
[Federal Register Volume 82, Number 88 (Tuesday, May 9, 2017)]
[Notices]
[Pages 21634-21669]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09310]



[[Page 21633]]

Vol. 82

Tuesday,

No. 88

May 9, 2017

Part III





Securities and Exchange Commission





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Self-Regulatory Organizations; Investors Exchange LLC; Notice of Filing 
of Proposed Rule Change Related to Auctions in IEX-Listed Securities, 
Dissemination of Auction-Related Market Data, and Provisions Governing 
Trading Halts and Pauses; Notice

  Federal Register / Vol. 82, No. 88 / Tuesday, May 9, 2017 / Notices  

[[Page 21634]]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80583; File No. SR-IEX-2017-10]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing of Proposed Rule Change Related to Auctions in IEX-Listed 
Securities, Dissemination of Auction-Related Market Data, and 
Provisions Governing Trading Halts and Pauses

May 3, 2017.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on April 20, 2017, 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, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) under the Securities 
Exchange Act of 1934 (``Act''), and Rule 19b-4 thereunder, Investors 
Exchange LLC (``IEX'' or the ``Exchange'') is filing with the 
Securities and Exchange Commission (the ``Commission'') a proposed rule 
change to adopt rules governing auctions conducted on the Exchange, 
including dissemination of auction-related market data, for securities 
listed on the Exchange pursuant to Chapter 14 of the IEX Rule Book. In 
addition, IEX proposes to amend IEX Rule 11.280 to add provisions 
governing trading halts and trading pauses pursuant to the Limit Up-
Limit Down Plan (``LULD'' or the ``LULD Plan'') in IEX-listed 
securities. The text of the proposed rule change is available at the 
Exchange's Web site 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 is proposing to amend IEX Rule 11.350 (which is 
currently reserved) and IEX Rule 11.330 to adopt rules to govern 
auctions conducted on the Exchange, including dissemination of auction-
related market data, for securities listed on the Exchange pursuant to 
Chapter 14 of the IEX Rule Book (``IEX Auctions''). Furthermore, the 
Exchange is proposing to amend Rule 11.190(a)(2)(E) to allow market 
orders with a time-in-force of DAY to be entered in the Pre-Market 
Session for queuing and participation in the Opening Auction (or Halt 
Auction, as applicable). The Exchange is also proposing certain 
amendments to IEX Rule 11.280 to provide the Exchange with the 
authority to declare an LULD trading pause as well as define other 
circumstances in which the Exchange has the authority to initiate 
trading halts.
    The proposed rule change includes rule provisions to govern (i) the 
Opening, Closing, initial public offering (``IPO''),\4\ Halt, and 
Volatility Auctions for IEX-listed securities; (ii) auction-related 
order types and modifiers; and (iii) auction-related market data. Each 
of the auctions will enable IEX Users to participate in electronic 
price discovery mechanisms that match orders in each IEX-listed 
security at a single price (i.e., the clearing price) using a double 
auction process. The IEX Auction process is designed to efficiently 
maximize the number of shares executed at a single price during the 
auctions, as described more fully below. As proposed, the auctions 
would be available at the open and close of the Regular Market Session, 
for the start of trading for an IPO or launch of a new issue, and upon 
the resumption of trading in a security following a trading halt or a 
trading pause pursuant to the LULD Plan.\5\ In addition, during the 
auction process, IEX will calculate and disseminate IEX Auction 
Information via the IEX Top of Book Quote and Last Sale feed 
(``TOPS''), the IEX Depth of Book and Last Sale feed (``DEEP''), as 
well as the IEX Data Platform, which is available free of charge on the 
Exchange's public Web site, for all auctions as more fully described 
below.\6\
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    \4\ The term IPO refers to the initial public offering of 
securities registered under Section 6 of the Securities Act of 1933.
    \5\ See Rule 11.280(e)(1)(A) and Supplementary Material .01(c) 
to Rule 14.207.
    \6\ Capitalized terms have the meaning set forth in relevant IEX 
rules or proposed rules, as described herein.
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    IEX Auctions were designed based on extensive review of the auction 
designs of the New York Stock Exchange (``NYSE''), NYSE Arca, Inc. 
(``NYSE Arca''), Nasdaq Stock Market (``Nasdaq''), Bats BZX Exchange 
(``Bats''), and the London Stock Exchange (``LSE'') as well as 
discussions with a variety of buy-side and sell-side market 
participants, including large banks and broker dealers, electronic 
market makers, asset managers, and institutional investors. As 
described below, IEX Auctions have adopted several auction attributes 
that are substantially similar to existing exchange auction models, and 
will therefore be familiar to Members participating in IEX Auctions for 
securities listed on the Exchange. The Exchange believes that the 
proposed auction designs will provide a transparent, efficient, and 
robust process to aggregate trading interest submitted by a broad range 
of market participants to be matched at a single clearing price, 
consistent with the protection of investors and the public interest, 
and aligns with issuers' interests.
    During the auction design process, the primary goal of the Exchange 
was to maximize participation in the auction, in order to provide an 
efficient price discovery process and greater opportunity for execution 
at the official auction price.\7\ The Exchange's goals were developed 
after extensive informal discussions with a broad range of market 
participants and market research, and thus the Exchange's goals are 
inherently in alignment with the interests of investors and issuers. As 
discussed by Noam Nisan in his research on mechanism design, 
``generally speaking, the more buyers and sellers there are in a 
market, the more the situation becomes close to the perfect market 
scenario.'' \8\ In an effort to garner broad participation, IEX has 
kept

