange has determined that further 
optimization of the methodology and existing factors would 
incrementally increase the accuracy of the formula in predicting 
whether a crumbling quote will occur. The following describes the 
proposed changes:
    1. Rule 11.190(g)(1) provides in part that when the System 
determines that a quote, either the Protected NBB or the Protected NBO 
is unstable, the determination remains in effect at that price level 
for two (2) milliseconds. The Exchange proposes to revise the time 
limitation on how long each determination remains in effect, and 
reorganize certain existing rule text for clarity. As proposed, when 
the System determines that either the Protected NBB or the Protected 
NBO in a particular security is unstable, the determination remains in 
effect at that price level for two (2) milliseconds, unless a new 
determination is made before the end of the two (2) millisecond period. 
Only one determination may be in effect at any given time for a 
particular security. A new determination may be made after at least 200 
microseconds has elapsed since a preceding determination, or a price 
change on either side of the Protected NBBO occurs, whichever is first. 
If a new determination is made, the original determination is no longer 
in effect. A new determination can be at either the Protected NBB or 
the Protected NBO and at the same or different price level as the 
original determination.\10\ Based

[[Page 17470]]

upon our analysis of market data, as described above, the Exchange 
believes that changes to the time limitation would provide for a more 
dynamic methodology for quote instability determinations thereby 
incrementally increasing the accuracy of the formula in predicting a 
crumbling quote by expanding the scope of the model to additional 
situations where a crumbling quote exists at a different price point, 
or again at the same price point within two (2) milliseconds. For 
example, suppose that the NBBO is currently $10.03 by $10.04 in a 
particular security, and the System determines that the NBB is 
unstable. This determination goes into effect, with an expiration time 
set two (2) milliseconds in the future. Now suppose that one (1) 
millisecond later, the NBB falls to $10.02 and the System determines 
that this new NBB is unstable. As proposed once the System makes a new 
determination that the NBB of $10.02 is unstable, even though the prior 
determination at $10.03 has not expired, the new determination will 
overwrite the old determination, and its expiration time will be set to 
two (2) milliseconds in the future from the time of this determination.
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    \10\ The Exchange also proposes a nonsubstantive change to the 
text of subparagraph (g)(1) of Rule 11.190 to remove the sentence 
stating that ``[t]he System will only treat one side of the 
Protected NBBO as unstable in a particular security at any give 
time.'' which is redundant of proposed new text that provides that 
``[o]nly one determination may be in effect at any given time for a 
particular security.''. [sic]
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    2. The Exchange proposes to revise five of the quote stability 
variables currently specified in subparagraph (1)(A)(i)(b) of Rule 
11.190(g). Specifically, the Exchange proposes to revise variables NC, 
EPosPrev, ENegPrev and Delta to be calculated over a time window 
looking back from the time of calculation to one (1) millisecond ago or 
the most recent PBBO change on the near side (rather than on either 
side), whichever happened more recently. Based on our analysis of 
market data, as described above, the Exchange identified that for each 
variable, considering the maximum change over the time window defined 
in this manner is a more accurate indicator of a crumbling quote than 
the current approach. Similarly, the Exchange proposes to revise 
variable FC to be calculated over a time window looking back from the 
time of calculation to one (1) millisecond ago or the most recent PBBO 
change on the far side (rather than on either side), whichever happened 
more recently. Based on our analysis of market data, as described 
above, the Exchange identified that for this variable, considering the 
maximum change over the time window described in this manner is a more 
accurate indicator of a crumbling quote than the current approach.
    3. The Quote Stability Coefficients specified in subparagraph 
(1)(A)(i)(a) of Rule 11.190(g) are proposed to be modified to take into 
