[Federal Register Volume 86, Number 52 (Friday, March 19, 2021)]
[Notices]
[Pages 15015-15018]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-05675]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91324; File No. SR-IEX-2021-03]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Allow 
Retail Orders To Trade With Certain Aggressively Priced Displayed Odd 
Lot Orders

March 15, 2021.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on March 1, 2021, the Investors Exchange LLC (``IEX'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) under the Act,\4\ 
and Rule 19b-4 thereunder,\5\ IEX is filing with the Commission a 
proposed rule change to how Retail orders interact with displayed odd 
lot orders.
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
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    The text of the proposed rule change is available at the Exchange's 
website at www.iextrading.com, at the principal office of the Exchange, 
and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
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 those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

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

1. Purpose
    The purpose of this proposed rule change is to modify the manner in 
which Retail orders \6\ interact with displayed odd lot orders, to make 
it consistent with the manner in which the Exchange otherwise handles 
displayed odd lot orders.\7\ Specifically, as detailed below, IEX 
proposes to change the rules regarding Retail orders to allow them to 
execute against a displayed odd lot order priced more aggressively than 
the Midpoint Price.\8\
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    \6\ See IEX Rules 11.190(b)(15) and 11.232(a)(2).
    \7\ IEX recently made an immediately effective rule filing to 
allow displayed odd lot orders on the Exchange. See Securities 
Exchange Act Release No. 90933 (January 15, 2021), 86 FR 6687 
(January 22, 2021) (SR-IEX-2021-01).
    \8\ The term ``Midpoint Price'' shall mean the midpoint of the 
NBBO. See IEX Rule 1.160(t). The term ``NBBO'' shall mean the 
national best bid or offer, as set forth in Rule 600(b) of 
Regulation NMS under the Act, determined as set forth in IEX Rule 
11.410(b).
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    IEX will soon be implementing rule changes that modify the way it 
handles odd lot orders by allowing them to be displayed orders and to 
aggregate to form a protected quotation,\9\ which include rule 
provisions that allow displayed buy (sell) orders to rest on the IEX 
Order Book \10\ at prices more aggressive than both the NBB \11\ (NBO 
\12\) and the Midpoint Price.\13\ IEX's displayed odd lot rule filing 
included several related rule changes to prevent a displayed odd lot 
order that is a not protected quotation from resulting in a lock or 
cross of IEX's Order Book.\14\ Specifically, IEX adjusted its non-
displayed price sliding rules to adjust the price of non-displayed 
orders that would otherwise be locked or crossed by a displayed odd lot 
order, and changed its order execution rules to allow a displayed order 
previously subject to price sliding to match with a contra-side 
displayed odd lot order that the original order would have locked or 
crossed upon a subsequent repricing.\15\
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    \9\ IEX currently expects to implement the rule changes to 
provide for displayed odd lots during the first quarter of 2021. See 
https://iextrading.com/alerts/#/137 (January 29, 2021).
    \10\ See IEX Rule 1.160(p).
    \11\ See IEX Rule 1.160(u).
    \12\ See IEX Rule 1.160(u).
    \13\ See Securities Exchange Act Release No. 90933 (January 15, 
2021), 86 FR 6687 (January 22, 2021) (SR-IEX-2021-01).
    \14\ See supra note 13 at 6689-90.
    \15\ See supra note 13 at 6689-90.
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    IEX has identified an additional circumstance in which a displayed 
unprotected odd lot order could result in a suboptimal trading impact.

[[Page 15016]]