[[Page 21635]]

the fixed costs for trading on the Exchange lower than any U.S. primary 
listing exchange, since the Exchange does not charge for market data, 
connectivity, or membership.\9\ Additionally, the Exchange chose to 
limit the number of new order types that would be eligible for IEX 
Auctions, thus simplifying the tools at the disposal of Users to 
express interest in an IEX Auction. Moreover, the Exchange chose to 
limit the restrictions on expressing interest in the Opening and 
Closing Auction, akin to the model employed by the LSE and other 
European exchanges during the call period.\10\
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    \7\ See Trading the Auctions, Richard Johnson, 2017 (https://www.greenwich.com/equities/trading-auctions).
    \8\ See Algorithmic Game Theory, Noam Nisan, Tim Roughgarden, 
Eva Tardos, Vijay V. Vazirani, 2007 at 209 (http://www.cs.cmu.edu/
~sandholm/cs15-892F13/algorithmic-game-theory.pdf).
    \9\ See IEX Fee Filing (https://iextrading.com/docs/rule-filings/SR-IEX-2016-09.pdf).
    \10\ See LSE Guide to New Trading System, Section 7.2 at 67 
(http://www.londonstockexchange.com/products-and-services/trading-services/guide-to-new-trading-system.pdf). See also NASDAQ OMX 
Nordic Market Model 2.2, Section 4.2.3 at 16(105) (http://www.nasdaqomx.com/digitalAssets/73/73614_nasdaq_omx_nordic_market_model_2.2_1_april_2011.pdf).
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    Research has shown that a truthful expression of each participant's 
limit provides the optimal mechanism for price discovery.\11\ 
Therefore, to promote price discovery in the Opening and Closing 
Auctions, the Exchange chose to depart from the European model by 
designing IEX auctions in a manner where Users cannot adjust (i.e., 
cancel or modify) auction-specific interest once entered. The Exchange 
is balancing the objective of allowing Users to express their true 
limit on auction-specific interest leading into Opening and Closing 
Auctions (with restrictions on price aggressiveness as the auction 
nears) with conducting Opening and Closing Auctions in a timely manner 
at 9:30 a.m. and 4:00 p.m., respectively. Alternatively, when 
conducting a Halt, IPO, and Volatility Auction, such auctions are 
designed to extend the price discovery process in order to establish 
equilibrium rather than restricting the ability to enter or adjust 
auction-specific interest. Finally, to maximize participation and 
enhance price discovery, the Exchange designed the Opening and Closing 
Auctions in a manner where the interest from continuous trading (itself 
a continuous double auction) will be effectively merged using the 
Exchange's standard priority mechanisms, with the interest accumulating 
for the periodic double auction at the start or end of the Regular 
Market Session. This coalescence of interest at 9:30 a.m. and 4:00 p.m. 
is facilitated by frequent disseminations of auction related data, 
including indicative prices, which allow participants to enter new 
auction-specific interest or adjust continuous trading behavior as 
participants iterate towards the clearing price (i.e., a price-
adjustment mechanism).\12\ Specifically, for all IEX Auctions, to 
facilitate the iterative process that arrives at a clearing price that 
maximizes shares at a single price, the Exchange provides a price 
signal (i.e., the indicative clearing price) via disseminations of 
auction related data, and Users submit their interest to the Exchange. 
Upon receipt of new auction interest, the Exchange recalculates prices 
utilizing the aggregate supply and demand and disseminates new auction 
prices each second. In each dissemination, Users are able to 
recalculate their demand upon receiving the newly adjusted pricing 
information from the Exchange and submit their new interest to the 
Exchange. This price discovery process continues until prices converge 
to an equilibrium (in the case of a Halt, IPO, or Volatility Auction), 
or the auction match occurs (in the case of the Opening or Closing 
Auctions).
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    \11\ See Algorithmic Game Theory, Noam Nisan, Tim Roughgarden, 