account the recent market data analysis, as well as the changes to the 
quote stability variables as described above. The Exchange believes 
that the modifications, as proposed, will increase the accuracy of the 
quote instability calculation.
    4. The Exchange proposes to modify and re-optimize the Quote 
Instability Threshold specified in subparagraph (1)(A)(ii) of Rule 
11.190(g) based on the recent market data analysis and the changes to 
the quote stability variables. Specifically, the threshold size would 
continue to vary based on the spread of the Protected NBBO,\11\ but the 
values would be revised. Based on its data analysis, as described 
above, the Exchange believes that the revised values, as proposed, will 
increase the accuracy of the quote instability calculation.
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    \11\ The spread is defined in proposed paragraph (1)(D)(ii) as 
the Protected Best Offer minus Protected Best Bid.
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    5. Finally, the Exchange proposes to conform terminology within 
Rule 11.190(g) by replacing the use of the term ``quote stability'' in 
two instances--within subparagraph (1)(A) and subparagraph (1)(A)(i) of 
11.190(g)--with ``quote instability'' for clarity and consistency. The 
Exchange notes that in context, both instances mean ``quote 
instability'' so no substantive change is proposed in this respect.
    The Exchange will announce the implementation date of the proposed 
rule change by Trading Alert at least five business days in advance of 
such implementation date and within 90 days of effectiveness of this 
proposed rule change.
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with 
Section 6(b) \12\ of the Act in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\13\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest. Specifically, and as 
discussed above, the proposal is designed to optimize and enhance the 
effectiveness of the quote instability calculation in determining 
whether a crumbling quote exists. As discussed in the Purpose section, 
each of the proposed changes are based on the Exchange's analysis of 
market data, which supports that the proposed changes would increase 
the accuracy of the Exchange's quote instability calculation.
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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed changes are designed to 
protect investors and the public interest by incrementally enhancing 
the accuracy of the Exchange's quote instability calculation in 
determining whether a crumbling quote exists, thereby increasing the 
Exchange's protection of Discretionary Peg orders, primary peg orders 
and other liquidity providing orders. Specifically, the Exchange 
believes that the proposed rule change will enhance the extent to which 
Discretionary Peg orders and primary peg orders will be protected from 
unfavorable executions by increasing the instances in which such orders 
will be prevented from exercising price discretion during periods of 
quote instability when the Exchange's probabilistic model identifies 
that the market appears to be moving adversely to them. Similarly, the 
Exchange believes that the proposed rule change will incrementally 
enhance the extent to which liquidity providing orders will be 
protected from liquidity taking orders targeting them at prices that 
are likely to move adversely from the perspective of the liquidity 
providing order.
    The Exchange also believes that application of the proposed rule 
change to the CQRF is equitable and not unfairly discriminatory, 
because it will continue to be narrowly tailored to disincentivize all 
Members from deploying trading strategies designed to chase short-term 
price momentum during periods when the CQI is on and thus potentially 
adversely impact liquidity providing orders. Further, although the 
incremental enhancements to the accuracy of the crumbling quote formula 
may result in a corresponding increase in executions that remove 
resting liquidity when the CQI is on, the Exchange believes that 
Members are able to adjust their trading on IEX to reduce or eliminate 
the imposition of fees pursuant to the CQRF. Moreover, based on its 
review of market data during February 2018, the Exchange estimates that 
while approximately 10% more trades would be impacted by the proposed 
rule change, only one additional Member would potentially be subject to 
the CQRF. However, a review of this Member's trading activity since

