[Federal Register Volume 88, Number 80 (Wednesday, April 26, 2023)]
[Notices]
[Pages 25439-25442]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-08753]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97341; File No. SR-IEX-2023-05]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Allow 
Non-Displayed Discretionary Limit Orders To Be Submitted With a Minimum 
Quantity Instruction

April 20, 2023.
    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 April 7, 2023, the Investors Exchange LLC (``IEX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 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 19(b)(1) under the Act,\3\ and Rule 
19b-4 thereunder,\4\ IEX is filing with the Commission a proposal to 
allow non-displayed Discretionary Limit orders to be submitted with a 
minimum quantity instruction. The Exchange has designated this proposal 
as non-controversial and provided the Commission with the notice 
required by Rule 19b-4(f)(6)(iii) under the Act.\5\
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
    \5\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is available at the Exchange's 
website at www.iextrading.com, at the principal office of the Exchange, 
and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in s 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 this proposed rule filing is to amend IEX Rule 
11.190(b)(7) to offer Members \6\ the option of including a Minimum 
Quantity (``MQTY'') \7\ instruction on a non-displayed \8\ 
Discretionary Limit (``D-Limit'') order. As proposed, a non-displayed 
D-Limit MQTY order would function exactly like any other MQTY order at 
IEX.
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    \6\ See IEX Rule 1.160(s).
    \7\ See IEX Rule 11.190(b)(11).
    \8\ See IEX Rule 11.190(b)(3).
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Background
    Since the approval of its exchange application, IEX, like other 
equities exchanges,\9\ has offered Members \10\ the option of including 
a MQTY instruction on a non-displayed order. IEX's rulebook defines a 
MQTY order as a non-displayed, non-routable order that enables a Member 
to specify an ``effective minimum quantity'', which is the minimum 
share amount at which the order will execute.\11\ A MQTY order will not 
execute unless the volume of contra-side liquidity available to execute 
against the order meets or exceeds the effective minimum quantity.
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    \9\ See, e.g., Cboe BZX Exchange, Inc. Rule 11.9(c)(5); MEMX, 
LLC Rule 11.6(f); The Nasdaq Stock Market LLC Rule 4703(e); and New 
York Stock Exchange LLC Rule 7.31(i)(3).
    \10\ See IEX Rule 1.160(s).
    \11\ See IEX Rule 11.190(b)(11).
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    IEX understands that some market participants use MQTY orders as 
part of a trading strategy designed to limit the price impact on a 
security when passively executing larger orders. In other words, MQTY 
orders are often used to reduce the likelihood of a larger resting 
order interacting with small orders entered by professional traders,

[[Page 25440]]

possibly adversely impacting the execution of their larger order. For 
example, professional traders may use small pinging orders to detect 
the presence of a large resting order and then use that information to 
cause the quotes in that security to widen or skew in a manner that 
adversely impacts the price that the resting order can trade at. The 
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Commission has long recognized this concern:

    Another type of implicit transaction cost reflected in the price 
of a security is short-term price volatility caused by temporary 
imbalances in trading interest. For example, a significant implicit 
cost for large investors (who often represent the consolidated 
investments of many individuals) is the price impact that their 
large trades can have on the market. Indeed, disclosure of these 
large orders can reduce the likelihood of their being filled.'' \12\
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    \12\ See Securities Exchange Act Release No. 42450 (February 23, 
2000), 65 FR 10577, 10581 (February 28, 2000) (SR-NYSE-99-48).

