[Federal Register Volume 86, Number 71 (Thursday, April 15, 2021)]
[Notices]
[Pages 19912-19917]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-07676]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91523; File No. SR-IEX-2021-06]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing of Proposed Rule Change To Enhance the IEX Retail Price 
Improvement Program for the Benefit of Retail Investors

April 9, 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 April 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    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 enhance its Retail Price Improvement Program 
for the benefit of retail investors.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    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 statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

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

1. Purpose
    The purpose of the proposed rule change is to enhance the 
Exchange's Retail Price Improvement Program for the benefit of retail 
investors. Specifically, the Exchange proposes to make the following 
four changes: (i) Revise the definition of Retail order \6\ in IEX Rule 
11.190(b)(15) to apply only to the trading interest of a natural person 
that does not place more than 390 equity orders per day on average 
during a calendar month for its own beneficial account(s); \7\ (ii) 
provide Order Book \8\ priority to Retail Liquidity Provider (``RLP'') 
orders \9\ at the Midpoint Price \10\ ahead of other non-displayed 
orders priced to execute at the Midpoint Price; (iii) disseminate a 
``Retail Liquidity Identifier'' through the Exchange's proprietary 
market data feeds and the appropriate securities information processor 
(``SIP'') when RLP order interest aggregated to form at least one round 
lot for a particular security is available in the System,\11\ provided 
that the RLP order interest is resting at the Midpoint Price and is 
priced at least $0.001 better than the NBB \12\ or NBO; \13\ and (iv) 
amend the definition of RLP orders so such orders can only be midpoint 
peg orders,\14\ cannot be Discretionary Peg orders,\15\ and cannot 
include a minimum quantity restriction.\16\ The proposed changes are 
designed to further support and enhance the ability of non-professional 
retail investors to obtain meaningful price improvement by 
incentivizing market participants to compete to provide such price 
improvement.
---------------------------------------------------------------------------

    \6\ See IEX Rules 11.190(b)(15) and 11.232(a)(2).
    \7\ The existing restrictions applicable to a Retail order, that 
it must reflect trading interest of a natural person with no change 
made to the terms of the underlying order of the natural person with 
respect to price (except in the case of a market order that is 
changed to a marketable limit order) or side of market and that does 
not originate from a trading algorithm or any other computerized 
methodology, will continue to apply.
    \8\ See IEX Rule 1.160(p).
    \9\ See IEX Rules 11.190(b)(14) and 11.232(a)(3).
    \10\ The term ``Midpoint Price'' means the midpoint of the NBBO. 
See IEX Rule 1.160(t). The term ``NBBO'' means 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).
    \11\ See IEX Rule 1.160(nn).
    \12\ See IEX Rule 1.160(u).
    \13\ See IEX Rule 1.160(u).
    \14\ See IEX Rule 11.190(b)(9).
    \15\ See IEX Rule 11.190(b)(10).
    \16\ See IEX Rule 11.190(b)(11).
---------------------------------------------------------------------------

Background
    In 2019 the Commission approved IEX's Retail Price Improvement 
Program (``Retail Program''),\17\ which is designed to provide retail 
investors with meaningful price improvement opportunities through 
trading at the Midpoint Price or better.\18\ As currently structured, 
Members \19\ that qualify as Retail Member Organizations (``RMOs'') 
\20\ are eligible to submit Retail orders to the Exchange. Any Member 
is able to provide price improvement to Retail orders through orders 
priced to execute at the Midpoint Price or better, including RLP orders 
that are only eligible to execute against a Retail order at the 
Midpoint Price and execute in price-time priority after other orders 
resting on the Order Book priced to trade at the Midpoint Price.
---------------------------------------------------------------------------

    \17\ 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 Program).
    \18\ On March 1, 2021, IEX filed an immediately effective rule 
change proposal to provide that, in addition to executing at the 
Midpoint Price, a Retail order can execute against a displayed 
unprotected odd lot order that is resting on the Order Book at a 
price more aggressive than the Midpoint Price (i.e., above the 
Midpoint Price in the case of an odd lot buy order and below the 
Midpoint Price in the case of an odd lot sell order). Executing 
against such an odd lot order thus provides more price improvement 
to the Retail order than executing at the Midpoint Price. See 
Securities Exchange Act Release No. 91324 (March 15, 2021), 86 FR 
15015 (March 19, 2021) (SR-IEX-2021-03).
    \19\ See IEX Rule 1.160(s).
    \20\ See IEX Rule 11.232(a)(1).
---------------------------------------------------------------------------