[[Page 17471]]

the January 2018 implementation of the CQRF indicates that the Member 
has been able to adjust its trading on IEX to reduce and then eliminate 
its liability for the CQRF. Thus, the Exchange believes that 
application of the rule change with respect to the CQRF is equitable 
and not unfairly discriminatory.
    The Exchange further believes that the conforming changes to 
terminology are consistent with the Act because they are designed to 
provide enhanced clarity within Rule 11.190(g) and thereby avoid any 
potential confusion on the part of market participants.
    Finally, the Exchange notes that, as proposed, the new quote 
instability calculation will continue to be a fixed formula specified 
transparently in IEX's rules. The Exchange is not proposing to add any 
new functionality, but merely to revise the fixed formula based on 
market data analysis designed to increase the accuracy of the formula 
in predicting a crumbling quote, and as contemplated by the rule.

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. With regard to intra-market 
competition, the proposed change will apply equally to all IEX Members. 
The Commission has already considered the Exchange's Discretionary Peg 
order type in connection with its grant of IEX's application for 
registration as a national securities exchange under Sections 6 and 19 
of the Act \14\ and approved the Exchange's primary peg order type.\15\ 
The Commission has also considered the CQRF,\16\ and the Exchange does 
not believe that the incremental increase in the number of executions 
that remove resting liquidity when the CQI is on as a result of the 
proposed enhancements to the accuracy of the quote instability 
calculation specified in Rule 11.190(g) will create a burden on 
competition with respect to application to the CQRF. As discussed in 
the Statutory Basis section, the proposed rule change will apply 
equally to all Members, and the Exchange believes that Members who may 
be subject to potential increased fees will be able to adjust their 
trading on IEX to reduce or eliminate any additional fees pursuant to 
the CQRF.
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    \14\ See Securities Exchange Act Release 78101 (June 17, 2016), 
81 FR 41142 (June 23, 2016) (File No. 10-222).
    \15\ See Securities Exchange Act Release No. 80223 (March 13, 
2017), 82 FR 14240 (March 17, 2017).
    \16\ See Securities Exchange Act Release No. 81484 (August 25, 
2017), 82 FR 41446 (August 31, 2017).
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    The Exchange also believes that the proposed rule change will not 
result in any burden on inter-market competition that is not necessary 
or appropriate in furtherance of the purposes of the Act. In this 
regard, the Exchange notes that NYSE American LLC has adopted a rule 
copying an earlier iteration of the Exchange's Discretionary Peg Order 
and quote stability calculation.\17\
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    \17\ See NYSE American Rule 7.31E(h)(3)(D).
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    As discussed in the Purpose and Statutory Basis sections, the 
proposed rule change is designed to merely enhance the accuracy of the 
quote instability calculation; therefore, no new burdens are being 
proposed.