    A MQTY order resting on the IEX Order Book \13\ will only execute 
with a willing \14\ contra-side order that satisfies the resting 
order's effective minimum quantity. For active orders,\15\ IEX offers 
Members three options for how a MQTY order will determine satisfaction 
of its effective limit quantity parameter: Composite; Minimum Execution 
Size with Cancel Remaining (``MinExec Cancel Remaining''); and Minimum 
Execution Size with All or None Remaining (``MinExec AON 
Remaining'').\16\ When an active MQTY order is marked Composite, it 
will execute against all willing contra-side resting orders of any 
size, provided that the aggregate execution size is equal to or greater 
than the active order's effective minimum quantity. When an active MQTY 
order is marked either MinExec Cancel Remaining or MinExec AON 
Remaining, it will execute against each willing contra-side resting 
order in priority, provided that each individual execution size meets 
the active order's effective minimum quantity and satisfies the MQTY 
order's time-in-force (``TIF'') terms.\17\ Upon reaching a resting 
order that would trade with the active MQTY order based on its price, 
but does not satisfy its effective minimum quantity, the active MQTY 
order will post to the Order Book or cancel back to the User as per the 
order's TIF and MQTY terms. For example, if the active MQTY order has a 
TIF of IOC or is designated as MinExec Cancel Remaining, then any 
unexecuted shares will cancel back to the Member. But if the active 
MQTY order is designated as MinExec AON Remaining and has a TIF of DAY, 
GTX, SYS, or GTT, then any unexecuted shares will post to the Order 
Book. If the remaining size of a MQTY order designated as MinExec AON 
Remaining is smaller than the effective minimum quantity of the order, 
the effective minimum quantity of the order will change to equal the 
number of shares remaining.
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    \13\ See IEX Rule 1.160(p).
    \14\ Pursuant to IEX Rule 11.190(b)(11) a ``willing'' contra-
side order is one that is priced so as to be marketable against the 
MQTY order in question.
    \15\ An ``active order'' is an order checking the Order Book for 
contra-side interest against which to execute and includes new 
incoming orders as well as orders rechecking the Order Book pursuant 
to IEX Rule 11.230(a)(4)(D). There can only be one active order for 
each symbol at any given time. See IEX Rule 1.160(b).
    \16\ See IEX Rule 11.190(b)(11)(G).
    \17\ See IEX Rule 11.190(c). For example, an active MQTY order 
with a TIF of FOK, like any FOK order, will only execute for its 
full quantity, or otherwise be canceled.
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    In October 2020,\18\ IEX introduced a new type of limit order, the 
D-Limit order,\19\ which is designed to help protect liquidity 
providers from potential adverse selection during periods of quote 
instability in a fair and nondiscriminatory manner.\20\ A D-Limit order 
may be a displayed or non-displayed limit order that upon entry and 
when posting to the Order Book is priced to be equal to and ranked at 
the order's limit price, but will be adjusted to a less-aggressive 
price during periods of quote instability, as defined in IEX Rule 
11.190(g).\21\
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    \18\ See IEX Trading Alert 2020-029, available at https://iextrading.com/alerts/#/126.
    \19\ See Securities Exchange Act Release No. 89686 (August 26, 
2020), 85 FR 54438 (September 1, 2020) (SR-IEX-2019-15) (``D-Limit 
Approval Order'').
    \20\ See Securities Exchange Act Release No. 87814 (December 20, 
2019), 84 FR 71997, 71998 (December 30, 2019) (SR-IEX-2019-15) (``D-
Limit Proposal'').
    \21\ See IEX Rules 11.190(b)(7) and 11.190(g).
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    Currently, both displayed and non-displayed D-Limit orders cannot 
be a MQTY order.\22\ While IEX offers most non-displayed orders the 
ability to include a MQTY instruction, IEX did not offer non-displayed 
D-Limit MQTY orders at the time of their introduction to reduce 
technical complexity. However, in the more than two years since the 
introduction of D-Limit orders, IEX has received informal feedback from 
Members indicating that they would like to be able to submit non-
displayed D-Limit orders with a MQTY instruction to decrease the 
potential price impact of large D-Limit orders. Additionally, these 
Members indicate that they would submit more non-displayed D-Limit 
orders if they could use a MQTY instruction to set a minimum size for 
each fill. Based on this feedback, IEX proposes to enable fully non-
displayed D-Limit orders to be MQTY orders, which is consistent with 
how IEX treats other fully non-displayed limit orders.\23\ 
Specifically, IEX proposes to amend IEX Rule 11.190(b)(7)(F)(vi), which 
currently states that a D-Limit order may not be a MQTY,\24\ to instead 
read as follows: ``Non-displayed Discretionary Limit orders may be a 
MQTY, as defined in paragraph (11) below. Displayed and partially 
displayed (i.e., reserve) Discretionary Limit orders may not be a MQTY, 
as defined in paragraph (11) below.'' \25\ IEX is proposing no other 
changes to D-Limit orders and no changes at all to MQTY functionality.
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    \22\ See IEX Rule 11.190(b)(7)(F)(vi).
    \23\ See IEX Rule 11.190(a)(2)(F). Reserve orders, being 
partially displayed and partially non-displayed, are not able to be 
MQTY orders. See IEX Rule 11.190(b)(2)(H). Consistent with this 
functionality, IEX's proposal would not change the fact that a D-
Limit reserve order cannot be a MQTY order.
    \24\ See IEX Rule 11.190(b)(7)(F)(vi).
    \25\ See Proposed IEX Rule 11.190(b)(7)(F)(vi).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with 6(b) of the Act,\26\ in general, and furthers the objectives of 
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 is consistent with the protection of 
investors and the public interest because it is designed to provide 
more flexibility and opportunities for Members to add non-displayed 
liquidity to the Exchange. As noted in the Purpose section, the 
proposed rule change is responsive to informal feedback from some 
Members, stating that they want to combine the benefits of a non-
displayed D-Limit order with those of a MQTY order.
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    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
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    By providing additional functionality to non-displayed D-Limit 
orders, IEX believes that the proposed rule change may attract 
additional liquidity to the Exchange by incentivizing Members to submit 
larger, non-displayed D-Limit orders to the Exchange, in particular 
Members that are not currently resting non-displayed D-Limit orders on 
IEX. To the extent this proposal is successful in attracting more non-
displayed D-Limit orders to the Exchange, IEX believes it will provide 
an overall