    As IEX noted in its Retail Program rule filing,\21\ the Commission 
has consistently emphasized the importance of continued broad, long-
term retail participation in our capital markets. In its Strategic Plan 
for fiscal years 2018-2022, the Commission highlighted its vision to 
``promote capital markets that inspire public confidence and provide a 
diverse array of financial opportunities to retail and institutional 
investors, entrepreneurs, public companies, and other market 
participants'', with its first goal to focus on the long-term interests 
of Main Street (i.e., retail) investors.\22\ Against this backdrop, the 
Retail Program is designed to provide retail

[[Page 19913]]

investors with access to the Exchange's deep pool of midpoint 
liquidity, including RLP orders, thereby providing enhanced 
opportunities for meaningful price improvement at the Midpoint Price. 
The Exchange believes the Retail Program has provided retail investors 
with better execution quality than they are currently able to obtain 
through existing exchange and over-the-counter (``OTC'') order retail 
programs, by attracting counterparty liquidity to the Exchange from 
Members and their clients seeking to interact with retail 
liquidity.\23\ The Retail Program is therefore consistent with the 
goals of the Commission to encourage markets that are structured to 
benefit ordinary investors.\24\
---------------------------------------------------------------------------

    \21\ See supra note 17. See also Securities Exchange Act Release 
No. 86241 (June 28, 2019), 84 FR 32238 (July 5, 2019) (SR-IEX-2019-
05) (IEX rule filing proposing Retail Program).
    \22\ See U.S. Securities and Exchange Commission, Strategic 
Plan, Fiscal Years 2018-2022, available at https://www.sec.gov/files/SEC_Strategic_Plan_FY18-FY22_FINAL_0.pdf (``Commission 
Strategic Plan'').
    \23\ See discussion infra on the desirability of interacting 
with retail liquidity.
    \24\ See supra note 22.
---------------------------------------------------------------------------

    Under the current Retail Program, the term ``Retail order'' is 
defined as an agency or riskless principal order that satisfies the 
criteria of Financial Industry Regulatory Authority, Inc. (``FINRA'') 
Rule 5320.03, which is submitted by a RMO, designated with a ``Retail 
order'' modifier, and reflects trading interest of a natural person, 
with no change made to the terms of the underlying order of the natural 
person with respect to price (except in the case of a market order that 
is changed to a marketable limit order) or side of market, and that 
does not originate from a trading algorithm or any other computerized 
methodology.\25\ Retail orders may either be Discretionary Peg or 
midpoint peg orders with a Time-in-Force of IOC or FOK, and are only 
eligible to trade at the Midpoint Price or better.\26\
---------------------------------------------------------------------------

    \25\ See supra note 6. An order from a natural person can 
include orders submitted on behalf of accounts that are held in a 
corporate legal form--such as an Individual Retirement Account, 
Corporation, or a Limited Liability Company--that have been 
established for the benefit of an individual or group of related 
family members, provided that the order is submitted by an 
individual.
    \26\ See IEX Rule 11.232(a)(2). As with all pegged orders, 
Retail orders may only trade during the Regular Market Session. See 
IEX Rule 11.190(a)(3)(E).
---------------------------------------------------------------------------

    An RMO is an IEX Member (or division thereof) that has been 
approved by the Exchange to submit Retail orders.\27\ Pursuant to IEX 
Rules 11.232(a)(1) and (b), which describe the qualification and 
application process for becoming an RMO, any Member may qualify as an 
RMO if it conducts a retail business or routes Retail orders on behalf 
of another broker-dealer.
---------------------------------------------------------------------------

    \27\ See IEX Rule 11.232(a)(1).
---------------------------------------------------------------------------

    An RLP order is currently a Discretionary Peg order that is only 
eligible to execute against Retail orders through the execution process 
described in IEX Rule 11.232(e).\28\ Any Member can submit RLP orders.
---------------------------------------------------------------------------

    \28\ See IEX Rule 11.232(e).
---------------------------------------------------------------------------

