[Federal Register Volume 88, Number 150 (Monday, August 7, 2023)]
[Notices]
[Pages 52233-52236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-16710]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98035; File No. SR-IEX-2023-06]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Add a New 
Fixed Midpoint Peg Order Type

August 1, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 19, 2023, the Investors Exchange LLC (``IEX'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 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\ IEX is filing with the Commission a 
proposed rule change to add a new fixed midpoint peg order type that 
pegs to the less aggressive of the order's limit price or the Midpoint 
Price,\5\ but does not re-price based on changes to the NBBO.\6\ The 
Exchange has designated this rule change as ``non-controversial'' under 
Section 19(b)(3)(A) of the Act \7\ and provided the Commission with the 
notice required by Rule 19b-4(f)(6) thereunder.\8\
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
    \5\ See IEX Rule 1.160(t).
    \6\ See IEX Rule 1.160(u).
    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 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 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend IEX Rule 11.190 to add a new fixed 
midpoint peg order type that pegs to the less aggressive of the order's 
limit price or the Midpoint Price but does not re-price based on 
changes to the NBBO. As detailed below, a fixed midpoint peg order will 
cancel back to the User \9\ if the NBBO changes such that the resting 
price of the fixed midpoint peg order is

[[Page 52234]]

subject to change. In addition, the Exchange proposes four conforming 
amendments to IEX Rules Rule 11.190(a)(3) and 11.190(h)(3).
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    \9\ See IEX Rule 1.160(qq).
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    Currently, the Exchange offers a midpoint peg order type, which, 
upon entry and when posting to the Order Book,\10\ is automatically 
adjusted by the System \11\ to be equal to and ranked at the less 
aggressive of the Midpoint Price or the order's limit price.\12\ 
Midpoint peg orders resting on the Order Book are automatically 
adjusted by the System in response to changes in the midpoint of the 
NBBO as allowed by the order's limit price, if any.\13\ Midpoint peg 
orders are non-displayed \14\ and may have a minimum quantity 
instruction.\15\
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    \10\ See IEX Rule 1.160(p).
    \11\ See IEX Rule 1.160(nn).
    \12\ See IEX Rule 11.190(b)(9).
    \13\ See Id. and IEX Rule 11.190(h)(2).
    \14\ See IEX Rule 11.190(b)(9)(H).
    \15\ See IEX Rules 11.190(b)(9)(G) and (b)(12).
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    IEX has received informal feedback from Members \16\ that they 
would like the option of having more determinism when submitting 
midpoint peg orders. Specifically, IEX understands that some Members 
would like the option of submitting a midpoint peg order that will only 
execute at the Midpoint Price at the time of entry (or the order's 
limit price, if less aggressive than the Midpoint Price). These Members 
note that this functionality would assist with having more determinism 
of the price at which orders would trade.
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    \16\ See IEX Rule 1.160(s).
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    Accordingly, IEX proposes to add subparagraph (b)(19) to IEX Rule 
11.190, to add the fixed midpoint peg order type. IEX notes that, as 
proposed, the fixed midpoint peg order is based upon and very similar 
to IEX's midpoint peg order type, with the following differences: i) a 
fixed midpoint peg order will cancel if, after the order is booked, the 
Midpoint Price changes such that the order would need to be re-priced 
in order to rest at the Midpoint Price or its limit price if less 
aggressive than the Midpoint Price; ii) a fixed midpoint peg order will 
cancel if it is received when there is no NBB \17\ or NBO,\18\ or the 
NBBO is crossed; iii) a fixed midpoint peg order will not trade while 
the market is crossed; and iv) a fixed midpoint peg order cannot be 
submitted with a minimum quantity instruction.\19\
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    \17\ See IEX Rule 1.160(u).
    \18\ See IEX Rule 1.160(u).
    \19\ See IEX Rule 11.190(b)(11).
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    Like a midpoint peg order,\20\ the proposed fixed midpoint peg:
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    \20\ See IEX Rule 11.190(b)(9).