Eva Tardos, Vijay V. Vazirani, 2007 (http://www.cs.cmu.edu/
~sandholm/cs15-892F13/algorithmic-game-theory.pdf).
    \12\ Walras. Elements of Pure Economics, or the Theory of Social 
Wealth. Richard Irwin, 1954. (Original version published in French 
in 1874).
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    IEX Auctions were strategically designed after extensive research 
and informal discussion with various market participants to provide 
unique value to fundamental investors, and the issuers that make up the 
subject of their investments. As with all products and functionality 
offered by the Exchange, research, quantitative analysis, and input 
from Members and the issuer community will inform future iterations of 
IEX Auctions, as we strive to deliver quality trading experiences for 
IEX Members and issuers.
Overview
    The Exchange proposes adoption of definitions to govern IEX 
Auctions in paragraph (a) of IEX Rule 11.350. Proposed paragraph (b) 
sets forth IEX Auction priority rules, describing how orders shall be 
ranked in the Opening, Closing, IPO, Halt, and Volatility Auctions. 
Proposed paragraph (c) sets forth the process for conducting an opening 
auction on the Exchange (``Opening Auction''), determining an official 
opening price for dissemination to the consolidated tape (``IEX 
Official Opening Price''), and contingency procedures that shall apply 
when a disruption occurs that prevents the execution of the Opening 
Auction. Proposed paragraph (d) describes the process for conducting a 
closing auction on the Exchange (``Closing Auction''), determining an 
official closing price for dissemination to the consolidated tape 
(``IEX Official Closing Price''), and primary and secondary contingency 
procedures that shall apply when a disruption occurs that prevents the 
execution of the Closing Auction. Proposed paragraph (e) describes the 
Exchange's process for conducting an auction in the event of an IPO or 
launch of a new issue, or following a trading halt (``IPO Auction'' or 
``Halt Auction'', respectively), determining the opening price for 
dissemination to the consolidated tape in the case of an IPO Auction 
(``IEX Official IPO Opening Price'') or the re-opening trade following 
a trading halt (``IEX Re-opening Trade'' or IEX Official Opening Price 
if the security has not traded during the Regular Market Session on 
that trading day), and contingency procedures that shall apply when a 
disruption occurs that prevents the execution of the IPO or Halt 
Auction. Proposed paragraph (f) describes the Exchange's process for 
conducting an auction following an LULD trading pause (``Volatility 
Auction''), determination of the IEX Re-opening Trade, or the IEX 
Official Closing Price when closing with a Volatility Auction, and 
contingency procedures that shall apply when a disruption occurs that 
prevents the execution of the Volatility Auction. Proposed paragraph 
(g) describes the priority and handling of short sale orders not marked 
short exempt for covered securities when the Short Sale Price Test of 
Rule 201 of Regulation SHO is in effect. Proposed paragraph (h) grants 
the Exchange discretion to adjust the timing of or suspend IEX Auctions 
when, in the judgment of the Exchange, the interests of fair and 
orderly markets so require. Proposed paragraph (i) designates the 
resultant executions from IEX Auctions as single priced opening, re-
opening, and closing transactions that meet the requirements of Rule 
611(b)(3) of Regulation NMS and section VI(D)(6) of the plan to 
Implement a Tick Size Pilot Program, and may therefore trade-through or 
trade-at the price of any other Trading Center's protected or manual 
quotations. Additionally, proposed paragraph (j) makes clear that all 
references to a.m. and p.m. shall mean Eastern Time. The Exchange also 
proposes certain modifications and amendments to IEX Rule 11.330 
regarding Data Products to include IEX Auction Information in certain 
of the Exchange's data products, as described more fully below. 
Furthermore, proposed Rule 11.190(a)(2)(E) allows market orders with a 
time-in-force of DAY to be entered in the Pre-Market