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 foregoing 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)(iii) of the Act \18\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of the filing. However, 
Rule 19b-4(f)(6)(iii) \20\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. In its filing, IEX requests that the 
Commission waive the 30-day operative delay. IEX represented that the 
proposed rule change would optimize the methodology by which the 
Exchange determines whether a crumbling quote exists. Specifically, IEX 
stated that its proposed changes to the quote stability variables, the 
quote stability coefficients, and the quote instability threshold were 
based on a recent market data analysis and would increase the accuracy 
of the quote instability calculation. IEX similarly believed that its 
proposed changes to the current time limitation would provide a more 
dynamic and expansive methodology that would increase the accuracy of 
quote instability determinations.\21\ IEX further indicated that the 
proposed changes to the quote instability calculation would enhance the 
Exchange's ability to protect Discretionary Peg orders, primary peg 
orders, and other liquidity providing orders from unfavorable 
executions, because such changes would better prevent such orders from 
exercising price discretion during periods when the market appears to 
be moving adversely to them.
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    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ The Exchange also proposed several non-substantive changes 
to Rule 11.190(g) that were designed to increase the clarity and 
consistency of the rule.
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    The Commission believes that a partial waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest as it will allow IEX to optimize the functionality of 
its quote instability calculation in order to allow the crumbling quote 
functionality to better meet its intended purpose to protect certain 
liquidity-providing orders. At the same time, a partial operative delay 
will afford the public time to review and comment upon the proposed 
changes before they become operative. Accordingly, the Commission 
waives the 30-day operative delay and designates that the proposed rule 
change will become operative on April 24, 2018.\22\
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    \22\ 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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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.

[[Page 17472]]

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-2018-07 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-2018-07. 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 the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. 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-2018-07, and should be submitted on 
or before May 10, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12) and (59).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-08155 Filed 4-18-18; 8:45 am]
 BILLING CODE 8011-01-P
Federal Register / Vol. 83, No. 76 / Thursday, April 19, 2018 / Notices 17467