    As discussed in the Retail Program rule filing,\29\ IEX's Retail 
Program is a simple approach designed to provide retail investors with 
the opportunity for meaningful price improvement (by executing at the 
Midpoint Price or better), by attracting counterparty liquidity to the 
Exchange from Members and their clients seeking to interact with retail 
liquidity.
---------------------------------------------------------------------------

    \29\ See supra note 21.
---------------------------------------------------------------------------

    IEX's Retail Program leverages IEX's market structure to provide 
enhanced price improvement opportunities for retail customers by 
incentivizing Members and their clients to provide liquidity to the 
orders of retail investors, while enabling such investors to obtain 
materially better price improvement than may otherwise be available, in 
a way that is mutually beneficial for retail investors and Members 
providing liquidity. Based on experience with the Retail Program, IEX 
believes that the four proposed changes, noted above and described in 
detail below, would further enhance the Retail Program.
Proposal
    IEX proposes four enhancements to the Retail Program, as described 
below.
Retail Order Definition
    IEX proposes to revise the definition of Retail order in IEX Rule 
11.190(b)(15) so that it is limited to retail investors who do not 
appear to be engaged in trading activity akin to that of a 
professional. Specifically, the definition of Retail order would be 
amended to apply only to the trading interest of a natural person that 
does not place more than 390 equity orders per day on average during a 
calendar month for its own beneficial account(s). All other existing 
criteria specified in IEX Rule 11.190(b)(15) would continue to apply.
    IEX Rule 11.190(b)(15) currently provides that a Retail order means 
an order submitted by a Retail Member Organization (as defined in IEX 
Rule 11.232) and designated with a ``Retail order'' modifier. A Retail 
order must be an agency order, or riskless principal order that 
satisfies the criteria of FINRA Rule 5320.03. A Retail order must 
reflect trading interest of a natural person with no change made to the 
terms of the underlying order of the natural person with respect to 
price (except in the case of a market order that is changed to a 
marketable limit order) or side of market and that does not originate 
from a trading algorithm or any other computerized methodology, which 
will now be defined as a ``retail customer'' for clarity. An order from 
a retail customer can include orders submitted on behalf of accounts 
that are held in a corporate legal form--such as an Individual 
Retirement Account, Corporation, or a Limited Liability Company--that 
have been established for the benefit of an individual or group of 
related family members, provided that the order is submitted by an 
individual. IEX proposes to add new language to IEX Rule 11.190(b)(15) 
to specify that a Retail order may only be submitted on behalf of a 
retail customer that does not place more than 390 equity orders per day 
on average during a calendar month for its own beneficial account(s).
    In addition, IEX proposes to add Supplementary Material .01 to IEX 
Rule 11.190(b) specifying how to determine whether the 390 equity 
orders per day on average threshold has been reached. Specifically, the 
Supplementary Material would provide that a ``parent'' order that is 
broken into multiple ``child'' orders by a broker or dealer, or by an 
algorithm housed at a broker or dealer or by an algorithm licensed from 
a broker or dealer, but which is housed with the customer, counts as 
one order even if the ``child'' orders are routed across multiple 
exchanges. In addition, any order that cancels and replaces an existing 
order would count as a separate order; except that an order that 
cancels and replaces any ``child'' order resulting from a ``parent'' 
order that is broken into multiple ``child'' orders, does not count as 
a new order.
    IEX also proposes to add Supplementary Material .02 to IEX Rule 
11.190(b) to address the reasonable policies and procedures that an RMO 
must have in place to ensure that Retail orders are appropriately 
represented on the Exchange. Specifically, such policies and procedures 
should provide for a review of retail customers' activity on at least a 
quarterly basis. Further, Retail orders for any retail customer that 
had an average of more than 390 equity orders per day during any month 
of a calendar quarter are not eligible to be entered as Retail orders 
for the next calendar quarter. Retail Member Organizations must conduct 
a quarterly review and make any appropriate changes to the way in which 
they are representing orders within five business days after the end of 
each calendar quarter. In addition, if during a quarter the Exchange 
identifies a retail customer for which orders are being represented as 
Retail orders but that has averaged more than 390 equity orders per day 
during a month, the Exchange will

