[Federal Register Volume 84, Number 158 (Thursday, August 15, 2019)]
[Notices]
[Pages 41793-41801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17487]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86626; File No. SR-IEX-2019-07]


Self-Regulatory Organizations: Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Modify 
the IEX Fee Schedule, Pursuant to IEX Rules 15.110(a) and (c), To 
Charge a Fee of $100 Per Month for Each Logical Order Entry Port in 
Excess of Five Per User

August 9, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on August 8, 2019, the Investors Exchange LLC (``IEX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. 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 Act,\4\ 
and Rule 19b-4 thereunder,\5\ IEX is filing with the Commission a 
proposed rule change to modify its Fee Schedule, pursuant to IEX Rules 
15.110(a) and (c), to charge a fee of $100 per month for each logical 
order entry port (``Order Entry Ports'') \6\ in excess of five per 
User.\7\ As described below, although changes to the Fee Schedule 
pursuant to this proposal are effective upon filing, IEX is choosing to 
defer implementation of the proposed fee until October 1, 2019 to 
provide an opportunity for IEX to receive and consider any comments 
before the fee is assessed, as well as an opportunity for Users to 
reduce the number of their assigned Order Entry Ports and corresponding 
fees before the fee is applicable.
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
    \6\ Order Entry Ports are used for sending and receiving order 
messages.
    \7\ See Rule 1.160(qq).
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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 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
    IEX has not previously imposed any fees for Order Entry Ports used 
to access its market. In general, IEX believes that exchanges, in 
setting fees of all types, should meet very high standards of 
transparency to demonstrate why each new fee or fee increase meets the 
Exchange Act requirements that fees be reasonable, equitably allocated, 
not unfairly discriminatory, and not create an undue burden on 
competition among

[[Page 41794]]

members and markets. IEX believes this high standard is especially 
important when an exchange imposes fees for its own market data or for 
connectivity to the exchange, because it believes each exchange has a 
natural monopoly over its own market data (specifically depth of book 
and direct access to top of book) and access to its own market. 
Therefore, IEX believes that each exchange should take extra care to be 
able to demonstrate that these fees are based on its costs and 
reasonable business needs and that it is not taking advantage of its 
unique position as an exchange that many market participants must be 
able to access.
    For the same reasons, IEX is also choosing to defer implementation 
of the proposed fee to October 1, 2019 in order to provide an 
opportunity for industry comment and to take into consideration any 
such comments before beginning to charge the fee. Under the existing 
regulatory regime, exchange fee changes ``shall take effect upon filing 
with the Commission.'' \8\ While the proposed fee is being filed under 
this provision, IEX believes that proposals to raise fees for market 
data and connectivity should be exposed to public notice and comment 
before they are implemented. Consistent with this view, IEX is 
voluntarily delaying implementation of the proposed fee so that market 
participants have a reasonable opportunity to assess whether it is fair 
and reasonable and meets the other standards of the Exchange Act and to 
provide written comments, if they wish, before any Users of IEX are 
charged the new fee.\9\ Additionally, delayed implementation will 
provide an opportunity for Users to disconnect any of their assigned 
Order Entry Ports, if they choose to do so, thereby reducing the fee to 
be charged, before the first month in which IEX will charge for 
assigned Order Entry Ports in excess of five.
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    \8\ See Section 19(b)(3)(A)(ii) of the Act, 15 U.S.C. 
78s(b)(3)(A)(ii).
    \9\ Although fee filings are effective upon filing with the 
Commission, such filings are subject to a 21-day comment period 
following filing. Further, 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. See 15 U.S.C. 78s(b)(3)(C). Therefore, any 
comments submitted about this fee filing within this time frame can 
inform any decision by the Commission as to whether to suspend the 
rule change.
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    In proposing to charge fees for Order Entry Port connectivity, IEX 
has sought to be especially diligent in assessing those fees in a 
transparent way against its own aggregate costs of providing the 
related service, and also carefully and transparently assessing the 
impact on Members \10\--both generally and in relation to other 
Members, i.e., to assure the fee will not create a financial burden on 
any participant and will not have an undue impact in particular on 
smaller Members and competition among Members in general. IEX believes 
that this level of diligence and transparency is called for by the 
requirements of Section 19(b)(1) under the Act,\11\ and Rule 19b-4 
thereunder,\12\ with respect to the types of information self-
regulatory organizations (``SROs'') should provide in seeking approval 
of any fee changes, and Section 6(b) of the Act,\13\ which requires, 
among other things, that exchange fees be reasonable and equitably 
allocated,\14\ not designed to permit unfair discrimination,\15\ and 
that they not impose a burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\16\ This rule 
change proposal addresses those requirements, and the analysis and data 
in each of the sections that follow are designed to clearly and 
comprehensively show how they are met.\17\
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    \10\ See Rule 1.160(s).
    \11\ 15 U.S.C. 78s(b)(1).
    \12\ 17 CFR 240.19b-4.
    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ 15 U.S.C. 78f(b)(8).
    \17\ The Commission staff recently published guidance suggesting 
the types of information that SROs may use to demonstrate that their 
fee filings comply with the standards of the Exchange Act 
(``Guidance''). While IEX understands that the Guidance does not 
create new legal obligations on SROs, the Guidance is consistent 
with IEX's view about the type and level of transparency that 
exchanges should meet to demonstrate compliance with their existing 
obligations when they seek to charge new fees. See Staff Guidance on 
SRO Rule Filings Relating to Fees (May 21, 2019) available at 
https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees.
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    As noted above, IEX currently does not charge fees for connectivity 
to the Exchange, including fees for logical connectivity for order 
entry purposes. The objective of this approach was to eliminate any 
fee-based barriers to connectivity for Members when IEX launched as a 
national securities exchange in 2016, and it was successful in 
achieving this objective in that a large portion of Members are 
directly connected to IEX. As detailed below, IEX recently calculated 
its annual aggregate costs for providing connectivity to the Exchange 
at $1,508,649. Because IEX has to date offered logical port connections 
free of charge, IEX has borne 100% of all connectivity costs. In order 
to recover a portion of the aggregate costs of providing connectivity 
to its Users (both Members and Service Bureaus, \18\) the Exchange is 
proposing to modify its Fee Schedule, pursuant to IEX Rules 15.110(a) 
and (c), to charge a fee of $100 per month for each Order Entry Port in 
excess of five per User.\19\ The proposed fees would not apply to 
logical ports used for other purposes, such as receiving market data or 
drop copies,\20\ nor would such ports count toward the five free Order 
Entry Port calculation. Furthermore, IEX would not charge any fee for 
Users to connect to IEX's Disaster Recovery Facility or Test Facility, 
for the reasons explained below.\21\
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    \18\ Service Bureaus, which offer technology-based services to 
other companies for a fee, may access the Exchange's Order Entry 
Ports on behalf of one or more Members. See Rule 11.130(d).
    \19\ Users who connect to the Exchange's Order Entry Ports are 
either Members that connect directly to Exchange, or Service Bureaus 
through which one or more Members connect to the Exchange. Because 
it is the Exchange's Members that send orders to the Exchange 
(either directly or through a Service Bureau), this rule filing 
focuses on the expected impact on Members. However, because IEX 
assigns Order Entry Ports to Users, which includes Service Bureaus 
that provide connectivity to Members, the impact of the proposed fee 
on Service Bureaus will be addressed whenever relevant.
    \20\ Confirmations of orders and execution reports are 
transmitted by the Exchange over the Order Entry Port that was used 
to enter the order. A ``drop copy'' contains redundant information 
that a Member chooses to have ``dropped'' to another destination 
(e.g., to allow the Member's back office and/or compliance 
department, or another Member--typically the Member's clearing 
broker--to have immediate access to the information). Drop copies 
can only be sent via a drop copy port. Drop copy ports cannot be 
used to enter orders.
    \21\ Logical ports to connect to the Disaster Recovery or Test 
Facilities also would not count toward the five free Order Entry 
Port calculation.
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    Similar to other exchanges, IEX offers its Members logical 
connectivity ports, also known as ``sessions,'' for order entry and 
receipt of trade execution reports and order messages.\22\ Members can 
also choose to connect to IEX indirectly through a session maintained 
by a third-party Service Bureau. Service bureau sessions may provide 
access to one or multiple Members on a single session. Users of IEX 
services (both Members and Service Bureaus) (``Users'') seeking to 
establish one or more sessions with IEX submit an Equities Port Request 
Form to IEX.\23\ Upon receipt of the completed paperwork, IEX assigns 
the User the number of sessions requested by the