Sessions when an updated Benchmark Adviser will monitor the regulations thereunder applicable to a
Index value and Intraday Indicative creditworthiness of each counterparty national securities exchange.
Value will not be calculated or publicly and the Fund’s exposure to each
IV. Conclusion
disseminated; (e) the requirement that counterparty on an ongoing basis.49
members deliver a prospectus to (16) To limit the potential risk It is therefore ordered, pursuant to
investors purchasing newly issued associated with such transactions, the Section 19(b)(2) of the Act,56 that the
Shares prior to or concurrently with the Fund will segregate or ‘‘earmark’’ assets proposed rule change (SR–NASDAQ–
confirmation of a transaction; and (f) determined to be liquid by the Adviser 2018–012) be, and it hereby is,
trading information.41 in accordance with procedures approved.
(8) The Fund may hold up to an established by the Trust’s Board of For the Commission, by the Division of
aggregate amount of 15% of its net Trustees and in accordance with the Trading and Markets, pursuant to delegated
assets in illiquid securities (calculated 1940 Act (or, as permitted by applicable authority.57
at the time of investment).42 regulation, enter into certain offsetting Eduardo A. Aleman,
(9) Each single call option in the positions) to cover its obligations arising Assistant Secretary.
Benchmark Index will be traded on from such transactions. In addition, the [FR Doc. 2018–08153 Filed 4–18–18; 8:45 am]
national securities exchanges.43 Fund will include appropriate risk BILLING CODE 8011–01–P
(10) The equity securities in which disclosure in its offering documents,
the Fund will invest, and the option that including leveraging risk.50
the Fund will write, will be limited to (17) The Fund will not make SECURITIES AND EXCHANGE
U.S. exchange-traded securities and call investments in securities to seek to COMMISSION
options, respectively, and such achieve a multiple or inverse multiple
of an index and they will not be used [Release No. 34–83048; File No. SR–IEX–
securities will trade in markets that are
2018–07]
members of the ISG or which are parties to enhance leverage.51
to a comprehensive surveillance sharing (18) The Fund will not invest in assets Self-Regulatory Organizations;
agreement with the Exchange.44 that are not described in the proposed Investors Exchange LLC; Notice of
(11) The Fund will invest at least 80% rule change.52 Filing and Immediate Effectiveness of
of its total assets in all of the equity (19) A minimum of 100,000 Shares Proposed Rule Change To Amend Rule
securities in the Russell 2000 Index and will be outstanding at the 11.190(g) To Incrementally Optimize
a single written one-month out-of-the- commencement of trading on the and Enhance the Effectiveness of the
money covered call option on the Exchange.53 Quote Instability Calculation in
Russell 2000 Index, and the market The Exchange further represents that Determining Whether a Crumbling
value of the option strategy may be up all statements and representations made Quote Exists
to 20% of the Fund’s overall net asset in this filing regarding the description of
value.45 the portfolio, limitations on portfolio April 13, 2018.
(12) The Fund will utilize options in holdings or reference assets, Pursuant to Section 19(b)(1) of the
accordance with Rule 4.5 of the CEA.46 dissemination and availability of the Securities Exchange Act of 1934 (the
(13) The Fund will transact only with reference asset and intraday indicative ‘‘Act’’),1 and Rule 19b–4 thereunder,2
swap dealers that have in place an ISDA values, and the applicability of notice is hereby given that on April 3,
agreement with the Fund.47 Exchange listing rules shall constitute 2018, the Investors Exchange LLC
(14) The Fund’s short positions and continued listing requirements for (‘‘IEX’’ or the ‘‘Exchange’’) filed with the
its investments in swaps, futures listing the Shares on the Exchange. The Securities and Exchange Commission
contracts, forward contracts and options issuer has represented to the Exchange (the ‘‘Commission’’) the proposed rule
based on the Benchmark Index and that it will advise the Exchange of any change as described in Items I and II,
Russell 2000 Index and ETFs designed failure by the Fund to comply with the below, which Items have been prepared
to track the Benchmark Index or Russell continued listing requirements, and, by the self-regulatory organization. The
2000 Index will be backed by pursuant to its obligations under Commission is publishing this notice to
investments in cash, high-quality short- Section 19(g)(1) of the Act, the Exchange solicit comments on the proposed rule
term debt securities and money-market will monitor for compliance with the change from interested persons.
instruments in an amount equal to the continued listing requirements. If the
Fund is not in compliance with the I. Self-Regulatory Organization’s
Fund’s maximum liability under the Statement of the Terms of Substance of
applicable position or contract, or will applicable listing requirements, the
Exchange will commence delisting the Proposed Rule Change
otherwise be offset in accordance with
Section 18 of the 1940 Act.48 procedures under the Nasdaq 5800 Pursuant to the provisions of Section
(15) The Fund will attempt to limit Series.54 19(b)(1) under the Act,3 and Rule 19b–
counterparty risk in non-cleared swaps, This approval order is based on all of 4 thereunder,4 IEX is filing with the
forwards, and OTC option contracts by the Exchange’s representations, Commission a proposed rule change to
entering into such contracts only with including those set forth above and in amend Rule 11.190(g) to incrementally
counterparties the Adviser believes are the Notice. For the foregoing reasons, optimize and enhance the effectiveness
creditworthy and by limiting the Fund’s the Commission finds that the proposed of the quote instability calculation in
exposure to each counterparty. The rule change is consistent with Section determining whether a crumbling quote
6(b)(5) of the Act 55 and the rules and exists. The Exchange has designated this
daltland on DSKBBV9HB2PROD with NOTICES

41 See id. at 8725. proposal as non-controversial and
42 See id. at 8722. 49 See id. at 8722.
43 See id. at 8721. 50 See id. at 8722 n.14. 56 15 U.S.C. 78s(b)(2).
44 See id. 51 See id. 57 17 CFR 200.30–3(a)(12).
45 See id. at 8720. 52 See id. at 8722. 1 15 U.S.C. 78s(b)(1).
46 See id. at 8721. 53 See id. at 8724. 2 17 CFR 240.19b–4.
47 See id. at 8721 n.10. 54 See id. at 8725. 3 15 U.S.C. 78s(b)(1).
48 See id. at 8721. 55 15 U.S.C. 78f(b)(5). 4 17 CFR 240.19b–4.