Specifically, a displayed unprotected odd lot order that is resting at 
a price more aggressive than the Midpoint Price (i.e. above the 
Midpoint Price in the case of a buy order and below the Midpoint Price 
in the case of a sell order) would effectively block a Retail order's 
access to orders resting at the Midpoint Price. Thus, IEX now proposes 
to make an analogous change to allow Retail orders to interact with 
displayed odd lot orders priced more aggressively than the Midpoint 
Price.
    IEX introduced its Retail Price Improvement Program (``Retail 
Program'') in 2019.\16\ IEX's Retail Program is designed to provide 
retail investors with meaningful price improvement opportunities by 
offering price improvement to Retail orders. Only Members \17\ that the 
Exchange has approved as Retail Member Organizations (``RMO'') \18\ may 
submit Retail orders to the Exchange on behalf of their retail 
customers.\19\ Retail orders are Discretionary Peg \20\ or Midpoint Peg 
\21\ orders with a Time-in-Force of IOC or FOK, and that are only 
eligible to trade at the Midpoint Price. Restricting Retail orders to 
only execute at the Midpoint Price was designed to maximize their price 
improvement opportunities, while recognizing that in 2019, a large 
portion of IEX's resting liquidity was non-displayed orders eligible to 
execute at the Midpoint Price.\22\
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    \16\ See Securities Exchange Act Release No. 86619 (August 9, 
2019), 84 FR 41769 (August 15, 2019) (SR-IEX-2019-05) (SEC order 
approving IEX's Retail Price Improvement Program).
    \17\ See IEX Rule 1.160(s).
    \18\ See IEX Rule 11.232(a)(1).
    \19\ For a Member to be approved as a RMO, it must complete an 
application and submit materials reflecting that it either conducts 
a retail business or routes retail orders on behalf of another 
broker-dealer. See IEX Rule 11.232(b).
    \20\ See IEX Rule 11.190(b)(10).
    \21\ See IEX Rule 11.190(b)(9).
    \22\ See supra note 16.
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    Because displayed odd lot orders can book at prices more aggressive 
than the Midpoint Price, but Retail orders can only trade at the 
Midpoint Price, Retail orders could miss the opportunity to obtain even 
more price improvement that would be obtained by executing against an 
aggressively priced displayed odd lot order. By way of example, if the 
market is $10.10 by $10.20, and IEX has on its Order Book a displayed 
odd lot order to sell 50 shares at $10.13 and a non-displayed Midpoint 
Peg order to sell 100 shares at the Midpoint Price of $10.15, and IEX 
receives an incoming Retail order to buy 100 shares; the Retail order 
would not be able to match with the Midpoint Peg order at $10.15 
because the displayed odd lot order has price priority to the Midpoint 
Peg order. However, the Retail order also cannot execute against the 
displayed odd lot order because a Retail order is only eligible to 
trade at the Midpoint Price. Therefore, the Retail order is not 
executable under current IEX rules and would be canceled.\23\ If the 
Retail order could trade with the aggressively priced displayed odd lot 
order, 50 shares would execute with the displayed odd lot order at 
$10.13, and the remaining 50 shares would execute with the Midpoint Peg 
order at $10.15. Allowing the Retail order to match with the 
aggressively priced displayed odd lot order would offer greater price 
improvement for the 50 shares that matched at $10.13.
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    \23\ See IEX Rule 11.230(a) (a non-executable, non-routable 
order will be canceled).
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    Therefore, IEX is proposing to modify IEX Rules 11.232(a)(2) and 
(e)(2) to provide that Retail orders are only eligible to trade at the 
Midpoint Price, with the exception that Retail orders can also trade 
with an aggressively priced displayed odd lot order priced on the far 
side of the Midpoint Price. In other words, as proposed, a Retail order 
to sell (buy) can match with any order to buy (sell) at the Midpoint 
Price or a displayed odd lot order to buy (sell) priced at or between 
the NBO (NBB) and the Midpoint Price.
    IEX notes that this proposed rule change is consistent with the 
rules of the other exchanges with retail price improvement programs, 
none of which restrict their retail orders from only executing at the 
Midpoint Price.\24\
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    \24\ See NYSE Rule 7.44(a)(3); Cboe BYX Rule 11.24 (a)(2); 
Nasdaq BX Rule 4702(b)(6)(A).
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    IEX is also proposing a conforming amendment to Rule 11.232(e)(3) 
to reflect that an aggressively priced displayed odd lot order will 
execute before any non-displayed Midpoint Price orders. In addition, 
IEX is proposing to add Example 4 at the end of Rule 11.232, to 
demonstrate how an aggressively priced displayed odd lot order will 
trade with a Retail order before the Retail order matches with any non-
displayed Midpoint Price orders.
    Finally, IEX is proposing to correct two typographical errors: Add 
a missing ``$'' in three places in Examples 1, 2, and 3; and correct 
the reference in Example 3, so it cites IEX Rule 11.220(a)(c)(vii) 
instead of Rule 11.220(a)(c)(viii).\25\
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    \25\ See supra note 13 (renumbering Rule 11.220(a)(c)(viii) as 
Rule 11.220(a)(c)(vii)).
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\26\ in general, and furthers the objectives of Section 
6(b)(5),\27\ 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, and 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, the Exchange believes 
that the proposed rule change to allow Retail orders to trade with an 
aggressively priced displayed odd lot order is consistent with the 
protection of investors and the public interest because it is designed 
to increase the opportunities for retail investors to obtain price 
improvement.
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    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
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    Furthermore, as discussed in the Purpose section, IEX believes that 
the proposed rule change is consistent with the protection of investors 
and the public interest because it is designed to further incentivize 
the entry of additional Retail orders and displayed odd lot orders on 
IEX by providing the opportunity for Retail orders to obtain greater 
price improvement and additional execution opportunities against 
displayed odd lot orders, while offering increased execution 
opportunities to displayed odd lot orders. Moreover, because displayed 
odd lots can result from displayed limit orders of more than odd lot 
size, the Exchange believes that the proposed rule change is also 
designed to incentivize the entry of displayed limit orders generally 
by providing such increased execution opportunities to displayed odd 
lot orders. IEX believes that, to the extent the proposed rule change 
is successful in incentivizing the entry of additional Retail orders 
and displayed odd lot and limit orders on IEX it will provide increased 
liquidity on the Exchange to the benefit of all market participants, 
thereby supporting the purposes of the Act 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.
    Additionally, IEX believes that the proposed corrections to IEX 
Rule 11.232 further the purposes of the Act because they will provide 
greater clarity and consistency to the IEX Rule Book thereby reducing 
the potential for confusion of any market participants. Specifically, 
the proposed typographical

