[Federal Register Volume 86, Number 225 (Friday, November 26, 2021)]
[Notices]
[Pages 67568-67571]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25753]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93627; File No. SR-IEX-2021-16]


Self-Regulatory Organizations: Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Modify 
the Definition of a Retail Order for the Retail Price Improvement 
Program

November 19, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 12, 2021, 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 and II, 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\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) under the Act,\3\ 
and Rule 19b-4 thereunder,\4\ the Exchange is filing with the 
Commission a proposed rule change to modify the definition of a Retail 
order set forth in IEX Rule 11.190(b)(15) to encourage the submission 
of more Retail orders. The Exchange has designated this rule change as 
``non-controversial'' under Section 19(b)(3)(A) of the Act \5\ and 
provided the Commission with the notice required by Rule 19b-4(f)(6) 
thereunder.\6\
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 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 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to modify the definition of a Retail order 
\7\ set forth in IEX Rule 11.190(b)(15) for the benefit of retail 
investors. Specifically, IEX is proposing to revert a recent change to 
IEX Rule 11.190(b)(15), so that Retail orders can once again be 
submitted on behalf of all retail customers without the requirements 
that the retail customer submits no more than 390 orders per day on 
average (the ``390-order threshold''). The Exchange proposes to make 
this change to offer the benefits of IEX's Retail Price Improvement 
Program (``Retail Program'') to as many retail investors as possible.
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    \7\ See IEX Rule 11.190(b)(15).
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Background
    In 2019 the Commission approved the Retail Program,\8\ which is 
designed to provide retail investors with meaningful price improvement 
opportunities through trading at the Midpoint Price \9\ or better.\10\ 
The Exchange launched the Retail Program on October 1, 2019.\11\
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    \8\ 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).
    \9\ 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).
    \10\ 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).
    \11\ See Trading Alert #2019-026, available at https://iextrading.com/alerts/#/82.
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    Under IEX's Retail Program, Members \12\ that qualify as Retail 
Member Organizations (``RMOs'') \13\ are eligible to submit Retail 
orders \14\ 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 Retail Liquidity Provider (``RLP'') 
orders \15\ that are only eligible to execute against a Retail order at 
the Midpoint Price and execute in price-time priority with other orders 
resting on the Order Book priced to trade at the Midpoint Price.
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    \12\ See IEX Rule 1.160(s).
    \13\ See IEX Rule 11.232(a)(1).
    \14\ A Retail order is currently defined as an order submitted 
by an RMO 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, and 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 (a ``retail customer''). An order from a retail customer 
can include orders submitted on behalf of accounts that are held in 
a corporate legal form 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. 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). See IEX Rule 11.190(b)(15).
    \15\ See IEX Rule 11.190(b)(14).
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    On July 13, 2021, the Commission approved an IEX rule change 
proposal that revised its Retail Program (the ``Retail Program Update 
Filing'').\16\ The Retail Program Update Filing was 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.\17\ 
Specifically, the

[[Page 67569]]