[[Page 41795]]

User. The number of sessions assigned to each User as of May 31, 2019 
ranges from one to more than 100, depending on the scope and scale of 
the Member's trading activity on IEX (either through a direct 
connection or through a Service Bureau) as determined by the Member. 
For example, by using multiple sessions, Members can segregate order 
flow from different internal desks, business lines, or customers. IEX 
does not impose any minimum or maximum requirements for how many Order 
Entry Ports a Member or Service Bureau can maintain, and it is not 
proposing to impose any minimum or maximum session requirements for its 
Members or their Service Bureaus.
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    \22\ Logical connectivity for order entry is provided via 
network switch and cabling infrastructure that delivers order and 
execution messages, as well as server infrastructure that runs 
software processes responsible for validating and formatting such 
messages for either internal or external consumption.
    \23\ See the Equities Port Request Form and Service Bureau 
Authorization at https://iextrading.com/docs/IEX%20Connectivity%20Agreements%20and%20Forms.pdf Members may also 
send orders to IEX as a sponsored participant of another Member, 
pursuant to Rule 11.130.
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    In January 2019, IEX conducted a study of its aggregate costs to 
produce market data and connectivity (the ``Cost Study'').\24\ The Cost 
Study includes a detailed analysis of IEX's aggregate baseline costs, 
including the methodology it used for determining such costs for three 
separate segments--market data, physical connectivity (the physical 
connections required to access IEX in its data center), and logical 
connectivity, which concerns the cost to offer and maintain Order Entry 
Ports. The Cost Study estimated that IEX's aggregate annual cost to 
provide Order Entry Ports in 2018 was $1,508,976, or $83.17 per Order 
Entry Port per month.\25\ IEX currently does not charge fees for Order 
Entry Ports and therefore generates no revenue in connection with such 
ports.
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    \24\ See ``The Cost of Exchange Services--Disclosing the Cost of 
Offering Market Data and Connectivity as a National Securities 
Exchange'' (January 2019) available at https://iextrading.com/docs/The%20Cost%20of%20Exchange%20Services.pdf.
    \25\ Id at 30.
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    The following chart, from the Cost Study, details the individual 
annual line item costs considered by IEX to be directly related to 
offering logical connectivity. The servers, switches, and software 
licenses included were limited to those specifically dedicated to order 
entry access. ``Monitoring'' includes hardware and software licenses 
used to monitor these physical assets and the health of the order entry 
services provided by the Exchange. All physical assets and software, 
which also includes assets used for testing (``ITF Order Entry'') and 
monitoring of order entry infrastructure, were valued at cost, 
depreciated over three years. For personnel costs, IEX calculated an 
allocation of employee time for employees whose functions include 
providing and maintaining logical connectivity, and used a blended rate 
of compensation reflecting salary, stock and bonus compensation, 
bonuses, benefits, payroll taxes, and 401(k) matching contributions. 
The total annual cost of $1,508,976 was divided by the number of 
available Order Entry Ports, or sessions, to arrive at an annual cost 
of $998, or approximately $83 per month, per port.\26\
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    \26\ As reflected in Table 1, the Cost Study estimated that 
IEX's total annual order entry infrastructure costs are $1,616,409, 
which includes a cost of $107,761 to provide 108 drop copy ports. 
However, IEX is not proposing to charge for drop copy ports, and 
therefore subtracted those costs ($107,761) from the annual order 
entry infrastructure costs, which results in the total estimated 
annual cost for providing Order Entry Ports of $1,508,976. See Id. 
at 28-31.