     Would upon entry and when posting to the order book, 
have its price adjusted by the System to be equal to and ranked at 
the less aggressive of the Midpoint Price or the order's limit 
price, if any;
     Must be a pegged order;
     May have any TIF described in IEX Rules 11.190(a)(3) 
and (c);
     Would not be eligible for routing pursuant to IEX Rule 
11.230(b) and (c)(2);
     May not be an ISO, as defined in IEX Rule 
11.190(b)(12);
     May be submitted with a limit price or without a limit 
price (an ``unpriced pegged order'');
     Would be eligible to trade only during the Regular 
Market Session. As provided in IEX Rule 11.190(a)(3)(D), any pegged 
order marked with a TIF of DAY that is submitted to the System 
before the opening of the Regular Market Session would be queued by 
the System until the start of the Regular Market Session; any pegged 
order that is marked with a TIF other than DAY would be rejected 
when submitted to the System during the Pre-Market Session. Any 
pegged order submitted into the System after the closing of the 
Regular Market Session would be rejected;
     Would not be eligible to display. Pegged orders are 
always non-displayed;
     May be an odd lot, round lot, or mixed lot; and
     Would be eligible to be invited by the System to 
Recheck the Order Book to trade against eligible resting contra-side 
interest as described in IEX Rule 11.230(a)(4)(D).
    However, as proposed, a fixed midpoint peg order would differ 
from a midpoint peg order in the following ways:
     An incoming fixed midpoint peg order would be canceled 
by the System if it is received when there is no NBB or NBO, or the 
NBBO is crossed;
     The price of a fixed midpoint peg order would never be 
re-priced based on changes to the NBBO;
     A fixed midpoint peg order may not have a minimum 
quantity instruction, as defined in IEX Rule 11.190(b)(11);
     A resting fixed midpoint peg order would be canceled 
back to the User if any of the following conditions were met:
    [cir] The fixed midpoint peg order to buy (sell) is entered 
either without a limit price, or with a limit price that is equal to 
or above (below) the Midpoint Price and is ranked at the Midpoint 
Price; thereafter, the NBBO changes so that the Midpoint Price 
changes (``Scenario 1'');
    [cir] The fixed midpoint peg order to buy (sell) is entered at a 
limit price that is equal to or below (above) the Midpoint Price and 
is ranked at its limit price; thereafter, the NBBO changes so that 
the Midpoint Price is lower (higher) than the limit price of the 
fixed midpoint peg order (``Scenario 2''); or
    [cir] The fixed midpoint peg order to buy (sell) is entered 
either without a limit price, or with a limit price that is equal to 
or above (below) the Midpoint Price and is ranked at the Midpoint 
Price; thereafter the NBBO becomes crossed, such that the Midpoint 
Price is considered indeterminable as set forth in IEX Rule 
11.190(h)(3)(D)(i). However, if the crossing price (NBO for buys/NBB 
for sells) is equal to the fixed midpoint peg's resting price, the 
order will not be canceled, but it will be ineligible to trade 
(``Scenario 3'').

    As proposed, IEX would cancel an incoming fixed midpoint peg order 
that arrives when the market is crossed or there is no NBB or NBO 
because IEX treats the Midpoint Price as indeterminable \21\ during 
these circumstances and accordingly there is no Midpoint Price for the 
order to peg to.
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    \21\ See IEX Rule 11.190(h)(3)(D)(i).
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    As proposed, a fixed midpoint peg order will not re-price after it 
posts to the Order Book, but would cancel if the Midpoint Price changes 
such that the resting price of the fixed midpoint peg order is subject 
to change. The conditions under which a fixed midpoint peg order would 
cancel that are set forth in Scenarios 1 to 3, above, each represent 
circumstances in which changed market conditions would cause a midpoint 
peg to re-price, but (as proposed) would cause a fixed midpoint peg 
order to cancel, consistent with the purpose of the order type. 
Specifically, in Scenario 1, the order was booked at the Midpoint Price 
(either because it had no limit price or a limit price equal to or more 
aggressive than the Midpoint Price), and the NBBO changes the Midpoint 
Price. In Scenario 2, the order is booked at a price equal to or less 
aggressive than the Midpoint Price, and then the market changes such 
that the new Midpoint Price is less aggressive than the price at which 
the order had been resting. In Scenario 3, the order is resting at the 
Midpoint Price and thereafter the NBBO becomes crossed which would 
trigger a midpoint peg to re-price to the ``crossing price'' (the 
lowest Protected Offer \22\ for buy orders and the highest Protected 
Bid \23\ for sell orders).\24\ However, Scenario 3 provides that if the 
fixed midpoint peg order's resting price is the same as the crossing 
price, the order would not be canceled or re-priced, but would be 
ineligible to trade while the market is crossed.
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    \22\ See IEX Rule 1.160(bb).
    \23\ See IEX Rule 1.160(bb).
    \24\ See IEX Rule 11.190(h)(3)(D)(i).
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    Finally, IEX is proposing to not allow fixed midpoint peg orders to 
include a minimum quantity instruction (``MQTY'') in order to prevent 
cancellations inconsistent with the purpose of the fixed midpoint peg 
order type. IEX's non-displayed price sliding rules are designed to 
prevent an unprotected displayed odd lot order with that cannot execute 
with a contra-side order because it does not satisfy that order's MQTY 
from causing the IEX Order Book to lock or cross. In this circumstance, 
the System re-prices the