[[Page 19914]]

notify the RMO, and the RMO will be required to change the manner in 
which it is representing the retail customer's orders within five 
business days.
    As noted above, the Exchange believes that the price improvement 
benefits that accrue to Retail orders on IEX should be limited to 
retail customers who do not appear to be engaged in trading activity 
akin to that of a professional. IEX notes that the 390-order limitation 
is a threshold used by various options exchanges to distinguish 
professional customers from retail customers, so that a customer that 
is not a broker-dealer but enters more than 390 options orders per day 
(on average during a calendar month) is classified as a Professional 
Customer and does not receive customer execution priority.\30\ The 390-
order threshold is also used by Cboe EDGX Exchange, Inc. (``EDGX'') 
with respect to its equity market to delineate Retail Priority Orders, 
which receive execution priority, from other retail customers. EDGX 
Retail Priority Orders may only be entered on behalf of a person that 
does not place more than 390 equity orders per day on average during a 
calendar month for its own beneficial account(s).\31\
---------------------------------------------------------------------------

    \30\ See, e.g., Nasdaq Stock Market LLC Options 1, Section 
1(a)(47); NYSE Arca, Inc. (``Arca'') Rule 6.1A-O(a)(4A).
    \31\ See EDGX Rule 11.9 Interpretations and Policies .01.
---------------------------------------------------------------------------

    EDGX and the options exchanges apply a comparable methodology and 
supervisory requirements to determine whether the 390-order threshold 
has been reached as is proposed by IEX in this proposal.\32\ IEX 
understands that the impetus for EDGX's and options exchanges' use of 
the 390-order threshold is to limit priority benefits and assist in 
ensuring that these benefits flow only to retail investors that are not 
engaged in a significant amount of trading activity akin to that of a 
professional.\33\
---------------------------------------------------------------------------

    \32\ See EDGX Rule 11.9 Interpretations and Policies .02.
    \33\ See Securities Exchange Act Release No. 87200 (October 2, 
2019), 84 FR 53788, 53791 (October 8, 2019) (SR-CboeEDGX-2019-012) 
(order approving EDGX Retail Priority Orders); see also Securities 
Exchange Act Release No. 89991 (September 24, 2020), 85 FR 61782, 
61783 (September 30, 2020) (SR-MIAX-2020-31) (giving priority to 
orders submitted on behalf of non-professional customers who submit 
less than 390 orders per day).
---------------------------------------------------------------------------

    IEX believes that similarly restricting Retail orders to non-
professional customers will expand the pool of market participants 
willing to provide contra-side liquidity to trade with Retail orders 
because the limitations will narrow the pool of Retail orders to those 
from customers who are less likely to be professional market 
participants. By expanding the pool of market participants willing to 
compete for providing price improvement to Retail orders, IEX believes 
that more Retail orders will be able to obtain meaningful price 
improvement for their orders. IEX also notes that 390 orders per day 
represents an order entered each minute during regular trading hours--
from 9:30 a.m. eastern time to 4:00 p.m. eastern time--which IEX 
believes is a reasonable and not overly restrictive limitation in that 
it contemplates active trading but not at the level of a professional 
trader.\34\ IEX believes that limiting the pool of customers eligible 
to enter Retail orders, as proposed, will incentivize additional 
resting liquidity seeking to trade against such Retail orders (and 
provide price improvement) because of their non-professional 
characteristics.\35\ Thus, to the extent the proposed change is 
successful in increasing the pool of RLP and other contra-side 
liquidity it will benefit Retail orders by increasing execution 
opportunities and price improvement.
---------------------------------------------------------------------------

    \34\ For example, an analysis of orders sent to IEX by Members 
and customers conducting a proprietary trading business indicates 
that many of such Members and customers typically send millions of 
orders per day and even the less active send thousands of orders per 
day.
    \35\ This approach was supported by Citadel Securities in a 
comment letter on EDGX's retail priority proposal. Citadel 
Securities notes that ``[t]he market's experience with [retail 
programs] evidences the failure of an overly broad definition of 
`Retail Order'. [Retail programs] have not gained traction in the 
market, precisely because the [retail programs'] definition of 
`Retail Order' includes orders from both retail investors as well as 
active professional traders. To the extent that the `Retail Order' 
flow routed to [retail programs] includes orders from active 
professional traders and is thus not as attractive to other market 
participants, those market participants will simply elect not to 
post [retail] liquidity and fill-rates for [retail] routes will be 
low.'' See Letter dated April 26, 2019 from Stephen John Berger, 
Citadel, to Eduardo A. Aleman, Commission.
---------------------------------------------------------------------------