                                 Table 1
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------------------------------------------------------------------------
Annual IEX Order Entry Infrastructure...................    ($1,616,409)
                                                                    \27\
Order Entry Distribution Switches (2 x 52 port).........       ($16,667)
Order Entry Access Layer Switches (6 x 24 port).........       ($40,000)
Client Gateway & Drop Copy Servers (CLGW/DCGW) (84/6)...      ($165,000)
a. Software Licensing...................................       ($48,000)
Sequencing Access Layer Switches (6 x 24 port)..........       ($50,000)
ITF Order Entry.........................................       ($95,333)
Space, Power, Security..................................       ($14,560)
Administrative Access...................................       ($33,333)
Monitoring..............................................      ($320,567)
Personnel...............................................      ($832,949)
Max Order Entry Sessions (Logical Sessions).............           1,512
Max Drop Copy Sessions (Logical Sessions)...............             108
Annual Cost per Order Entry Session.....................          ($998)
Annual Cost per Drop Copy Session.......................          ($998)
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    In order to recoup a portion of its aggregate costs in providing 
Order Entry Ports, IEX is proposing to charge a fee of $100 per month 
for each Order Entry Port above five such ports per User. IEX proposes 
to provide five free Order Entry Ports in order to minimize barriers to 
entry for Members and incentivize liquidity on the Exchange. IEX's 
business model seeks to generate revenue from trading rather than from 
data and connectivity fees, so an essential part of the proposed fee 
structure is to enable all Members to be able to connect to the 
Exchange at no cost. As described in more detail below, based on Order 
Entry Port connectivity as of May 31, 2019, over 75% of Members with 
connectivity use fewer than five Order Entry Ports and therefore will 
not be subject to any corresponding port fees. In determining the 
appropriate number of Order Entry Ports to provide for free, IEX 
considered several factors. First, IEX recognizes that each User needs 
at least two Order Entry Ports for redundancy purposes. Second, while 
there is no ``exact science'' to the determination, from a review of 
the number of Order Entry Ports currently requested and assigned to 
each User, IEX believes that five such ports appear to be sufficient 
for a majority of its Users. On that basis, IEX chose five Order Entry 
Ports as a base level of free connectivity. Some Members will use many 
more Order Entry Ports than other Members (and the five provided for 
free), depending on the nature and volume of the business they conduct 
on IEX and the choices they make in segmenting that business among 
different Order Entry Ports. Allowing for this additional use of 
Exchange capacity represents an aggregate cost that IEX seeks to 
recover in part.
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    \27\ Id.
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    The proposed change is also designed to encourage Users to be 
efficient with their Order Entry Port usage, thereby resulting in a 
corresponding increase in the efficiency that the Exchange would be 
able to realize in managing its aggregate costs for providing Order 
Entry Ports. As discussed below, approximately 25% of the Order Entry 
Ports maintained by Members were not used to send orders to IEX during 
May 2019. There is no requirement that any Member maintain a specific 
number of Order Entry Ports and a Member may choose to maintain as many 
or as few of such ports as each Member deems appropriate.
    Finally, the fee will help to encourage Order Entry Port usage in a 
way that aligns with IEX's regulatory obligations. As a national 
securities exchange, IEX is subject to Regulation Systems Compliance 
and Integrity (``Reg SCI'').\28\ Reg SCI Rule 1001(a) requires that IEX 
establish, maintain, and enforce written policies and procedures 
reasonably designed to ensure (among other things) that its Reg SCI 
systems have levels of capacity adequate to maintain IEX's operational 
capability and promote the maintenance of fair and orderly markets.\29\ 
By encouraging Users to be efficient with their Order Entry Port usage, 
the proposed fee will support IEX's Reg SCI obligations in this regard 
by ensuring that unused Order Entry Ports are available to be allocated 
based on individual User needs and as IEX's overall order and trade 
volumes increase.\30\ Additionally, because IEX will continue not to 
charge for connections to its Disaster Recovery Facility or its Test 
Facility, the proposed fee structure will further support IEX's Reg SCI 
compliance by reducing the potential impact of a disruption should

[[Page 41796]]

IEX be required to switch to its Disaster Recovery Facility and 
encouraging Members to engage in any necessary system testing without 
incurring any port fee costs.\31\
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    \28\ 17 CFR 242.1000-1007.
    \29\ 17 CFR 242.1001(a).
    \30\ In the past year, IEX has seen a 10.8% increase in the 
number of active use sessions.
    \31\ By comparison, some other exchanges charge less to connect 
to their disaster recovery facilities, but still charge an amount 
that could both recoup costs and potentially be a source of profits. 
See, e.g., Nasdaq Stock Market LLC Equity 7, Section 115 (Ports and 
other Services).
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    As proposed, Order Entry Port fees will apply based on the User 
that maintains the Order Entry Port. If that User is a Member, the 
Member will not be subject to a fee for the first five Order Entry 
Ports and will be assessed a $100 monthly fee for each assigned Order 
Entry Port in excess of five. If that User is a Service Bureau, the 
Service Bureau likewise will not be subject to a fee for the first five 
Order Entry Ports and will be assessed a $100 monthly fee for each 
Order Entry Port assigned in excess of five. Depending on the 
contractual terms in place, Service Bureaus may pass on such port fees 
to their client Members.\32\
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    \32\ A total of 76 Members connect to IEX through an Order Entry 
Port assigned to a Service Bureau, but only two Service Bureaus 
currently maintain more than five Order Entry Ports, thereby 
subjecting them to a fee for some of these ports.
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    As of May 31, 2019, 136 Members have assigned Order Entry Ports 
(either directly or through a Service Bureau), with the number of 
assigned Order Entry Ports ranging from one to 139 per Member. The 
number of assigned Order Entry Ports is highly concentrated among a few 
Members. Close to 50% of all Order Entry Ports are assigned to seven 
Members. Of the Order Entry Ports assigned to those seven Members, 
three are assigned over 32% of the Order Entry Ports, and two are 
assigned close to 25%. More than 75% of IEX's Members (103 of 136) with 
logical port connectivity to the Exchange will not be subject to any 
Order Entry Port fees under the proposed fee based on current usage, 
because they are assigned five or fewer Order Entry Ports (either 
directly or through a Service Bureau).
    Requests for (and assignment of) Order Entry Ports have increased 
since IEX launched as an exchange in 2016 and as IEX's order and trade 
volume have increased. In addition, some Users request and are assigned 
more Order Entry Ports than they use. For example, during May 2019, 100 
Members did not send orders through one or more assigned Order Entry 
Ports, representing approximately 25% of all assigned Order Entry 
Ports.
    Based on May 2019 data, IEX projects that 33 Members will be 
subject to Order Entry Port fees, assuming no changes in the number of 
assigned Order Entry Ports. The following chart provides data on 
projected monthly fees based on current Order Entry Port usage and a 
separate projection assuming Members eliminate all currently unused 
assigned Order Entry Ports following the implementation of the fee: 
\33\
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    \33\ As discussed below, upon implementation of the new fee, IEX 
expects some Members to reduce their unused assigned Order Entry 
Ports, which would lead to a commensurate drop in the Order Entry 
Port fees incurred by those Members.
    \34\ All four tables focus on the number of Order Entry Ports 
assigned to Members, and do not include any of the Service Bureaus. 
As discussed in note 32, above, under the proposed fee, two Service 
Bureaus currently maintain more than five ports each, and would 
therefore be charged for those Order Entry Ports in excess of five. 
Specifically, these two Service Bureaus will collectively be charged 
$3,000 per month based on their current Order Entry Port usage 
($2,400 per month if the Service Bureaus disconnect their unused 
sessions). Those two Service Bureaus may pass the Order Entry Port 
fees on to their Members, depending on the contractual relationship 
between the parties. Although these Service Bureaus are not included 
in the four tables, the projected revenue from the Service Bureaus 
is included in any calculations of total projected revenues from 
this fee filing.