[[Page 52235]]

resting MQTY order to a price one minimum price variant (``MPV'') \25\ 
less aggressive than the contra-side displayed odd-lot order's price. 
This functionality could lead a fixed midpoint peg order resting at the 
Midpoint Price to re-price even if the Midpoint Price has not changed. 
Accordingly, IEX believes that it is consistent with the purpose of the 
order type and User expectations to not allow a MQTY instruction to 
cause a cancellation because the order must re-price despite there 
being no change to the Midpoint Price.
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    \25\ See IEX Rule 11.210.
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    IEX notes that its proposed fixed midpoint peg order type is 
substantially similar to the Fixed Midpoint Peg Post-Only Order type 
offered by Nasdaq PHLX LLC (``Nasdaq PHLX''), with a few minor 
differences as follows: \26\
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    \26\ See Nasdaq PHLX Rule 3301A(b)(6).

     If a Nasdaq PHLX Fixed Midpoint Peg Post-Only Order is 
submitted with a limit price equal to the Midpoint Price, and the 
Midpoint Price moves to a more aggressive price than the resting 
order's limit price, Nasdaq PHLX will not cancel the order. IEX, by 
contrast, proposes to cancel a fixed midpoint peg order in such 
circumstances, as set forth in Scenario 2 above. IEX believes that 
this approach is appropriate because the order type is designed to 
provide a midpoint execution in a more deterministic manner and in 
this scenario, the Midpoint Price has changed.
     If the NBBO becomes crossed while a Nasdaq PHLX Fixed 
Midpoint Peg Post-Only Order is resting on the book Nasdaq PHLX will 
not cancel the order unless the order would need to be re-priced or 
an incoming order could match with it.\27\ IEX, in contrast will 
cancel the order as described above if it would otherwise need to be 
re-priced and if not canceled the order would be ineligible to trade 
with an incoming order while the NBBO is crossed.\28\ These two 
approaches have the same ultimate effect of preventing trading in a 
crossed market, and are therefore substantively similar, with the 
exception that IEX will not necessarily cancel the order to prevent 
the unwanted trade.
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    \27\ See supra note 27.
    \28\ See proposed IEX Rule 11.190(h)(3)(D)(iii).
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     Nasdaq PHLX permits a Fixed Midpoint Peg Post-Only 
Order to have a minimum quantity instruction, while IEX proposes to 
not allow such an instruction. As discussed above, IEX believes that 
not allowing a minimum quantity instruction is more consistent with 
the purpose of the order type and User expectations.
    In addition, the Exchange proposes four conforming amendments to 
other IEX rules:
     Amend IEX Rule 11.190(a)(3) to add fixed midpoint peg 
orders to the list of pegged order types offered by IEX;
     Amend IEX Rule 11.190(a)(3) to add fixed midpoint peg 
to the list of orders that may execute in sub-pennies if necessary 
to obtain a Midpoint Price;
     Amend IEX Rule 11.190(h)(3)(D)(i) to add a sentence at 
the end stating that in a crossed market, ``fixed midpoint peg 
orders will be canceled back to the User unless the crossing price 
is equal to the fixed midpoint peg order's resting price.'' This 
sentence reflects the fixed midpoint peg order functionality in 
proposed IEX Rule 11.190(b)(19). IEX notes that this functionality 
is consistent with the manner in which it will cancel an incoming 
fixed midpoint peg order during a crossed market, and is identical 
to how Nasdaq PHLX handles Fixed Midpoint Peg Post-Only Orders in a 
crossed market; \29\ and
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    \29\ See supra note 27.
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     Amend IEX Rule 11.190(h)(3)(D)(iii) to add fixed 
midpoint peg to the list of orders that are not eligible to trade 
when the market is crossed in IEX Rule 11.190(h)(3)(D)(iii). This 
functionality is also identical to how Nasdaq PHLX prevents Fixed 
Midpoint Peg Post-Only Orders from trading in a crossed market.\30\
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    \30\ See supra note 27.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\31\ in general, and furthers the 
objectives of Section 6(b)(5),\32\ 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 an optional order type for Users seeking a midpoint 
execution in a more deterministic manner, as described in the Purpose 
section.
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    \31\ 15 U.S.C. 78f(b).