[[Page 21636]]

Session for queuing and participation in the Opening Auction (or Halt 
Auction, as applicable). The Exchange is also proposing to make a 
conforming change to Rule 11.190(a)(1)(E)(iii) and (v) to explicitly 
identify that limit orders with a time-in-force of DAY or GTX for IEX-
listed securities that are entered in the Pre-Market Session are queued 
for participation in the Opening Auction (or Halt Auction, as 
applicable). Lastly, the Exchange proposes certain modifications and 
amendments to IEX Rule 11.280 to provide the Exchange with the 
authority to declare an LULD trading pause as well as define other 
circumstances in which the Exchange has the authority to initiate 
trading halts, and the procedures regarding the initiation and 
termination of such trading halts.\13\
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    \13\ The Exchange is also proposing to rename IEX Rule 11.280 so 
that the name captures the expanded rule provisions.
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Auction Specific Order Types
    The Exchange proposes to offer the following new order types in 
connection with IEX Auctions:
     A ``Market-On-Open'' or ``MOO'' order is a market order 
that specifically requests execution at the IEX Official Opening Price 
(or the IEX Official IPO Opening Price in the case of an IPO Auction) 
and is designated for execution in the Opening Auction, IPO Auction, or 
Halt Auction when queued prior to Regular Market Hours if a Pre-Market 
Session halt persists through the start of Regular Market Hours. A MOO 
order submitted as a pegged order will be rejected. A MOO order 
submitted with a User instructed display quantity pursuant to Rule 
11.190(b)(2) will be accepted, but the instruction will not be 
supported; \14\
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    \14\ See proposed Rule 11.350(a)(25).
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     A ``Limit-On-Open'' or ``LOO'' order is a limit order that 
specifically requests execution at the IEX Official Opening Price (or 
the IEX Official IPO Opening Price in the case of an IPO Auction) and 
is designated for execution in the Opening Auction, IPO Auction, or 
Halt Auction when queued prior to Regular Market Hours if a Pre-Market 
Session halt persists through the start of Regular Market Hours. An LOO 
order submitted as a pegged order will be rejected. An LOO order 
submitted with a User instructed display quantity pursuant to Rule 
11.190(b)(2) will be accepted, but the instruction will not be 
supported; \15\
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    \15\ See proposed Rule 11.350(a)(21).
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     A ``Market-On-Close'' or ``MOC'' order is a market order 
that specifically requests execution at the IEX Official Closing price 
and is designated for execution in the Closing Auction, or in a 
Volatility Auction when such auction is determining the IEX Official 
Closing Price pursuant to Rule 11.350(f)(3). A MOC order submitted as a 
pegged order will be rejected. A MOC order submitted with a User 
instructed display quantity pursuant to Rule 11.190(b)(2) will be 
accepted, but the instruction will not be supported; \16\ and
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    \16\ See proposed Rule 11.350(a)(24).
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     A ``Limit-On-Close'' or ``LOC'' order is a limit order 
that specifically requests execution at the IEX Official Closing Price 
and is designated for execution in the Closing Auction, or in a 
Volatility Auction when such auction is determining the IEX Official 
Closing Price pursuant to Rule 11.350(f)(3). An LOC order submitted as 
a pegged order will be rejected. An LOC order submitted with a User 
instructed display quantity pursuant to Rule 11.190(b)(2) will be 
accepted, but the instruction will not be supported.\17\
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    \17\ See proposed Rule 11.350(a)(20).
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    Note, as defined above, MOO and LOO orders (``On-Open orders'') as 
well as MOC and LOC orders (``On-Close orders'') that are submitted as 
a pegged order will be rejected. Additionally, any On-open and On-close 
order submitted with a User instructed display quantity (e.g., as a 
reserve order with a quantity of shares displayed and a reserve 
quantity non-displayed) will be accepted; however, the instruction will 
not be supported, thus the order will be treated as having displayed 
priority for the order's full size pursuant to proposed Rule 
11.350(b)(1)(b) [sic].
    The Exchange will not offer an imbalance order type (i.e., an order 
type that by its terms is designed to solely offset a buy or sell order 
imbalance in the auction), which is currently offered by Nasdaq, but 
not by Bats.\18\ However, Users who wish to offset buy or sell 
imbalances in an auction may do so by entering LOO, LOC, and limit 
orders priced less aggressive than the applicable auction collar, or 
specifically in the case of an Opening or Closing Auction, non-
displayed interest on the Continuous Book with a resting price within 
the Reference Price Range, which, as described further below, is 
eligible to offset imbalance without influencing the determination of 
the clearing price within the Reference Price Range.
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    \18\ See, e.g., Nasdaq Rule 4702(b)(10) and (13).
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Order Types Eligible To Participate in Auctions
    Currently, the Exchange begins accepting limit orders with a time-
in-force of IOC, FOK, GTT, and SYS for trading at the beginning of the 
Pre-Market Session and any such orders received by the Exchange are 
immediately eligible for execution during continuous trading. In 
addition, limit orders with a time-in-force of GTX or DAY and pegged 
orders with a time-in-force of DAY that are entered during the Pre-
Market Session are queued in the System until the start of the Regular 
Market Session, or until the order is canceled by the User.\19\ The 
Exchange is proposing to amend Rule 11.190(a)(2)(E) to extend the 
queuing functionality to market orders with a time-in-force of DAY that 
are entered during the Pre-Market Session, allowing such orders to 
queue in the System for participation in the Opening Auction (or Halt 
Auction, as applicable), except market orders with a time-in-force of 
DAY that are designated to route pursuant to Rule 11.230(c). The 
Exchange is proposing to reject market orders with a time-in-force of 
DAY that are designated to route in an effort to mitigate unnecessary 
volatility in an IEX-listed security following an auction match where a 
market order imbalance remains. IEX Auctions are designed to provide 
Users with the ability to offset market order imbalances prior to the 
auction match, however in periods of market stress, all market order 
interest may not be offset prior to the auction match. In such cases, a 
market order with a time-in-force of DAY that is designated to route 
that is not executed (in whole or in part) in the Opening Auction would 
subsequently be routed out to clear all away protected quotations in 
the market immediately after the auction, exacerbating volatility in a 
market experiencing instability. Moreover, the Exchange is proposing to 
make a conforming change to Rule 11.190(a)(1)(E)(iii) and (v) to 
explicitly identify that limit orders with a time-in-force of DAY or 
GTX for IEX-listed securities that are entered in the Pre-Market 
Session are queued for participation in the Opening Auction (or Halt 
Auction, as applicable).
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    \19\ See IEX Rule 11.190.
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    Accordingly, pursuant to proposed Rule 11.350(a)(1)(A), for an 
Opening Auction, On-Open orders and market orders with a time-in-force 
of DAY, as well as limit orders designated with a time-in-force of DAY 
or GTX are queued on the Opening Auction Book and are eligible for 
execution \20\ in the Opening Auction match in accordance with