                                                   Table 2 34
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                                                   All currently assigned  ports    Eliminating unused assigned
                                                 --------------------------------              ports
                                                                                 -------------------------------
                    Fee range                                        Estimated                       Estimated
                                                     # Members        average                         average
                                                                   monthly fees      # Members     monthly fees
                                                                        ($)                             ($)
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No Fee..........................................             103  ..............             109  ..............
Under $500......................................              10           2,800               9          $1,700
$500-$999.......................................               6           4,500               4           2,900
$1,000-$2,499...................................               7          12,700               7          10,400
$2,500-$4,999...................................               6          18,300               3           8,300
$5,000+.........................................               4          38,900               4          31,900
                                                 ---------------------------------------------------------------
    Totals......................................             136          77,200             136          56,200
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    Depending on the number of unused Order Entry Ports that are 
retained following implementation of the proposed fee change, IEX 
projects that between 103 and 109 Members will not be subject to any 
Order Entry Port fees and between 27 and 33 Members will be subject to 
the Order Entry Port fee, with most of those Members (between 20 and 
23) paying less than $2,500 per month for their logical port 
connections. Between seven and ten Members are projected to be subject 
to a monthly charge of more than $2,500. Only four Members will be 
potentially subject to a monthly charge in excess of $5,000. As 
described in more detail below, the proposed fee is projected to 
partially recover IEX's aggregate costs of providing logical Order 
Entry Ports to Users. The anticipated annual deficit (i.e., the 
difference between aggregate costs and fee revenue) is projected to be 
between $546,249 and $805,449.\35\
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    \35\ These numbers are calculated as follows: IEX calculates its 
annual aggregate cost for providing Order Entry Ports as $1,508,649. 
Based on current Order Entry Port usage, on an annual basis, IEX 
will collect $926,400 from its Members, and, as described in 
footnote 34, above, $36,000 from two Service Bureaus (totaling 
$962,400). Should the Members and Service Bureaus drop all unused 
Order Entry Ports, on an annual basis, IEX will collect $674,400 
from its Members and $28,800 from two Service Bureaus (totaling 
$703,200). Finally, IEX subtracted the two projected annual fee 
revenue totals from the total calculated cost of providing Order 
Entry Ports.
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    The proposed fee will not apply differently based upon the size or 
type of the market participant, but rather based upon the number of 
Order Entry Ports a User requests, based upon factors deemed relevant 
by each User (either a Member or Service Bureau). IEX believes these 
factors include the costs to maintain connectivity, the volume of 
incoming messages sent to

[[Page 41797]]

IEX, and choices Members make in how to segment or allocate their order 
flow.\36\
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    \36\ IEX understands that some Members (or Service Bureaus) may 
also request more Order Entry Ports to enable the ability to send a 
greater number of simultaneous order messages to IEX by spreading 
orders over more Order Entry Ports, thereby increasing throughput 
(i.e., the potential for more orders to be processed in the same 
amount of time). The degree to which this usage of Order Entry Ports 
provides any throughput advantage is based on how a particular 
Member sends order messages to IEX. However, it is important to note 
that all Order Entry Ports on IEX provide the same throughput.
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    IEX assessed whether the fee may impact different types or sizes of 
Members differently. As a threshold matter, and as discussed above, the 
fee does not by design apply differently to different types or sizes of 
Members. Nonetheless, IEX assessed whether there would be any 
differences in the amount of the projected fee that correlate to the 
type and/or size of different Members. This assessment revealed that 
the number of assigned Order Entry Ports, and thus projected fees, 
correlates closely to a Member's inbound message volume to IEX. 
Specifically, as inbound message volume increases per Member, the 
number of requested and assigned Order Entry Ports increases. Table 3, 
below, presents data from May 2019 evidencing the correlation between a 
Member's inbound message volume and the projected fee, based on the 
number of Order Entry Ports assigned to the Member as of May 31, 2019. 
Members with relatively higher inbound message volume are projected to 
pay higher fees because they have requested more Order Entry Ports. For 
example, the four Members that are projected to be subject to monthly 
fees of $5,000 or more on average account for 9.6% of May inbound 
messages (38.4% in the aggregate) and would pay 50.4% of the total 
amount paid for Order Entry Port fees. In contrast, the 103 Members 
that, based on their May 2019 Order Entry Port usage are not projected 
to be subject to any Order Entry Port fees, on average account for only 
0.2% of May inbound messages and would pay 0% of the total amount paid 
for Order Entry Port fees.
    As discussed in more detail in the Statutory Basis section, IEX 
believes that the variance between projected fees and Order Entry Port 
usage is not unfairly discriminatory because it is based on objective 
differences in Order Entry Port usage among different Members. IEX 
notes that the distribution of total inbound message volume is 
concentrated in relatively few Members, which consume a much larger 
proportionate share of the Exchange's resources (compared to the 
majority of Members that send substantially fewer inbound order 
messages). This distribution of inbound message volume requires IEX to 
maintain sufficient Order Entry Port capacity to accommodate the higher 
existing and anticipated message volume of higher volume Members. Thus, 
IEX's incremental aggregate costs for all Order Entry Ports are 
disproportionately related to volume from the highest inbound message 
volume Members. For these reasons, IEX believes it is not unfairly 
discriminatory for the Members with the highest inbound message volume 
to pay a higher share of the total Order Entry Port fees.
    In this regard, IEX notes that it is not possible to fully 
synchronize its objective to provide five free Order Entry Ports to all 
Members, thereby minimizing barriers to entry and encouraging liquidity 
on the Exchange, with an approach that exactly aligns the projected per 
Member fee with each Member's number of requested Order Entry Ports. 
IEX believes that the low amount of the proposed fee substantially 
mitigates any disparate impact.