RLP Order Book Priority
    IEX proposes to provide Order Book priority to RLP orders ahead of 
other non-displayed orders priced to execute at the Midpoint Price. 
Currently, IEX Rule 11.232(e)(3)(A)(iv) provides that RLP orders are 
prioritized after all other non-displayed orders priced to trade at the 
Midpoint Price. This approach was adopted by IEX originally because RLP 
orders were a new order type and are only eligible to trade against 
Retail orders. However, IEX now believes that RLP orders should have 
higher priority than other non-displayed orders priced to trade at the 
Midpoint Price in order to provide additional incentives for the entry 
of RLP orders and concomitant provision of price improvement to Retail 
orders. The Exchange notes that other exchanges that offer retail 
programs enable retail liquidity providing orders that provide 
immaterial sub-penny price improvement to achieve queue priority by 
providing a retail order type that trades first with retail liquidity 
providing orders before trading with other similarly priced orders.\36\
---------------------------------------------------------------------------

    \36\ See, e.g., Arca Rule 7.44-E(k) (Retail orders trade first 
with retail price improvement orders (akin to IEX's RLP orders), and 
then with all other orders to sell (buy) with a working price below 
(above) the NBO (NBB)); See also BYX Rule 11.24(f); and Nasdaq BX, 
Inc. (``Nasdaq BX'') Rule 4702(b)(6)(A).
---------------------------------------------------------------------------

    Thus, as proposed, IEX Rule 11.232(e)(3)(A) would be amended to 
provide that a Retail order to buy (sell) shall execute upon entry 
against sell (buy) orders resting on the Order Book in the following 
order:

    (i) Displayed sell (buy) orders at the NBO (NBB) during a locked 
or crossed market;
    (ii) displayed sell (buy) odd lot orders priced to trade between 
the NBB (NBO) and the MidPoint Price;
    (iii) Retail Liquidity Provider orders priced to trade at the 
Midpoint Price; and
    (iv) nondisplayed orders priced to trade at the Midpoint Price.
Retail Liquidity Identifier
    IEX proposes to disseminate a Retail Liquidity Identifier through 
the Exchange's proprietary market data feeds, TOPS \37\ and DEEP,\38\ 
and the appropriate SIP when RLP order interest aggregated to form at 
least one round lot for a particular security is available in the 
System, provided that the RLP order interest is resting at the Midpoint 
Price and is priced at least $0.001 better than the NBB or NBO (``RLP 
Interest''). The purpose of the Retail Liquidity Identifier is to 
provide relevant market information to RMOs that there is RLP Interest 
on IEX, thereby incentivizing them to send Retail orders to IEX. The 
Exchange does not believe that such market information constitutes a 
``quote'' within the meaning of Regulation NMS because it would not 
include a specific price or size of the interest.\39\ The Retail 
Liquidity Identifier will reflect the symbol and the side (buy or sell) 
of the RLP Interest but will not include the price or size. While an 
explicit price will not be disseminated, because RLP orders are only 
eligible to trade at the Midpoint Price, dissemination will thus 
reflect the

[[Page 19915]]

availability of price improvement at the Midpoint Price. A number of 
other exchanges that offer retail programs also disseminate a Retail 
Liquidity Identifier on their proprietary market data feeds and the 
appropriate SIP if such interest would provide at least $0.001 of price 
improvement.\40\ IEX's proposal is comparable, but (as discussed below) 
because the RLP orders will be resting at the Midpoint Price, IEX's 
Retail Liquidity Indicator will reflect at least $0.005 of price 
improvement for any orders priced at or above $1.00 per share unless 
the NBBO is locked or crossed. The Exchange believes that it is 
appropriate to limit dissemination of the Retail Liquidity Identifier 
to those cases when at least one round lot of RLP order interest is 
available in order to limit dissemination to cases in which there is a 
material amount of RLP trading interest available on the IEX Order 
Book.
---------------------------------------------------------------------------

    \37\ See IEX Rule 11.330(a)(1).
    \38\ See IEX Rule 11.330(a)(3).
    \39\ The Exchange plans to submit a letter requesting that the 
staff of the Division of Trading and Markets not recommend any 
enforcement action under Rule 602 of Regulation NMS (``Quote Rule'') 
based on the Exchange's and its Members' participation in the Retail 
Program.
    \40\ See, e.g., BYX Rule 11.24(e); Nasdaq BX Rule 4780(e).
---------------------------------------------------------------------------