[[Page 21637]]

market conditions.\21\ In addition, pursuant to proposed Rule 
11.350(a)(2), limit orders on the Continuous Book with a time-in-force 
of SYS or GTT are eligible for execution in the Opening Auction in 
accordance with market conditions.\22\ Pegged orders queued for the 
Regular Market Session are not eligible to execute in the Opening 
Auction.\23\ The Exchange is excluding pegged orders from the Opening 
Auction because pegged orders are not eligible for continuous trading 
during the Pre-Market Session, and thus such orders do not have a 
booked price.
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    \20\ The term ``eligible for execution'' or ``eligible to 
execute'' is in reference to orders that are eligible for possible 
execution in an IEX auction, subject to the terms of the order, the 
applicable auction rules, and market conditions.
    \21\ Market orders with a time-in-force of DAY and limit orders 
with a time-in-force of DAY or GTX are not eligible for continuous 
trading during the Pre-Market Session, and therefore such orders are 
queued on the Opening Auction Book, rather than on the Continuous 
Book. Note, as described below, orders marked IOC or FOK do not rest 
on the Continuous Book, and therefore are not Auction Eligible 
Orders in the Opening or Closing Auction.
    \22\ Limit and market orders may be marked as routable. Routable 
limit orders that are not fully executed in the Opening Auction are 
released to the Continuous Book and will be routed in accordance 
with IEX Rule 11.230(c) (Re-sweep Behavior), subject to the order's 
instructions.
    \23\ See proposed Rule 11.350(a)(3)(A).
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    For a Closing Auction, pursuant to proposed Rule 11.350(a)(1)(B), 
MOC and LOC orders are queued on the Closing Auction Book and are 
eligible for execution in the Closing Auction match in accordance with 
market conditions. In addition, pursuant to proposed Rule 11.350(a)(2), 
limit and pegged orders on the Continuous Book with a time-in-force of 
DAY, GTX, GTT, or SYS, are eligible for execution in the Closing 
Auction in accordance with market conditions. The Exchange is including 
pegged orders in the Closing Auction, because such orders are active 
and resting on the Order Book during continuous trading, and therefore 
have a booked price that is reflective of the market for the security.
    For an IPO Auction, pursuant to proposed Rule 11.350(a)(1)(C), LOO 
and MOO orders, market orders with a time-in-force of DAY, as well as 
limit orders with a time-in-force of DAY, SYS, GTX, GTT, FOK, or IOC 
are accepted during the Order Acceptance Period, queued on the IPO 
Auction Book, and are eligible for execution in the IPO Auction match 
in accordance with market conditions. Pegged orders are not eligible to 
execute in the IPO Auction.\24\ Similar to the Opening Auction, the 
Exchange is excluding pegged orders from the IPO Auction because there 
is no continuous trading before the IPO auction, and thus pegged orders 
do not have a booked price.
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    \24\ See proposed Rule 11.350(a)(3)(B).
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    For a Halt Auction, pursuant to proposed Rule 11.350(a)(1)(D), the 
following orders are eligible for execution:
     On-Open orders queued prior to Regular Market Hours if a 
Pre-Market Session halt persists through the start of Regular Market 
Hours and the Halt Auction is scheduled to occur during the Regular 
Market Session;
     Limit orders with a TIF of GTT, SYS, FOK, or IOC received 
during the Order Acceptance Period;
     Limit orders with a TIF of DAY received during the Order 
Acceptance Period within the Regular Market Session, or queued prior to 
the Regular Market Session for securities that have not traded during 
the Regular Market Session on that trading day;
     Limit orders with a TIF of GTX received during the Order 
Acceptance Period within the Regular Market Session or Post-Market 
Session, or queued prior to the Regular Market Session for securities 
that have not traded during the Regular Market Session on that trading 