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Federal Register / Vol. 83, No. 76 / Thursday, April 19, 2018 / Notices 17469

(‘‘quote stability’’). The System utilizes the quote stability variables Rule 11.190(g)(1)(D)(iii) provides that
independently assesses the stability of defined below to calculate the current the Exchange reserves the right to
the Protected NBB and Protected NBO quote instability factor. modify the quote instability coefficients
for each security. (1) N = the number of Protected Quotations or quote instability threshold at any
When the System determines that a on the near side of the market, i.e. time, subject to a filing of a proposed
Protected NBB for buy orders and
quote, either the Protected NBB or the rule change with the SEC. The Exchange
Protected NBO for sell orders.
Protected NBO, is unstable, the (2) F = the number of Protected Quotations is proposing such changes in this rule
determination remains in effect at that on the far side of the market, i.e. filing.
price level for two (2) milliseconds. The Protected NBO for buy orders and
Changes To Quote Instability
System will only treat one side of the Protected NBB for sell orders.
(3) NC = the number of Protected Quotations Coefficients and Quote Instability
Protected NBBO as unstable in a
on the near side of the market minus the Threshold
particular security at any given time.9
By not permitting resting Discretionary maximum number of Protected IEX conducted an analysis of the
Quotations on the near side at any point effectiveness of the existing factors in
Peg orders and primary peg orders to since one (1) millisecond ago or the most
exercise price discretion during periods recent PBBO change, whichever
predicting whether a crumbling quote
of quote instability, the Exchange is happened more recently. would occur, by reviewing market data
designed to protect such orders from (4) FC = the number of Protected Quotations from randomly selected days in the
unfavorable executions when its on the far side of the market minus the period from October 2016 through
probabilistic model identifies that the minimum number of Protected October 2017. These results were then
market appears to be moving adversely Quotations on the far side at any point validated by testing different randomly
since one (1) millisecond ago or the most selected dates from the same time
to them. Similarly, the CQRF is recent PBBO change, whichever
designed to protect liquidity providing happened more recently.
period. Based on this analysis, the
orders by disincentivizing trading (5) EPos = a Boolean indicator that equals 1 Exchange has determined that further
strategies that target resting liquidity if the most recent quotation update was optimization of the methodology and
during periods of quote instability a quotation of a protected market joining existing factors would incrementally
seeking to trade at prices that are about the near side of the market at the same increase the accuracy of the formula in
to become stale. price. predicting whether a crumbling quote
Quote stability or instability (also (6) ENeg = a Boolean indicator that equals 1 will occur. The following describes the
if the most recent quotation update was proposed changes:
referred to as a crumbling quote) is an a quotation of a protected market moving
assessment that the Exchange System away from the near side of market that
1. Rule 11.190(g)(1) provides in part
makes on a real-time basis, based on a was previously at the same price. that when the System determines that a
pre-determined, objective set of (7) EPosPrev = a Boolean indicator that quote, either the Protected NBB or the
conditions specified in Rule equals 1 if the second most recent Protected NBO is unstable, the
11.190(g)(1). Specifically, quote quotation update was a quotation of a determination remains in effect at that
instability, or the presence of a protected market joining the near side of price level for two (2) milliseconds. The
the market at the same price AND the Exchange proposes to revise the time
crumbling quote, is determined by the second most recent quotation update
System when: limitation on how long each
occurred since one (1) millisecond ago or
(A) the quote instability factor result the most recent PBBO change, whichever determination remains in effect, and
from the quote stability calculation is happened more recently. reorganize certain existing rule text for
greater than the defined quote (8) ENegPrev = a Boolean indicator that clarity. As proposed, when the System
instability threshold. equals 1 if the second most recent determines that either the Protected
(i) Quote Instability Factor. The quotation update was a quotation of a NBB or the Protected NBO in a
Exchange’s proprietary quote stability protected market moving away from the particular security is unstable, the
calculation used to determine the near side of market that was previously determination remains in effect at that
at the same price AND the second most
current quote instability factor is recent quotation update occurred since
price level for two (2) milliseconds,
defined by the following formula that one (1) millisecond ago or the most unless a new determination is made
utilizes the quote stability coefficients recent PBBO change, whichever before the end of the two (2) millisecond
and quote stability variables defined happened more recently. period. Only one determination may be
below: (9) Delta = the number of these three (3) in effect at any given time for a
1/(1 + e ∧ ¥(C0 + C1 * N + C2 * F + C3 venues that moved away from the near particular security. A new
side of the market on the same side of determination may be made after at least
* NC + C4 * FC + C5 * EPos + C6
the market and were at the same price at 200 microseconds has elapsed since a
* ENeg + C7 * EPosPrev + C8 * any point since one (1) millisecond ago
ENegPrev + C9 * Delta)) or the most recent PBBO change,
preceding determination, or a price
whichever happened more recently: change on either side of the Protected
(a) Quote Stability Coefficients. The
Exchange utilizes the values below for XNGS, EDGX, BATS. NBBO occurs, whichever is first. If a
the quote stability coefficients. new determination is made, the original
(ii) Quote Instability Threshold. The
(1) C0 = ¥1.2867 determination is no longer in effect. A
Exchange utilizes a quote instability
(2) C1 = ¥0.7030 new determination can be at either the
threshold of 0.39 for securities whose
(3) C2 = 0.0143 Protected NBB or the Protected NBO
current spread is less than or equal to
(4) C3 = ¥0.2170 and at the same or different price level
$0.01; 0.45 for securities for which the
(5) C4 = 0.1526 as the original determination.10 Based
(6) C5 = ¥0.4771 current spread (i.e., the Protected Best
daltland on DSKBBV9HB2PROD with NOTICES