Retail Program Update Filing contained the following four enhancements 
to the Retail Program: (i) Revised the definition of Retail order 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); 
(ii) modified RLP orders from Discretionary Peg \18\ to midpoint peg 
\19\ orders; (iii) modified RLP order priority so that they execute in 
time priority with other orders priced to trade at the Midpoint Price; 
and (iv) introduced a ``Retail Liquidity Identifier'' that is 
disseminated through the Exchange's proprietary market data feeds and 
the appropriate securities information processor when RLP order 
interest aggregated to form at least one round lot for a particular 
security is available in the System,\20\ provided that the RLP order 
interest is resting at the Midpoint Price and is priced at least $0.001 
better than the NBB \21\ or NBO.\22\
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    \16\ See Securities Exchange Act Release No. 92398 (July 13, 
2021), 86 FR 38166 (July 19, 2021) (approving SR-IEX-2021-06).
    \17\ See supra note 17.
    \18\ See IEX Rule 11.190(b)(10).
    \19\ See IEX Rule 11.190(b)(9).
    \20\ See IEX Rule 1.160(nn).
    \21\ See IEX Rule 1.160(u).
    \22\ See IEX Rule 1.160(u).
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    IEX implemented the Retail Program Update Filing on October 13, 
2021.\23\ Subsequently, and notwithstanding prior informal feedback 
from Members and market participants, IEX became aware that several 
existing and potential RMOs have not implemented a counting methodology 
to determine the number of equities orders submitted by each of their 
retail customers, as well as by the customers of broker-dealers that 
route Retail orders through the RMO. As a result, such RMOs cannot 
submit Retail orders to IEX because they are unable to reasonably 
assure that such orders would be in compliance with the recent changes 
to IEX Rule 11.190(b)(15) which specifies that Retail orders may only 
be submitted on behalf of a natural person who submits no more than 390 
equity orders per day on average during a calendar month for its own 
beneficial account(s). Thus, while the 390-order threshold was intended 
to limit the use of Retail orders to retail investors who do not appear 
to be engaged in trading activity akin to that of a professional, it 
has had the unintended consequence of limiting the number of actual 
retail customers who are able to obtain the beneficial execution 
opportunities offered by the Exchange's Retail Program. As discussed 
more fully below, no other equities exchanges restrict retail orders in 
the same manner as IEX, and IEX believes that this factor may impact 
the willingness of Members representing retail orders to devote 
technology resources to implementing a counting methodology.
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    \23\ See Trading Alert # 2021-036, available at https://iextrading.com/alerts/#/169.
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    Accordingly, IEX proposes to revert the recent changes to the 
definition of a Retail order that limits Retail orders to customers who 
place no more than 390 equity orders per day on average during a 
calendar month for their own beneficial account(s). Thus, IEX proposes 
to delete the last sentence in IEX Rule 11.190(b)(15) which imposes the 
390-order threshold, as well as Supplementary Materials .01 and .02 
appended thereto that specify how RMOs should count orders for purposes 
of determining if a retail customer has placed no more than 390 orders 
per day and establish new compliance requirements for the RMOs with 
respect to the 390-order threshold.
    IEX notes that no other exchange with a retail price improvement 
program restricts retail orders based upon the volume of trading of the 
retail customer, and that the proposed changes to IEX Rule 
11.190(b)(15) will make it substantially similar to those exchanges' 
definitions of a retail order.\24\ As noted in the Retail Program 
Update Filing, the 390-order threshold is also used by Cboe EDGX 
Exchange, Inc. (``EDGX'') with respect to its equity market, but EDGX 
only uses the 390-order threshold to delineate retail priority orders 
that receive execution priority over most other orders resting on its 
order book.\25\ EDGX continues to allow its RMOs to submit regular 
priority retail orders for retail customers without any assurance that 
the retail customer submits no more than 390 orders per day on 
average.\26\
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    \24\ See Cboe BYX Exchange, Inc. (``Cboe BYX'') Rule 
11.24(a)(2); Nasdaq BX, Inc. (``Nasdaq BX'') Rule 4702(b)(6)(A); New 
York Stock Exchange LLC (``NYSE'') Rule 7.44(a)(3); NYSE Arca, Inc. 
(``NYSE Arca'') Rule 7.44-E(a)(3).
    \25\ See EDGX Rule 11.9 Interpretations and Policies .01 and 
.02. EDGX does not have a retail price improvement program, but does 
offer both retail orders and retail priority orders.
    \26\ See EDGX Rule 11.21(a)(2).
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    Furthermore, IEX notes that nothing in this proposed rule change 
will modify the pre-existing compliance obligations of RMOs to assure 
they are only submitting Retail orders on behalf of actual retail 
customers.\27\ IEX believes these ongoing compliance obligations of 
RMOs will continue to assure that they only submit Retail orders to the 
Exchange that represent the trading interest of natural persons.
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    \27\ See IEX Rule 11.232(b)(6).
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\28\ in general, and furthers the objectives of Section 
6(b)(5),\29\ 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.
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    \28\ 15 U.S.C. 78f(b).
    \29\ 15 U.S.C. 78f(b)(5).
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    The Commission has consistently emphasized that the U.S. capital 
markets should be structured with the interests of retail investors in 
mind \30\ and the proposed change to the Retail Program is explicitly 
designed with that goal in mind. Specifically, reversing the recent 
change to the definition of Retail orders at IEX is designed to benefit 
retail investors by providing enhanced opportunities for as many retail 
investors as possible to obtain meaningful price improvement. IEX 
believes that encouraging the submission of more Retail orders to the 
Exchange should attract increased contra-side liquidity seeking to 
trade against and provide meaningful price improvement to such Retail 
orders.
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    \30\ 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.
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    Additionally, the Exchange believes that the proposed rule change 
is consistent with the protection of investors because, as described in 
the Purpose section, it will align its definition of Retail orders with 
that of all other exchanges that offer a retail price improvement 
program, thereby reducing potential confusion to market participants 
and increasing the ability of all market participants to participate in 
IEX's Retail Program as well as those of its competitors.
    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.

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

    The Exchange does not believe that the proposed rule change will 
impose

[[Page 67570]]

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 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 RMOs will be treated differently than orders submitted by 
other Members, 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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \31\ and Rule 19b-4(f)(6) thereunder.\32\ 
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, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \33\ and Rule 19b-
4(f)(6) thereunder.\34\
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    \31\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \32\ 17 CFR 240.19b-4(f)(6).
    \33\ 15 U.S.C. 78s(b)(3)(A).
    \34\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \35\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\36\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposed 
rule change may become operative immediately. As explained above, the 
Exchange believes that this proposal will allow a greater pool of 
retail investors that were once able to participate in IEX's Retail 
Program to again obtain the price improvement benefits thereunder. IEX 
also states that allowing RMOs to begin submitting a greater pool of 
Retail orders upon effectiveness of this rule change will benefit 
retail investors who may be able to obtain meaningful price improvement 
opportunities through IEX's Retail program. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because the change is 
intended to offer immediate benefit to retail investors by expanding 
the pool of RMOs eligible to partake in IEX's Retail Program and thus, 
allow additional retail orders to benefit from price improvement 
opportunities. Further, by reverting to the previously-approved 
definition of Retail order, the proposal does not raise any new or 
novel issues. For these reasons, the Commission hereby waives the 30-
day operative delay and designates the proposal operative upon 
filing.\37\
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    \35\ 17 CFR 240.19b-4(f)(6).
    \36\ 17 CFR 240.19b-4(f)(6)(iii).
    \37\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-IEX-2021-16 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-2021-16. 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-2021-16, and should be submitted on 
or before December 17, 2021.


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12), (59).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25753 Filed 11-24-21; 8:45 am]
BILLING CODE 8011-01-P