[[Page 25441]]

benefit to market participants generally, even though these larger MQTY 
orders will not always interact with smaller orders that are not able 
to satisfy the MQTY constraints. Thus, IEX believes this proposal 
supports 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. The 
Exchange further believes that the proposed rule change is consistent 
with the Act because it would be available to all Members on a fair, 
equal and nondiscriminatory basis regardless of their technological 
sophistication. Moreover, the proposal is designed to incentivize the 
entry of additional non-displayed D-Limit orders by providing MQTY 
functionality to support Members' ability to control the size and price 
impact of the execution of such orders. To the extent that such 
incentive is successful in increasing the overall liquidity pool 
available at IEX, all market participants, including takers of 
liquidity, will benefit.
    Furthermore, because MQTY orders surrender execution priority if 
their MQTY conditions are not satisfied,\28\ when a D-Limit MQTY order 
is unable to trade with a contra-side order because of its MQTY 
instruction, if there is another order resting on the Order Book behind 
the D-Limit order, such order could trade with the contra-side order. 
Therefore, IEX does not believe that increasing the number of MQTY 
orders on the Exchange (which is designed to increase liquidity on IEX) 
would necessarily reduce the overall likelihood of MQTY contra-side 
orders executing on IEX, which is consistent with the purposes of the 
Act to protect investors and the public interest.
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    \28\ See IEX Rule 11.220(a)(5).
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    In addition, as noted in the Purpose section, a D-Limit MQTY order 
is a combination of two order types the Commission has already 
approved--MQTY orders--which are also a common order type on equity 
exchanges \29\--and D-Limit orders.\30\ And all Members would be 
eligible to include the optional MQTY instruction on their fully non-
displayed D-Limit orders in the same manner.
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    \29\ See supra note 9.
    \30\ See supra note 12.
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    Thus, IEX does not believe that the proposed changes raise any new 
or novel material issues that have not already been considered by the 
Commission in connection with existing order types offered by IEX and 
other national securities exchanges.

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, 
the proposal is designed to enhance IEX's competitiveness with other 
markets by further enhancing IEX's D-Limit order type functionality. As 
discussed in the Purpose section, the proposal is designed to 
incentivize the entry of additional non-displayed liquidity providing 
orders on IEX by offering Members the flexibility of including an 
optional MQTY instruction on fully non-displayed D-Limit orders. By 
giving more opportunities to Members to tailor D-Limit orders to their 
trading strategies, IEX believes this proposal will increase the 
overall liquidity profile on the Exchange, as discussed in the 
Statutory Basis section.
    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. All Members 
would be eligible to include the optional MQTY instruction on their 
fully non-displayed D-Limit orders in the same manner. Moreover, the 
proposal would provide potential benefits to all Members, as discussed 
in the Statutory Basis section, to the extent that there is more 
liquidity available on IEX as a result of increased use of D-Limit 
orders attributable to the ability to enter such orders with a MQTY 
instruction.

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 19(b)(3)(A) \31\ of the Act and Rule 19b-4(f)(6) \32\ 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 
19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder.\33\
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    \31\ 15 U.S.C. 78s(b)(3)(A).
    \32\ 17 CFR 240.19b-4(f)(6).
    \33\ 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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    The Exchange believes that the proposed rule change meets the 
criteria of subparagraph (f)(6) of Rule 19b-4 \34\ because it would not 
significantly affect the protection of investors or the public 
interest. Rather, the proposed rule change neither significantly 
affects the protection of investors or the public interest, nor does it 
impose any burden on competition because it would merely combine the 
attributes of two existing order types--D-Limit orders and MQTY 
orders--to expand the functionality available to Members, as discussed 
in the Purpose section, and does not raise any new or novel material 
issues that have not already been considered by the Commission in 
connection with existing order types offered by IEX. Accordingly, IEX 
has designated this rule filing as non-controversial under 19(b)(3)(A) 
of the Act \35\ and paragraph (f)(6) of Rule 19b-4 thereunder.\36\
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    \34\ 17 CFR 240.19b-4(f)(6).
    \35\ 15 U.S.C. 78s(b)(3)(A).
    \36\ 17 CFR 240.19b-4(f)(6).
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    The Exchange will implement the proposed rule change within 90 days 
of filing, subject to the 30-day operative delay, and provide at least 
ten (10) days' notice to Members and market participants of the 
implementation timeline.
    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 
19(b)(2)(B) \37\ of the Act to determine whether the proposed rule 
change should be approved or disapproved.
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    \37\ 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,

[[Page 25442]]

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-2023-05 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-2023-05. 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. Do not include 
personal identifiable information in submissions; you should submit 
only information that you wish to make available publicly. We may 
redact in part or withhold entirely from publication submitted material 
that is obscene or subject to copyright protection. All submissions 
should refer to File Number SR-IEX-2023-05, and should be submitted on 
or before May 17, 2023.

    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).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-08753 Filed 4-25-23; 8:45 am]
BILLING CODE 8011-01-P