    As proposed, IEX would only disseminate the Retail Liquidity 
Identifier when the RLP order interest is resting at the Midpoint Price 
and is priced at least $0.001 better than the NBB or NBO, consistent 
with the rules of the other exchanges that disseminate Retail Liquidity 
Identifiers \41\ as well as the SIP Plans' requirements.\42\ Because 
RLP orders are proposed to be only midpoint peg orders, they will 
always represent at least $0.001 price improvement over the NBB or NBO, 
with two exceptions: (i) Locked or crossed markets and (ii) sub-dollar 
quotes when the security's spread is less than $0.002.\43\ When the 
market is locked, under IEX Rule 11.190(h)(3)(C) the Exchange considers 
the Midpoint Price to be equal to the locking price and when the market 
is crossed, under IEX Rule 11.190(h)(3)(D) the Exchange considers the 
Midpoint Price to be indeterminable. In these situations, RLP orders 
are repriced as specified in the applicable rule provision and would 
not provide any price improvement to an incoming Retail order, and 
therefore will not comprise RLP Interest for purposes of the Retail 
Liquidity Indicator. Similarly, when a particular security is priced 
less than $1.00 per share, its MPV is $0.0001, so the Midpoint Price 
will not always represent at least $0.001 in price improvement.\44\ 
Therefore, IEX will only disseminate RLP Interest for sub-dollar 
securities if the spread in the security is greater than or equal to 
$0.002, meaning the Midpoint Price represents at least $0.001 price 
improvement over the NBB or NBO. With respect to the requirement that 
an RLP order must be resting at the Midpoint Price in order to be 
included in the RLP Interest to be disseminated, the Exchange notes 
that an RLP order could have a limit price less aggressive than the 
Midpoint Price in which case it would not be eligible to trade with an 
incoming Retail order and therefore should not be included in the 
Retail Liquidity Identifier dissemination since it would not reflect 
interest available to trade with Retail orders.
---------------------------------------------------------------------------

    \41\ See supra note 40.
    \42\ See January 26, 2021 CQS Participant Input Binary 
Specification Version 2.6a, available at https://www.ctaplan.com/publicdocs/ctaplan/CQS_Pillar_Input_Specification.pdf and May 2020 
UTP Data Feed Services Specification Version 1.5, available at 
https://www.utpplan.com/DOC/UtpBinaryOutputSpec.pdf.
    \43\ The minimum price variant (``MPV'') for bids, offers, or 
indications of interest priced less than $1.00 per share is $0.0001. 
See IEX Rule 11.210(a)(2).
    \44\ For example, if a security's NBB is $0.505 and NBO is 
$0.506, the Midpoint Price would be $0.5055, which is $0.0005 more 
than the NBB and less than NBO, so it would not represent at least 
$0.001 price improvement over the NBB or NBO, and therefore will not 
comprise RLP Interest for purposes of the Retail Liquidity 
Indicator.
---------------------------------------------------------------------------

RLP Order Type Definition
    IEX proposes to amend the definition of RLP orders so such orders 
can only be midpoint peg orders, instead of Discretionary Peg orders, 
and cannot include a minimum quantity condition. Currently an RLP order 
is a Discretionary Peg order that is only eligible to execute against 
Retail orders through the execution process described in IEX Rule 
11.232(e).
    In connection with the proposed changes, described above, to 
disseminate a Retail Liquidity Identifier and provide enhanced priority 
to RLP orders, IEX believes that it is appropriate that RLP orders be 
midpoint peg orders. Specifically, IEX notes that midpoint peg orders 
post on the Order Book at the Midpoint Price while Discretionary Peg 
orders post on the Order Book at the less aggressive of the order's 
limit price or a price one minimum price variation less aggressive than 
the NBB or NBO (as applicable) and exercise price discretion to the 
Midpoint Price except during periods of quote instability when 
Discretionary Peg orders are not permitted to trade at a price more 
aggressive than their resting price.\45\ Thus, disseminating a Retail 
Liquidity Identifier of RLP Interest at the Midpoint Price would be 
unnecessarily complicated if RLP orders were to continue to be 
Discretionary Peg orders since they do not explicitly post to the Order 
Book at the Midpoint Price. Additionally, IEX's rules provide that 
Discretionary Peg orders are prioritized behind any non-displayed 
interest at the discretionary price (in this case the Midpoint 
Price),\46\ so it would be inconsistent with the priority rules for RLP 
Discretionary Peg orders to have priority over non-RLP midpoint peg 
orders that do rest at the Midpoint Price.
---------------------------------------------------------------------------