day;
     Market orders with a TIF of FOK or IOC received during the 
Order Acceptance Period within the Regular Market Session;
     Market orders with a TIF of DAY received during the Order 
Acceptance Period within the Regular Market Session, or queued prior to 
the Regular Market Session for securities that have not traded during 
the Regular Market Session on that trading day; and
     Displayed portions of limit orders on the Continuous Book 
at the time of the halt dissemination.
    All orders on the Halt Auction Book are eligible for execution in 
the Halt Auction in accordance with market conditions. Pegged orders 
and non-displayed orders (including the non-displayed portion of 
reserve orders) (collectively, ``non-displayed interest'') that are on 
the Continuous Book at the time of the halt dissemination are not 
eligible for execution in the Halt Auction and may be canceled at any 
time after the halt dissemination, so that interest may be re-entered 
as Auction Eligible Orders during the Order Acceptance Period as 
interest eligible for execution in the Halt Auction. As with the 
Opening and IPO Auctions, pegged orders submitted during the Order 
Acceptance Period are not eligible for execution in the Halt 
Auction.\25\ After informal discussions with various Members, the 
Exchange is also proposing to exclude all non-displayed orders 
(including pegged orders) that were on the Continuous Book at the time 
of the halt dissemination from the Halt Auction because Users 
submitting non-displayed orders are generally entrusting the Exchange 
to price such orders at values that are reflective of the market for a 
security. In the event of a trading halt, the market is in the process 
of reestablishing the value of a security, and therefore including non-
displayed orders that are priced against a reference price that may not 
reflect adjustments in valuation resulting from additional information 
regarding the security during the halt could potentially harm 
investors.
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    \25\ See proposed Rule 11.350(a)(3)(C).
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    For a Volatility Auction, pursuant to proposed Rule 
11.350(a)(1)(E), the following orders are eligible for execution:
     MOC and LOC orders, if an IEX-listed security is paused 
pursuant to IEX Rule 11.280(e) at or after the Closing Auction Lock-in 
Time, or the Order Acceptance Period of a Volatility Auction for a 
security paused before the Closing Auction Lock-in Time pursuant to IEX 
Rule 11.280(e) would otherwise be extended by the Exchange to a time 
after the Closing Auction Lock-in Time;
     Limit orders with a TIF of GTX, GTT, SYS, FOK, or IOC 
received during the Order Acceptance Period;
     Limit orders with a TIF of DAY received during the Order 
Acceptance Period within Regular Market Hours;
     Market orders with a TIF of FOK, IOC, or DAY received 
during the Order Acceptance Period within Regular Market Hours; and
     Displayed portions of limit orders on the Continuous Book 
at the time of the pause dissemination.
    Non-displayed interest (i.e., pegged orders and non-displayed 
orders, including the non-displayed portion of reserve orders) that 
were on the Continuous Book at the time of the pause dissemination are 
not eligible for execution in the Volatility Auction and may be 
canceled at any time after the LULD trading pause dissemination, so 
that interest may be re-entered as Auction Eligible Orders during the 
Order Acceptance Period as interest eligible for execution in the 
Volatility Auction Book. Pegged orders submitted during the Order 
Acceptance Period are not eligible for execution in the Volatility 
Auction.\26\ Similar to the Halt Auction, the Exchange is excluding 
non-displayed orders from the Volatility Auction because Users 
submitting non-displayed orders are generally entrusting the Exchange 
to price such orders at values that are reflective of the market for a 
security. In the event of a volatility trading pause, the security has 
just experienced sharp price volatility and the market is in the 
process of