                                                     Table 3
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                                                                   All currently assigned ports
                                                 ---------------------------------------------------------------
                                                                     Estimated                     Average % of
                    Fee range                                         average       % of total        inbound
                                                     # Members     monthly fees    fees charged    messages per
                                                                        ($)         (aggregate)       member
----------------------------------------------------------------------------------------------------------------
No Fee..........................................             103  ..............             0.0             .24
Under $500......................................              10           2,800             3.6             .37
$500-$999.......................................               6           4,500             5.8            1.56
$1,000-$2,499...................................               7          12,700            16.5            1.39
$2,500-$4,999...................................               6          18,300            23.7            2.41
$5,000+.........................................               4          38,900            50.4            9.61
----------------------------------------------------------------------------------------------------------------

    While Members with a business model that results in higher relative 
inbound message activity are projected to pay higher fees, the level of 
such fees is based solely on the number of Order Entry Ports deemed 
necessary by the Member and not on the Member's business model or type 
of Member. IEX notes that the correlation between percent of message 
volume and projected Order Entry Port fees is not completely aligned 
for two main reasons. First, every Member will receive up to five free 
Order Entry Ports, and those ports become a decreasing percentage of a 
Member's total Order Entry Ports as the number of such ports increases. 
Second, Members individually determine how many Order Entry Ports to 
request, and Members may make different decisions on the appropriate 
message to Order Entry Port ratio based on facts unique to their 
individual businesses.
    IEX also considered whether there are any differences in the number 
of Order Entry Ports requested/assigned based on the liquidity ``take'' 
versus ``provide'' ratio \37\ of a Member's executed orders. The 
results are summarized in Table 4 below. This analysis identified some 
variation among Members at different projected fee levels, but not any 
differences that are indicative of a disparate impact. The four Members 
that are projected to incur a monthly charge in excess of $5,000 had a 
slightly lower ``provide'' percentage of 42%, compared to Members not 
projected to be subject to any charge, which had a ``provide'' 
percentage of 55%. Overall, however, Members at all projected fee 
levels include significant amounts of taking and providing executed 
orders. Thus, IEX does not believe that these differences reflect any 
material connection between projected Order Entry Port fees and the 
take versus provide ratio.
---------------------------------------------------------------------------

    \37\ An order that takes liquidity executes against orders 
resting on IEX's order book. An order that provides liquidity is 
executed after resting on IEX's order book.

[[Page 41798]]



                                                     Table 4
----------------------------------------------------------------------------------------------------------------
                                                                   All currently assigned ports
                                                                 --------------------------------
                                                                                     Estimated      % of trades
                            Fee range                                                 average      that provide
                                                                     # Members     monthly fees      liquidity
                                                                                        ($)
----------------------------------------------------------------------------------------------------------------
No Fee..........................................................             103  ..............              55
Under $500......................................................              10           2,800              44
$500-$999.......................................................               6           4,500              50
$1,000-$2,499...................................................               7          12,700              49
$2,500-$4,999...................................................               6          18,300              55
$5,000+.........................................................               4          38,900              42
----------------------------------------------------------------------------------------------------------------

    Consequently, the Exchange believes that this data supports its 
view that the proposed fee will be fairly allocated among IEX Members 
based on their usage of Order Entry Ports.
    The proposed fee is effective on filing and will become operative 
on October 1, 2019.\38\
---------------------------------------------------------------------------

    \38\ Monthly fees will be assessed based on the number of Order 
Entry Ports assigned to each User as of the first of each month.
---------------------------------------------------------------------------

    The Exchange is not proposing to assess any other fees for 
connectivity, market data, or membership, each of which is currently 
provided without charge.
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6(b) \39\ of the Act in general and furthers the 
objectives of Section 6(b)(4) \40\ of the Act, in particular, in that 
it is designed to provide for the equitable allocation of reasonable 
dues, fees and other charges among its Members and other persons using 
its facilities. The Exchange also believes that the proposed fee change 
promotes just and equitable principles of trade and will not be 
unfairly discriminatory, consistent with the objectives of Section 
6(b)(5) \41\ of the Act.
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    \39\ 15 U.S.C. 78f(b).
    \40\ 15 U.S.C. 78f(b)(4).
    \41\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Reasonableness
    With regard to reasonableness, the Exchange understands that the 
Commission has traditionally taken a market-based approach to examine 
whether the SRO making the proposal was subject to significant 
competitive forces in setting the terms of the proposal. In looking at 
this question, the Commission considers whether the SRO has 
demonstrated in its filing that (i) there are reasonable substitutes 
for the product or service; (ii) ``platform'' competition constrains 
the ability to set the fee; and/or (iii) revenue and cost analysis 
shows the fee would not result in the SRO taking supracompetitive 
profits. If the SRO demonstrates that the fee is subject to significant 
competitive forces, the Commission will next consider whether there is 
any substantial countervailing basis to suggest the fee's terms fail to 
meet one or more standards under the Exchange Act. If the filing fails 
to demonstrate that the fee is constrained by competitive forces, the 
SRO must provide a substantial basis, other than competition, to show 
that it is consistent with the Exchange Act, which may include 
production of relevant revenue and cost data pertaining to the product 
or service.
    IEX has not previously charged Order Entry Port fees, so it does 
not have IEX-specific data to support whether or not competitive forces 
would constrain its ability to set fees for Order Entry Ports. However, 
IEX notes that Order Entry Port fees at competing exchanges have 
steadily risen over the last few years, \42\ compared to the pattern of 
changes in transaction fees,\43\ which IEX believes demonstrates that 
competition does not constrain connectivity fees. As noted in the Cost 
Study, the six largest equities exchanges by market share \44\ all 
charge between $550 and $575 per month to connect to each Order Entry 
Port.\45\ As also noted in the Cost Study, the extreme differences 
between IEX's aggregate cost to produce market data, physical 
connectivity, and logical connectivity products and the prices charged 
by other exchanges for similar products and services clearly suggests 
that the pricing for all of these classes of products is not 
constrained by competition.\46\ Furthermore, IEX notes that, as with 
the market for other exchanges' Order Entry Ports, there is no 
reasonable substitute for an IEX Order Entry Port to send orders to 
IEX. Members (and Service Bureaus) could choose not to transact on IEX 
and send orders to competing venues instead, but their orders may not 
receive the same execution quality and other protections that IEX is 
designed to provide. Members may also need connectivity to IEX, as with 
other exchanges, in order to meet best execution \47\ and order 
protection \48\ regulatory requirements. With respect to the Order 
Protection Rule, connectivity to IEX enables a Member to access a 
protected quotation on IEX in compliance with the rule. A Member (or 
Service Bureau) could choose to send orders through another Member of 
IEX as agent or through a Service Bureau, in lieu of connecting 
directly to IEX. However, in such circumstances IEX expects that the 
Member (or Service Bureau), subject to any IEX applicable fees, would 
be subject to charges related to IEX connection fees either directly 
(via a pass through) or indirectly (via charges that reflect the cost 
of IEX connection fees). More important, connecting indirectly would 
add latency that would