(7) C6 = 0.8703 Offer minus Protected Best Bid) is 10 The Exchange also proposes a nonsubstantive

(8) C7 = 0.1830 greater than $0.01 and less than or equal change to the text of subparagraph (g)(1) of Rule
(9) C8 = 0.5122 to $0.02; 0.51 for securities for which 11.190 to remove the sentence stating that ‘‘[t]he
(10) C9 = 0.4645 the current spread is greater than $0.02 System will only treat one side of the Protected
NBBO as unstable in a particular security at any
(b) Quote Stability Variables. The Exchange and less than or equal to $0.03; and 0.39 give time.’’ which is redundant of proposed new
for securities for which the current text that provides that ‘‘[o]nly one determination
9 See, Rule 11.190(g). spread is greater than $0.03. Continued

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17470 Federal Register / Vol. 83, No. 76 / Thursday, April 19, 2018 / Notices

upon our analysis of market data, as 3. The Quote Stability Coefficients designed to optimize and enhance the
described above, the Exchange believes specified in subparagraph (1)(A)(i)(a) of effectiveness of the quote instability
that changes to the time limitation Rule 11.190(g) are proposed to be calculation in determining whether a
would provide for a more dynamic modified to take into account the recent crumbling quote exists. As discussed in
methodology for quote instability market data analysis, as well as the the Purpose section, each of the
determinations thereby incrementally changes to the quote stability variables proposed changes are based on the
increasing the accuracy of the formula as described above. The Exchange Exchange’s analysis of market data,
in predicting a crumbling quote by believes that the modifications, as which supports that the proposed
expanding the scope of the model to proposed, will increase the accuracy of changes would increase the accuracy of
additional situations where a crumbling the quote instability calculation. the Exchange’s quote instability
quote exists at a different price point, or 4. The Exchange proposes to modify calculation.
again at the same price point within two and re-optimize the Quote Instability The Exchange believes that the
(2) milliseconds. For example, suppose Threshold specified in subparagraph proposed changes are designed to
that the NBBO is currently $10.03 by (1)(A)(ii) of Rule 11.190(g) based on the protect investors and the public interest
$10.04 in a particular security, and the recent market data analysis and the by incrementally enhancing the
System determines that the NBB is changes to the quote stability variables. accuracy of the Exchange’s quote
unstable. This determination goes into Specifically, the threshold size would instability calculation in determining
effect, with an expiration time set two continue to vary based on the spread of whether a crumbling quote exists,
(2) milliseconds in the future. Now the Protected NBBO,11 but the values thereby increasing the Exchange’s
suppose that one (1) millisecond later, would be revised. Based on its data protection of Discretionary Peg orders,
the NBB falls to $10.02 and the System analysis, as described above, the primary peg orders and other liquidity
determines that this new NBB is Exchange believes that the revised providing orders. Specifically, the
unstable. As proposed once the System values, as proposed, will increase the Exchange believes that the proposed
makes a new determination that the accuracy of the quote instability rule change will enhance the extent to
NBB of $10.02 is unstable, even though calculation. which Discretionary Peg orders and
the prior determination at $10.03 has 5. Finally, the Exchange proposes to primary peg orders will be protected
not expired, the new determination will conform terminology within Rule from unfavorable executions by
overwrite the old determination, and its 11.190(g) by replacing the use of the increasing the instances in which such
expiration time will be set to two (2) term ‘‘quote stability’’ in two orders will be prevented from exercising
milliseconds in the future from the time instances—within subparagraph (1)(A) price discretion during periods of quote
of this determination. and subparagraph (1)(A)(i) of instability when the Exchange’s
11.190(g)—with ‘‘quote instability’’ for probabilistic model identifies that the
2. The Exchange proposes to revise market appears to be moving adversely
five of the quote stability variables clarity and consistency. The Exchange
notes that in context, both instances to them. Similarly, the Exchange
currently specified in subparagraph believes that the proposed rule change
(1)(A)(i)(b) of Rule 11.190(g). mean ‘‘quote instability’’ so no
substantive change is proposed in this will incrementally enhance the extent to
Specifically, the Exchange proposes to which liquidity providing orders will be
revise variables NC, EPosPrev, ENegPrev respect.
The Exchange will announce the protected from liquidity taking orders
and Delta to be calculated over a time targeting them at prices that are likely
window looking back from the time of implementation date of the proposed
to move adversely from the perspective
calculation to one (1) millisecond ago or rule change by Trading Alert at least
of the liquidity providing order.
the most recent PBBO change on the five business days in advance of such
The Exchange also believes that
near side (rather than on either side), implementation date and within 90 days application of the proposed rule change
whichever happened more recently. of effectiveness of this proposed rule to the CQRF is equitable and not
Based on our analysis of market data, as change. unfairly discriminatory, because it will
described above, the Exchange 2. Statutory Basis continue to be narrowly tailored to
identified that for each variable, disincentivize all Members from
considering the maximum change over IEX believes that the proposed rule
deploying trading strategies designed to
the time window defined in this manner change is consistent with Section 6(b) 12
chase short-term price momentum
is a more accurate indicator of a of the Act in general, and furthers the
during periods when the CQI is on and
crumbling quote than the current objectives of Section 6(b)(5) of the Act,13
thus potentially adversely impact
approach. Similarly, the Exchange in particular, in that it is designed to liquidity providing orders. Further,
proposes to revise variable FC to be prevent fraudulent and manipulative although the incremental enhancements
calculated over a time window looking acts and practices, to promote just and to the accuracy of the crumbling quote
back from the time of calculation to one equitable principles of trade, to foster formula may result in a corresponding
(1) millisecond ago or the most recent cooperation and coordination with increase in executions that remove
PBBO change on the far side (rather persons engaged in facilitating resting liquidity when the CQI is on, the
than on either side), whichever transactions in securities, to remove Exchange believes that Members are
happened more recently. Based on our impediments to and perfect the able to adjust their trading on IEX to
analysis of market data, as described mechanism of a free and open market reduce or eliminate the imposition of
above, the Exchange identified that for and a national market system and, in fees pursuant to the CQRF. Moreover,
this variable, considering the maximum general, to protect investors and the based on its review of market data
daltland on DSKBBV9HB2PROD with NOTICES