[[Page 21638]]

reestablishing the value of a security, and therefore including non-
displayed orders that are priced against a reference price that may not 
reflect adjustments in valuation during the pause could potentially 
result in auction pricing that is not reflective of the current value 
of the security.\27\
---------------------------------------------------------------------------

    \26\ See proposed Rule 11.350(a)(3)(D).
    \27\ Note, for both the Halt and Volatility Auctions, while non-
displayed limit orders are not necessarily ``pegged'' to any 
particular reference price (such as a midpoint pegged order, for 
example), such orders are subject to the Midpoint Price Constraint 
pursuant to IEX Rule 11.190(h)(2), which states that non-displayed 
limit orders posting to the Order Book with a limit price more 
aggressive than the Midpoint Price is booked and ranked on the Order 
Book non-displayed at a price equal to the Midpoint Price. To 
reflect changes to the NBBO, the order is automatically re-priced by 
the System in response to changes in the NBBO to be equal to the 
less aggressive of the order's limit price or the Midpoint Price. 
Accordingly, in volatile markets that have triggered a trading pause 
or halt, non-displayed limit orders resting on the Order Book that 
are not actively or algorithmically monitored are likely to have 
been restricted by the Midpoint Price Constraint. Accordingly, such 
orders would be priced against a reference price (i.e., the Midpoint 
Price) that may not reflect adjustments in valuation during the halt 
or pause, which could potentially harm such investors.
---------------------------------------------------------------------------