    \32\ 15 U.S.C. 78f(b)(5).
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    Further, IEX believes that the proposal is consistent with the 
protection of investors and the public interest in that the fixed 
midpoint peg order type would provide additional flexibility to market 
participants in their use of pegging orders. As described in the 
Purpose section, the fixed midpoint peg order would provide market 
participants with more control over the price at which their midpoint 
pegging orders execute because the order's price would not move with 
changes to the Midpoint Price. IEX understands that such functionality 
could be useful for execution strategies designed to avoid chasing 
rising quotes or ones predicated on greater precision of execution 
prices. IEX believes that implementing this functionality through an 
exchange order type will make it more widely available to market 
participants on a fair and non-discriminatory basis.
    Furthermore, IEX believes that its proposed treatment of fixed 
midpoint peg orders during crossed market is consistent with the Act 
because the Midpoint Price is indeterminable during a crossed market so 
trading during such time would be inconsistent with the purpose of the 
order type.
    Additionally, IEX believes that the proposal to not allow a fixed 
midpoint peg order to have a MQTY instruction is consistent with the 
protection of investors and the public interest in that this 
functionality is designed to prevent inconsistent cancellations if the 
MQTY instruction prevented a fixed midpoint peg order from executing 
and instead caused the System to re-price the order. As discussed in 
the Purpose section, because these orders are designed to cancel rather 
than re-price, IEX believes that it is consistent with the purpose of 
the order type and User expectations to not allow a MQTY instruction.
    The Exchange also believes that the proposed rule change is 
consistent with the protection of investors and the public interest 
because it is designed to increase competition among execution venues 
by providing market participants with additional options and 
flexibility in their use of pegging orders, as described in the Purpose 
section, and thereby enable the Exchange to better compete with other 
trading venues that offer similar features to market participants.
    Finally, as noted in the Purpose section, this proposal is 
substantially similar to Nasdaq PHLX's Fixed Midpoint Peg Post-Only 
Order type, with three minor differences in implementation as discussed 
in the Purpose section.\33\ As discussed in the Purpose section, IEX 
believes that its proposed approach to each of these minor differences 
is consistent with the purpose of the fixed midpoint peg order type and 
Users' expectations. 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, notwithstanding these minor 
differences.
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    \33\ See supra note 27.
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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

[[Page 52236]]

necessary or appropriate in furtherance of the purposes of the Act. To 
the contrary, the proposal is a competitive response to similar order 
types available on other exchanges.
    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. Competing 
exchanges have and can continue to adopt similar order types, subject 
to the SEC rule change process, as discussed in the Purpose and 
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 use the fixed midpoint peg order type on the same 
terms.

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) of the Act \34\ and Rule 19b-4(f)(6) thereunder.\35\ 
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 prior to 
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 \36\ and Rule 19b-
4(f)(6) thereunder.\37\
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    \34\ 15 U.S.C. 78s(b)(3)(A).
    \35\ 17 CFR 240.19b-4(f)(6).
    \36\ 15 U.S.C. 78s(b)(3)(A).
    \37\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its 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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    At any time within 60 days of the filing of such 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.

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-IEX-2023-06 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-2023-06. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office 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-2023-06 and should be 
submitted on or before August 28, 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. 2023-16710 Filed 8-4-23; 8:45 am]
BILLING CODE 8011-01-P