change over the time window described public interest. Specifically, and as during February 2018, the Exchange
in this manner is a more accurate discussed above, the proposal is estimates that while approximately 10%
indicator of a crumbling quote than the 11 The spread is defined in proposed paragraph
more trades would be impacted by the
current approach. (1)(D)(ii) as the Protected Best Offer minus
proposed rule change, only one
Protected Best Bid. additional Member would potentially be
may be in effect at any given time for a particular 12 15 U.S.C. 78f. subject to the CQRF. However, a review
security.’’. [sic] 13 15 U.S.C. 78f(b)(5). of this Member’s trading activity since

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Federal Register / Vol. 83, No. 76 / Thursday, April 19, 2018 / Notices 17471

the January 2018 implementation of the on IEX to reduce or eliminate any threshold were based on a recent market
CQRF indicates that the Member has additional fees pursuant to the CQRF. data analysis and would increase the
been able to adjust its trading on IEX to The Exchange also believes that the accuracy of the quote instability
reduce and then eliminate its liability proposed rule change will not result in calculation. IEX similarly believed that
for the CQRF. Thus, the Exchange any burden on inter-market competition its proposed changes to the current time
believes that application of the rule that is not necessary or appropriate in limitation would provide a more
change with respect to the CQRF is furtherance of the purposes of the Act. dynamic and expansive methodology
equitable and not unfairly In this regard, the Exchange notes that that would increase the accuracy of
discriminatory. NYSE American LLC has adopted a rule quote instability determinations.21 IEX
The Exchange further believes that the copying an earlier iteration of the further indicated that the proposed
conforming changes to terminology are Exchange’s Discretionary Peg Order and changes to the quote instability
consistent with the Act because they are quote stability calculation.17 calculation would enhance the
designed to provide enhanced clarity As discussed in the Purpose and Exchange’s ability to protect
within Rule 11.190(g) and thereby avoid Statutory Basis sections, the proposed Discretionary Peg orders, primary peg
any potential confusion on the part of rule change is designed to merely orders, and other liquidity providing
market participants. enhance the accuracy of the quote orders from unfavorable executions,
Finally, the Exchange notes that, as instability calculation; therefore, no new because such changes would better
proposed, the new quote instability burdens are being proposed. prevent such orders from exercising
calculation will continue to be a fixed C. Self-Regulatory Organization’s price discretion during periods when
formula specified transparently in IEX’s Statement on Comments on the the market appears to be moving
rules. The Exchange is not proposing to Proposed Rule Change Received From adversely to them.
add any new functionality, but merely Members, Participants, or Others The Commission believes that a
to revise the fixed formula based on partial waiver of the 30-day operative
Written comments were neither
market data analysis designed to delay is consistent with the protection
solicited nor received.
increase the accuracy of the formula in of investors and the public interest as it
predicting a crumbling quote, and as III. Date of Effectiveness of the will allow IEX to optimize the
contemplated by the rule. Proposed Rule Change and Timing for functionality of its quote instability
Commission Action calculation in order to allow the
B. Self-Regulatory Organization’s crumbling quote functionality to better
Statement on Burden on Competition Because the foregoing proposed rule
change does not: (i) Significantly affect meet its intended purpose to protect
IEX does not believe that the the protection of investors or the public certain liquidity-providing orders. At
proposed rule change will result in any interest; (ii) impose any significant the same time, a partial operative delay
burden on competition that is not burden on competition; and (iii) become will afford the public time to review and
necessary or appropriate in furtherance operative for 30 days from the date on comment upon the proposed changes
of the purposes of the Act. With regard which it was filed, or such shorter time before they become operative.
to intra-market competition, the as the Commission may designate, it has Accordingly, the Commission waives
proposed change will apply equally to become effective pursuant to Section the 30-day operative delay and
all IEX Members. The Commission has 19(b)(3)(A)(iii) of the Act 18 and designates that the proposed rule
already considered the Exchange’s subparagraph (f)(6) of Rule 19b–4 change will become operative on April
Discretionary Peg order type in thereunder.19 24, 2018.22
connection with its grant of IEX’s A proposed rule change filed under At any time within 60 days of the
application for registration as a national Rule 19b–4(f)(6) normally does not filing of the proposed rule change, the
securities exchange under Sections 6 become operative for 30 days after the Commission summarily may
and 19 of the Act 14 and approved the date of the filing. However, Rule 19b– temporarily suspend such rule change if
Exchange’s primary peg order type.15 4(f)(6)(iii) 20 permits the Commission to it appears to the Commission that such
The Commission has also considered designate a shorter time if such action action is: (i) Necessary or appropriate in
the CQRF,16 and the Exchange does not is consistent with the protection of the public interest; (ii) for the protection
believe that the incremental increase in investors and the public interest. In its of investors; or (iii) otherwise in
the number of executions that remove filing, IEX requests that the Commission furtherance of the purposes of the Act.
resting liquidity when the CQI is on as waive the 30-day operative delay. IEX If the Commission takes such action, the
a result of the proposed enhancements represented that the proposed rule Commission shall institute proceedings
to the accuracy of the quote instability change would optimize the to determine whether the proposed rule
calculation specified in Rule 11.190(g) methodology by which the Exchange should be approved or disapproved.
will create a burden on competition determines whether a crumbling quote IV. Solicitation of Comments
with respect to application to the CQRF. exists. Specifically, IEX stated that its
As discussed in the Statutory Basis proposed changes to the quote stability Interested persons are invited to
section, the proposed rule change will variables, the quote stability submit written data, views, and
apply equally to all Members, and the coefficients, and the quote instability arguments concerning the foregoing,
Exchange believes that Members who including whether the proposed rule
may be subject to potential increased 17 See NYSE American Rule 7.31E(h)(3)(D). change is consistent with the Act.
18 15 U.S.C. 78s(b)(3)(A)(iii).
fees will be able to adjust their trading
daltland on DSKBBV9HB2PROD with NOTICES

19 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 21 The Exchange also proposed several non-

4(f)(6) requires a self-regulatory organization to give substantive changes to Rule 11.190(g) that were
14 See Securities Exchange Act Release 78101 the Commission written notice of its intent to file designed to increase the clarity and consistency of
(June 17, 2016), 81 FR 41142 (June 23, 2016) (File the proposed rule change at least five business days the rule.
No. 10–222). prior to the date of filing of the proposed rule 22 For purposes only of waiving the 30-day
15 See Securities Exchange Act Release No. 80223 change, or such shorter time as designated by the operative delay, the Commission has also
(March 13, 2017), 82 FR 14240 (March 17, 2017). Commission. The Exchange has satisfied this considered the proposed rule’s impact on
16 See Securities Exchange Act Release No. 81484 requirement. efficiency, competition, and capital formation. See
(August 25, 2017), 82 FR 41446 (August 31, 2017). 20 17 CFR 240.19b–4(f)(6)(iii). 15 U.S.C. 78c(f).

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Document Created: 2018-04-19 00:41:00
Document Modified: 2018-04-19 00:41:00
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		83 FR 17467