    \45\ See IEX Rule 11.190(g).
    \46\ See IEX Rule 11.220(a)(1)(C)(vii).
---------------------------------------------------------------------------

    Similarly, permitting an RLP order to include a minimum quantity 
condition would reduce the determinism of the order's availability to 
trade at the Midpoint Price. IEX also believes that the protections 
that Discretionary Peg orders receive because they do not exercise 
price discretion to the Midpoint Price during periods of quote 
instability, or by utilizing a minimum quantity condition to avoid 
potential information leakage, are less necessary when trading against 
Retail orders. Moreover, IEX believes that the proposed changes will 
increase execution rates for Retail orders because RLP orders will not 
be subject to contingencies based on quote instability or minimum 
quantity requirements.
Implementation
    If the Commission approves this proposed rule change, the Exchange 
will implement it within 90 days of approval and provide at least ten 
(10) days' notice to Members and market participants of the 
implementation timeline.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\47\ in general, and furthers the objectives of Section 
6(b)(5),\48\ 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.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78f(b).
    \48\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission has consistently emphasized that the U.S. capital 
markets should be structured with the interests of retail investors in 
mind \49\ and the enhancements to the Retail Program proposed in this 
rule change proposal are explicitly designed with that goal in mind. 
The four proposed enhancements to the Retail Program are individually 
and collectively designed

[[Page 19916]]

to benefit retail investors by providing enhanced opportunities for 
such investors to obtain meaningful price improvement. The four 
enhancements are designed to work in tandem to narrow the pool of 
market participants eligible to enter Retail orders to those who are 
less likely to be professional traders and thereby attract increased 
contra-side liquidity seeking to trade against and provide meaningful 
price improvement to such Retail orders, as well as to publicize when 
there is non-trivial contra-side price improving interest available, 
and fine tune the requirements applicable to such interest so that it 
is more deterministic.
---------------------------------------------------------------------------

    \49\ See supra note 22.
---------------------------------------------------------------------------

    The Exchange also believes that the proposed rule change is 
consistent with the protection of investors because it is designed to 
increase competition among execution venues by enhancing IEX's Retail 
Program which offers the potential for meaningful price improvement to 
orders of retail investors, including through incentivizing market 
participants to provide additional liquidity to execute against the 
orders of retail investors.
    Specifically, the Exchange believes that limiting the use of Retail 
orders to only those retail investors who do not appear to be engaged 
in trading activity akin to that of a professional is consistent with 
the protection of investors and the public interest because it is 
designed to enable the benefits of the Retail Program to accrue to less 
sophisticated market participants that may be underserved by existing 
trading alternatives. Moreover, as discussed in the Purpose section and 
above, limiting the use of Retail orders in this manner is designed to 
incentivize additional resting liquidity seeking to trade against and 
provide price improvement to Retail orders.
    Further, the Exchange believes that using a threshold of 390 orders 
per day on average during a calendar month (which is equivalent to one 
order per minute during the trading day) is a reasonable way to 
differentiate between less active retail investors and those that are 
more akin to market professionals. IEX believes that it is consistent 
with the protection of investors and the public interest to treat an 
investor that enters more than one order per minute as a professional 
trader, and notes that this threshold is used to differentiate between 
priority and professional customers in the options industry and by EDGX 
for its retail priority program. Thus, identifying Retail orders based 
on the average number of orders entered for a beneficial account is a 
familiar and objective approach to distinguish ordinary retail 
investors from active traders akin to professionals.\50\
---------------------------------------------------------------------------

    \50\ This approach was suggested by Citadel Securities in a 
comment letter on the EDGX retail priority proposal which did not 
initially include the 390 orders per day on average limitation. In 
its comment letter, Citadel Securities noted that the definition of 
``Retail Order'' used by various equities exchanges does not 
adequately distinguish retail investors' orders from those of active 
professional traders. Citadel went on to suggest that EDGX leverage 
the definition of ``professional customer'' used by various options 
exchanges that is defined as a trader who places ore than 390 orders 
in listed options per day on average during a calendar month for 
their own beneficial account. See Letter dated April 26, 2019 from 
Stephen John Berger, Citadel, to Eduardo A. Aleman, Commission.
---------------------------------------------------------------------------