[[Page 15017]]

fixes will prevent any confusion to market participants about the 
application of those examples, provide clarity, and reduce any possible 
confusion to market participants.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on 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. To the contrary, 
and as discussed in the Statutory Basis section, the proposal is 
designed to enhance IEX's competitiveness with other markets by further 
incentivizing the entry of additional displayed odd lot and limit 
orders on IEX by providing additional execution opportunities for 
displayed odd lot orders and offering increased price improvement to 
Retail orders, thereby increasing the overall liquidity profile of the 
Exchange to the benefit of all market participants. IEX also believes 
that conforming the Exchange's treatment of Retail orders with that of 
other exchanges with retail price improvement programs would promote 
intermarket competition for increasingly sought-after retail investor 
orders, to the benefit of retail customers in particular, and the 
market as a whole.
    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. While only 
Members approved by the Exchange to be RMOs can submit Retail orders to 
the Exchange, those differences are not based on the type of Member 
entering orders but on whether the order is for a retail customer, and 
there is no restriction on whether a Member can handle retail customer 
orders. Further, any Member can submit a displayed odd lot or limit 
order and would therefore benefit if aggressively priced displayed odd 
lot orders have more opportunities to execute because they can now 
trade with Retail orders.

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

    Written comments were neither solicited nor received.

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

    The Exchange has designated this rule filing as non-controversial 
under Section 19(b)(3)(A) \28\ of the Act and Rule 19b-4(f)(6) \29\ 
thereunder. Because the proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6) thereunder.
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    \28\ 15 U.S.C. 78s(b)(3)(A).
    \29\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \30\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\31\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative delay so that 
IEX can implement the proposed rule change concurrently with 
implementation of its displayed odd lot rule filing, which is 
anticipated within the next several weeks. The Exchange has represented 
that the proposal is substantially similar to the functionality of 
other exchanges and will provide the opportunity for Retail orders to 
obtain greater price improvement by allowing them to execute against 
displayed odd lot orders priced more aggressively than the Midpoint 
Price. The Exchange further states that waiver of the operative delay 
will allow it to synchronize the timing for implementation of the 
proposed rule change with the displayed odd lot rule filing 
implementation. The Commission believes that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because the proposal does not raise any novel issues and will 
allow Retail orders to benefit from more opportunities to receive 
executions at improved prices. Waiver of the operative delay will allow 
the Exchange to offer this benefit to investors without undue delay 
when it implements its new displayed odd lot functionality. For these 
reasons, the Commission hereby waives the 30-day operative delay.\32\
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    \30\ 17 CFR 240.19b-4(f)(6).
    \31\ 17 CFR 240.19b-4(f)(6)(iii).
    \32\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \33\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \33\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-IEX-2021-03 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-2021-03. 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

[[Page 15018]]

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-
2021-03, and should be submitted on or before April 9, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12), (59).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-05675 Filed 3-18-21; 8:45 am]
BILLING CODE 8011-01-P