[[Page 41799]]

make this alternative impractical as a competitive matter for many 
firms that, by virtue of their business, require the fastest available 
access to the markets on which they trade. Accordingly, IEX does not 
assert that this approach constitutes a reasonable substitute to 
connecting directly to IEX's Order Entry Ports.
---------------------------------------------------------------------------

    \42\ As an example of the steady increase in Order Entry Port 
fees charged by other exchanges, in 2012 NYSE raised its monthly 
Order Entry Port fees from $150 to $200 per month, and three years 
later, raised the monthly Order Entry Port fees from $200 to $550. 
See Securities Exchange Act Release No. 68229 (November 14, 2012), 
77 FR 69688 (November 20, 2012) (SR-NYSE-2012-60) and Securities 
Exchange Act Release No. 76072 (October 5, 2015), 80 FR 61258 
(October 9, 2015) (SR-NYSE-2015-43).
    \43\ With respect to transaction fees, other exchanges often 
lower their fees or increase their rebate amounts, thereby lowering 
their overall transaction fees. See, e.g., Securities Exchange Act 
Release No. 85636 (April 17, 2019), 84 FR 16062 (April 12, 2019) 
(SR-CboeBZX-2019-021) (creating a new volume tier that further 
reduced the fees charged at the pre-existing volume tier) and 
Securities Exchange Act Release No. 85373 (March 20, 2019), 84 FR 
11379 (March 26, 2019) (SR-NASDAQ-2019-015) (offering an additional 
$.00005 per share rebate for displayed quotes/orders that provide 
liquidity).
    \44\ The market share of equities exchanges is calculated from 
January 1, 2019 to May 31, 2019, based on IEX market data.
    \45\ See Cost Study, footnote 24 at 27.
    \46\ See Cost Study, footnote 24 at 18-19, 24-25, and 31-32, 
respectively.
    \47\ FINRA Rule 5310.
    \48\ 17 CFR 242.611 (``Order Protection Rule'').
---------------------------------------------------------------------------

    Further, IEX is not aware of and does not believe that there is any 
evidentiary support for the proposition that competition at the 
``platform level'' constrains market data and connectivity fees in 
general, including logical connectivity fees of the type proposed in 
this filing.
    Thus, IEX believes that in the current market structure, the market 
for connectivity to IEX and other exchanges is not subject to 
significant competitive forces sufficient to ensure the reasonableness 
of Order Entry Port fees, and IEX is not relying on an argument that 
the fees proposed in this filing are justified based on market 
competition.
    Instead, IEX believes the proposed fee is fair and reasonable as a 
form of partial cost recovery for IEX's aggregate costs of offering 
logical ports to its Members and Service Bureaus.\49\ The proposed fees 
are expected to generate annual revenue of between $703,200 and 
$962,400,\50\ providing a partial cost recovery to IEX for the 
aggregate costs of offering logical port connections, based on a 
methodology that narrowly limits the aggregate cost elements considered 
to those closely and directly related to the particular product 
offering. Thus, based on IEX's conservative cost methodology and 
accounting for the costs of maintaining excess Order Entry Port 
capacity, the proposed fees are projected to yield at most 63.8% of the 
annual aggregate costs of offering the related product ($962,400 
divided by $1,508,649). While IEX believes that exchanges could, 
consistent with the Act, charge fees that represent a reasonable markup 
over cost if they appropriately justify such fees, this proposed fee is 
designed to provide only a partial cost recovery of IEX's aggregate 
costs.
---------------------------------------------------------------------------

    \49\ See In the Matter of the Application of Securities Industry 
and Financial Markets Ass'n for Review of Action taken by NYSE Arca, 
Inc. and Nasdaq Stock Market, LLC, Securities Exchange Act Release 
No. 84432, at 51 (October 16, 2018) (``the exchanges must 
demonstrate that the fees are fair and reasonable, not that they are 
less expensive than competing products'').
    \50\ See note 35 supra for the calculation of IEX's projected 
annual Order Entry Port fee revenue.
---------------------------------------------------------------------------

    Further, IEX believes that a fee of $100 per Order Entry Port is 
reasonable in relation to the per port cost estimate in the Cost Study 
because: (i) Considering the five free ports for each User and the fact 
that some Order Entry Ports are not used but are held in reserve by the 
Exchange to meet increased capacity needs, IEX's aggregate cost is 
greater than $100 per available Order Entry Port; (ii) the Cost Study 
estimate was based on conservative assumptions that allocated only 
those costs most directly related to the product offering; and (iii) 
even ignoring these other factors, the $100 per port fee represents a 
modest increase over the $83 cost estimate and dramatically less than 
estimates of percentage markups for logical port fees charged by other 
exchanges.\51\
---------------------------------------------------------------------------

    \51\ See Cost Study, footnote 24 at 31-32.
---------------------------------------------------------------------------