    The Exchange also believes that the counting methodology and 
additional policies and procedures that RMOs must comply with to 
reasonably ensure that Retail orders are appropriately represented on 
the Exchange are consistent with the Act. In this regard IEX notes that 
such methodology and policies and procedures are substantially 
identical to those in place at EDGX. The Exchange has a robust 
regulatory program, including an exam process implemented by FINRA, in 
place to monitor for compliance with existing RMO requirements, which 
will be enhanced for this proposal.
    The Exchange believes that its proposal to narrow the definition of 
Retail order is not unfairly discriminatory but rather is designed to 
promote a competitive process for retail executions while providing 
retail investors with the potential to receive meaningful price 
improvement. All retail programs, including IEX's, provide for 
differentiation of retail orders from other orders. The proposed 
changes are merely incremental, designed to enhance IEX's ability to 
compete for retail order flow and retail liquidity and thereby provide 
benefits to retail investors from the better price that liquidity 
providers are willing to give their orders.
    The Exchange also believes that providing Order Book priority to 
RLP orders ahead of other non-displayed orders priced to execute at the 
Midpoint Price is consistent with the protection of investors and the 
public interest because it is designed to provide additional incentives 
for the entry of RLP orders and concomitant provision of price 
improvement to Retail orders, as discussed in the Purpose section. The 
Exchange also notes that Retail orders will still be able to execute 
against other orders priced to execute at the Midpoint Price so the 
proposed changes is not creating a segmented liquidity pool. 
Additionally, the Exchange believes that providing Order Book priority 
to RLP orders is not unfairly discriminatory since any Member can enter 
an RLP order. Further, as discussed in the Purpose section, this 
proposed change is consistent with the approach of several other 
exchanges that provide immaterial sub-penny price improvement to 
achieve queue priority by providing a retail order type that trades 
first with retail liquidity providing orders before trading with other 
similarly priced orders.\51\
---------------------------------------------------------------------------

    \51\ See supra note 36.
---------------------------------------------------------------------------

    Additionally, the Exchange believes that it is consistent with the 
Act to disseminate a Retail Liquidity Identifier, as described in the 
Purpose section. The purpose of the Retail Liquidity Identifier is to 
provide relevant market information to RMOs that there is RLP Interest 
on IEX. The dissemination is thus designed to augment the total mix of 
information available to RMOs that may benefit Retail orders they 
represent. The Exchange notes that other exchanges disseminate 
comparable information regarding available contra-side liquidity 
available to execute against retail orders, as noted in the Purpose 
section.
    Further, the Exchange believes it is consistent with the Act to 
amend the definition of RLP orders to make them midpoint peg orders 
instead of Discretionary Peg orders, so that the availability of such 
orders to trade at the Midpoint Price is more deterministic, as 
described in the Purpose section. IEX also believes that the proposed 
changes will benefit Retail orders to the extent that their execution 
rates, and resulting price improvement, increase.
    The Commission consistently highlights the need to ensure that the 
U.S. capital markets are structured with the interests of retail 
investors in mind, and recently highlighted its focus on the ``long-
term interest of Main Street Investors'' as its number one strategic 
goal for fiscal years 2018 to 2022.\52\ The Exchange believes the 
proposed enhancements to its Retail Program will better serve the 
retail investing public by providing them with expanded opportunities 
for meaningful price improvement on eligible trades.
---------------------------------------------------------------------------

    \52\ See supra note 22.
---------------------------------------------------------------------------

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. To the contrary, IEX 
believes that the proposed enhancements to our Retail Program would 
continue to enhance competition

[[Page 19917]]

and execution quality for retail customers.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition since competing venues 
have and can continue to adopt similar retail programs, subject to the 
SEC rule change process. The Exchange operates in a highly competitive 
market in which market participants can easily direct their orders to 
competing venues, including off-exchange venues.
    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 orders 
submitted by some Members will be treated differently, as described in 
the Purpose section, 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 enter an RLP order.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-IEX-2021-06 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-2021-06. 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-2021-06 and should be submitted on 
or before May 6, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\53\
---------------------------------------------------------------------------

    \53\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-07676 Filed 4-14-21; 8:45 am]
BILLING CODE 8011-01-P