    IEX also believes the proposed fee is a reasonable means of 
encouraging Users to be efficient in the number of logical ports they 
reserve for use, with the benefits to overall system efficiency 
described above with respect to unused Order Entry Ports.
Equitable Allocation and Non-Discrimination
    IEX believes that its proposed fee is reasonable, fair and 
equitable, and not unfairly discriminatory because it is designed to 
align fees with services provided, will apply equally to all Members 
that are assigned Order Entry Ports (either directly or through a 
Service Bureau), and will minimize barriers to entry by providing all 
Members with five free Order Entry Ports. As described in the Purpose 
section, a significant majority of Members will not be subject to any 
fee, and only four Members will potentially be subject to a fee of over 
$5,000 per month, based on current usage. In contrast, as described 
above, other exchanges generally charge in excess of $500 per Order 
Entry Port without providing any free Order Entry Ports.\52\ Even for 
Members that choose to maintain more than five Order Entry Ports, IEX 
believes that the cost-based fee of $100 is low enough that it will not 
operate to restrain any Member's ability to maintain the number of 
Order Entry Ports that it determines are consistent with its business 
objectives. The small number of Members projected to be subject to the 
highest fees will still pay considerably less than competing exchanges 
charge.\53\ Further, the number of assigned Order Entry Ports will 
continue to be based on decisions by each Member, including the ability 
to reduce fees by discontinuing unused Order Entry Ports.
---------------------------------------------------------------------------

    \52\ See Cost Study, footnote 24 at 27.
    \53\ Notably, a Member that pays $10,000 in monthly Order Entry 
Port fees to IEX (meaning the Member is assigned 105 Order Entry 
Ports, with the first five being free), would pay $57,550 each month 
to maintain the same number of sessions on NYSE (assuming the Member 
was not a DMM connected to NYSE's DMM Gateway, which provides the 
first 12 Order Entry Ports free of charge) and $60,375 each month to 
maintain the same number of sessions on NASDAQ. See NYSE Price List 
2019, available at https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf and Nasdaq General Equity and Options Rule, 
Equity 7 Section 115(b) (``Ports and other Services'') available at 
http://nasdaq.cchwallstreet.com/NASDAQTools/PlatformViewer.asp?selectednode=chp_1_1_2_2&manual=%2Fnasdaq%2Fmain%2Fnasdaq-llcrules%2F.
---------------------------------------------------------------------------

    The Exchange believes that providing five free Order Entry Ports is 
fair and equitable, and not unfairly discriminatory because it will 
enable all Members to access IEX free of charge, thereby encouraging 
order flow and liquidity from a diverse set of market participants, 
facilitating price discovery and the interaction of orders. IEX 
believes that five Order Entry Ports is an appropriate number to 
provide for free because it aligns with the number of such ports 
currently maintained by a substantial majority of Members, as discussed 
in the Purpose section. Based on a review of Order Entry Port usage, 
103 of 136 connected Members are not projected to be subject to any 
Order Entry Port fees under the proposed fee. As described in the 
Purpose section, while Order Entry Port usage is concentrated in a few 
relatively larger Members, the number of such ports requested is not 
based on the size or type of Member but rather correlates to a Member's 
inbound message volume to IEX. Further, as discussed in the Purpose 
section, Members with relatively higher inbound message volume also 
request (and are assigned) more Order Entry Ports than other Members, 
which in turn means they account for a disproportionate share of IEX's 
aggregate costs for providing Order Entry Ports. Therefore, IEX 
believes it is not unfairly discriminatory for the Members with higher 
inbound message volume to pay a modestly higher proportionate share of 
the Order Entry Port fees.
    Accordingly, the Exchange believes that the fee will be applied 
consistently with its specific purpose--to partially recover IEX's 
aggregate costs, encourage the efficient use of Order Entry Ports, and 
align fees with Members' Order Entry Port and system usage.
    The Exchange further believes that the proposed fees are 
reasonable, fair and equitable, and non-discriminatory because they 
will apply to all Members in the same manner and are not targeted at a 
specific type or category of market participant engaged in any 
particular trading strategy. All Members (or Service Bureaus) will 
receive five free

[[Page 41800]]

Order Entry Ports and pay the same $100 per Order Entry Port for each 
additional Order Entry Port. Each Order Entry Port is identical, 
providing connectivity to IEX on identical terms. While the proposed 
fee will result in a different effective ``per unit'' rate for 
different Members (or Service Bureaus) after factoring in the five free 
Order Entry Ports, the Exchange does not believe that this difference 
is material given the overall low fee of $100 per Order Entry Port. 
Because the first five Order Entry Ports are free of charge, each 
entity will have a ``per unit'' rate of less than $100. Further, the 
fee is not connected to volume-based tiers. All Members will be subject 
to the same fee schedule, regardless of the volume sent to or executed 
on IEX. The fee also does not depend on any distinctions between 
Members, customers, broker-dealers, or any other entity. The fee will 
be assessed solely based on the number of Order Entry Ports an entity 
selects and not on any other distinction applied by IEX. While entities 
that send relatively more inbound messages to IEX may select more Order 
Entry Ports, thereby resulting in higher fees, that distinction is 
based on decisions made by each Member and the extent and nature of the 
Member's business on IEX rather than application of the fee by IEX. 
Members (and their Service Bureaus) can determine how many Order Entry 
Ports they need to implement their trading strategies effectively. IEX 
proposes to offer multiple Order Entry Ports at a low fee to enable all 
Members to purchase as many Order Entry Ports as their business needs 
dictate in order to optimize throughput and manage latency across the 
Exchange.
    Notwithstanding that Members with the highest number of Order Entry 
Ports will pay a greater percentage of the total projected fees than is 
represented by their Order Entry Port usage, IEX does not believe that 
the proposed fee is unfairly discriminatory. As discussed in the 
Purpose section, it is not possible to fully synchronize IEX's 
objective to provide five free Order Entry Ports to all Members, 
thereby minimizing barriers to entry and incentivizing liquidity on the 
Exchange, with an approach that exactly aligns the projected per Member 
fee with each Member's number of requested Order Entry Ports. As 
proposed, IEX is providing a reasonable number of Order Entry Ports to 
each Member (or Service Bureau) without charge. Any variance between 
projected fees and Order Entry Port usage is attributable to objective 
differences among Members in terms of the number of Order Entry Ports 
they determine are appropriate based on their trading on IEX. Further, 
IEX believes that the low amount of the proposed fee (which in the 
aggregate is projected to only partially recover IEX's directly-related 
costs) mitigates any disparate impact.
    By way of comparison, IEX notes that differential pricing based on 
the volume of trading activity is common in other exchanges' fee 
structures, including, for example, the use of volume ``tiers'' that 
provide discounts and/or higher rebates based upon various volume-based 
measures of activity.\54\ Under these pricing structures, a lower 
volume market participant pays substantially more on a per-transaction 
basis than higher volume members, with the stated goal of incentivizing 
certain types of trading activity on the exchange. In contrast, by 
offering five free Order Entry Ports to each User, IEX is seeking to 
maintain incentives for a broad cross-section of participants to trade 
on the Exchange, while the low per port fee applies consistently to all 
similarly situated market participants in a way designed to avoid 
imposing a material business cost on any participant.
---------------------------------------------------------------------------

    \54\ See, e.g., Securities Exchange Act Release No. 85864 (May 
15, 2019), 84 FR 23109 (May 21, 2019) (SR-NYSE-2019-24).
---------------------------------------------------------------------------

    IEX also believes that it is consistent with the Act to apply the 
fee (including five free Order Entry Ports) directly to Service Bureaus 
providing Order Entry Ports to one or more Members rather than to such 
Members directly because such Order Entry Ports may be shared by 
multiple Members and applying the fee to such Members directly would 
result in multiple billing for the same service. To illustrate this 
point, in the case of an Order Entry Port subject to the $100 fee 
(i.e., not included in the first five free Order Entry Ports), if a 
Service Bureau provided access to that Order Entry Port to five 
Members, and if IEX charged each Member for the Order Entry Port, each 
of those Members would pay IEX $100 for the Order Entry Port, totaling 
$500, whereas a Member subscribing directly to the same Order Entry 
Port would pay only $100 for the connection.\55\
---------------------------------------------------------------------------

    \55\ As discussed in note 34, above, IEX expects two Service 
Bureaus to be charged a total of $3,000 per month for their Order 
Entry Ports. This fee could be reduced to as little as $2,400 per 
month if the two Service Bureaus disconnect their unused Order Entry 
Ports.
---------------------------------------------------------------------------

    Further, the Exchange believes that the proposed fee is consistent 
with the Exchange Act because it will support its Reg SCI compliance 
obligations, as described in the Purpose section.
    IEX also believes that it is reasonable, equitable, and not 
unfairly discriminatory to base its billing for Order Entry Ports on 
the number of Order Entry Ports assigned to each User as of the first 
day of each month. IEX believes that this approach is fair because 
Members (and Service Bureaus) will have a reasonable understanding and 
expectation of the cutoff date for determining whether a User has more 
than five assigned Order Entry Ports. Additionally, IEX's decision to 
wait more than a month for this proposed fee to take effect will not 
only allow time for market participants to comment on the proposed fee, 
it will also allow Users time to determine if they want to disconnect 
any of their assigned Order Entry Ports before the first month in which 
IEX will charge for assigned Order Entry Ports in excess of five.
    Finally, the Exchange believes that the proposed fee is consistent 
with Section 11A of the Exchange Act in that it is designed to 
facilitate the economically efficient execution of securities 
transactions, fair competition among brokers and dealers, exchange 
markets and markets other than exchange markets, and the practicability 
of brokers executing investors' orders in the best market. 
Specifically, the proposed low, cost-based fee will enable a broad 
range of IEX Members to continue to connect to IEX, thereby 
facilitating the economically efficient execution of securities 
transactions on IEX, fair competition between and among such Members, 
and the practicability of Members that are brokers executing investors' 
orders on IEX when it is the best market.
    For the foregoing reasons, the Exchange believes that the proposed 
fee is reasonable, equitably allocated, and not unfairly 
discriminatory.

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 intramarket or intermarket competition that is not 
necessary or appropriate in furtherance of the purposes of the Act.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The proposed fee 
is a cost-based fee, significantly less than Order Entry Port fees 
charged by competing venues, that is designed to enable the Exchange to 
partially recoup its applicable costs as described in the Purpose and 
Statutory Basis sections. The proposed fee is not a tiered pricing 
structure that requires minimum volume levels to realize economic 
pricing benefits. The Order Entry Ports to which the fee applies all

[[Page 41801]]

have the same characteristics, and IEX is not proposing to charge a 
higher fee for a ``high performance'' alternative.
    The Exchange also does not believe that the proposed rule change 
will impose any burden on intramarket competition that is not necessary 
or appropriate in furtherance of the purposes of the Act because all 
Members (and their Service Bureaus) are entitled to five free Order 
Entry Ports and subject to the same low, cost-based fee for additional 
Order Entry Ports. While different total fees would be assessed 
depending on the number of Order Entry Ports a Member (or Service 
Bureau) requests, these different fees are not based on the type of 
Member requesting the Order Entry Port(s) but on the number of such 
ports the Member (or Service Bureau) requests, and each Member (or 
Service Bureau) can determine the number of such ports to reserve. 
Further, providing five free Order Entry Ports is designed to avoid 
creating barriers to entry for smaller Members, thereby promoting 
intramarket competition. In addition, even Members subject to 
relatively higher fees for more Order Entry Ports will still be subject 
to a relatively low aggregate fee (and significantly less than 
competing exchanges, as described above) and thus the proposed fee will 
not operate as a barrier to entry for such Members or impose a 
significant business cost burden on such Members relative to their 
levels of business activity. Finally, as described in the Purpose 
section, the proposed fee change is designed to assist the Exchange in 
complying with its Reg SCI compliance obligations to have levels of 
capacity adequate to maintain IEX's operational capability and promote 
the maintenance of fair and orderly markets, thereby promoting both 
intermarket and intramarket competition by enabling IEX to support a 
robust trading environment for its Members and compete with other 
equities venues.

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

    Written comments were neither solicited nor received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) \56\ of the Act.
---------------------------------------------------------------------------

    \56\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    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) \57\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \57\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-2019-07 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-2019-07. 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 offices 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-2019-07, and should be submitted on 
or before September 5, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\58\
---------------------------------------------------------------------------

    \58\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17487 Filed 8-14-19; 8:45 am]
BILLING CODE 8011-01-P