    All AGID modifiers as defined in Rule 11.190(e), and Minimum 
Quantity instructions as defined in Rule 11.190(b)(11), will not be 
supported in the Opening, Closing, IPO, Halt, or Volatility Auction 
\28\ match, but will be enforced on all unexecuted shares released to 
the Continuous Book following the auction match. The Exchange believes 
that not supporting AGID modifiers in IEX Auctions is consistent with 
the protection of investors and the public interest because within the 
context of the aggregated auction match process, counterparties are not 
considered; only the aggregate available volume for execution is 
considered. It is illogical to cancel an order that happens to be 
allocated an execution against an order entered using the same MPID, 
because both orders execute at the exact same price to the exact same 
effect where the orders happen to execute against orders of a different 
MPID. Furthermore, the Exchange believes that supporting AGID 
modifiers, as well as supporting Minimum Quantity instructions as 
defined in Rule 11.190(b)(11) in IEX Auctions introduces additional 
technical complexities to the clearing price determination process, and 
the Exchange believes providing simplicity in this regard is in the 
interest of the protection of investors and the public interest.\29\
---------------------------------------------------------------------------

    \28\ See proposed Rules 11.350(c)(2)(C), 11.350(d)(2)(C), 
11.350(e)(2)(D), and 11.350(f)(2)(F) and (f)(3)(B)(iii), 
respectively.
    \29\ The Exchange notes that Bats does not support broker self-
match restrictions in an IPO auction, or on regular market and limit 
orders in the Opening and Closing auctions. See Bats Rule 
11.23(a)(8)(C)(1) [sic] and Bats US Equities Auction Process 
specification at 9. See also NYSE Arca Rule 7.31(i)(2), which states 
that Orders marked with an STP modifier will not be prevented from 
interacting during any auction. (Emphasis added)
---------------------------------------------------------------------------

Definitions
    As proposed, IEX Rule 11.350(a) contains certain definitions 
relevant to IEX Auctions, including the following:
    (1) The term ``Auction Book'' refers to the orders specified below 
that queue prior to the auction match, and shall mean:
    (A) For Opening Auctions (i.e., Opening Auction Book):
    i. On-Open orders;
    ii. Limit orders with a TIF of DAY or GTX; and
    iii. Market orders with a TIF of DAY.
    (B) For Closing Auctions (i.e., Closing Auction Book):
    i. On-Close orders.
    (C) For IPO Auctions (i.e., IPO Auction Book):
    i. On-Open orders;
    ii. Limit orders with a TIF of DAY, GTX, GTT, SYS, FOK, or IOC; and
    iii. Market orders with a TIF of DAY.
    (D) For Halt Auctions (i.e., Halt Auction Book):
    i. On-Open orders queued prior to Regular Market Hours if a Pre-
Market Session halt persists through the start of Regular Market Hours 
and the Halt Auction is scheduled to occur during the Regular Market 
Session;
    ii. Limit orders with a TIF of GTT, SYS, FOK, or IOC received 
during the Order Acceptance Period;
    iii. Limit orders with a TIF of DAY received during the Order 
Acceptance Period within the Regular Market Session or queued prior to 
the Regular Market Session for securities that have not traded during 
the Regular Market Session on that trading day;
    iv. Limit orders with a TIF of GTX received during the Order 
Acceptance Period within the Regular Market Session or Post-Market 
Session or queued prior to the Regular Market Session for securities 
that have not traded during the Regular Market Session on that trading 
day;
    v. Market orders with a TIF of FOK or IOC received during the Order 
Acceptance Period within the Regular Market Session;
    vi. Market orders with a TIF of DAY received during the Order 
Acceptance Period within the Regular Market Session or queued prior to 
the Regular Market Session for securities that have not traded during 
the Regular Market Session on that trading day; and
    vii. Displayed portions of limit orders on the Continuous Book at 
the time of the halt dissemination.
    (E) For Volatility Auctions (i.e., Volatility Auction Book):
    i. On-Close orders, if an IEX-listed security is paused pursuant to 
IEX Rule 11.280(e) at or after the Closing Auction Lock-in Time, or the 
Order Acceptance Period of a Volatility Auction for a security paused 
before the Closing Auction Lock-in Time pursuant to IEX Rule 11.280(e) 
would otherwise be extended by the Exchange to a time after the Closing 
Auction Lock-in Time;
    ii. Limit orders with a TIF of GTX, GTT, SYS, FOK, or IOC received 
during the Order Acceptance Period;
    iii. Limit orders with a TIF of DAY received during the Order 
Acceptance Period within Regular Market Hours;
    iv. Market orders with a TIF of FOK, IOC, or DAY received during 
the Order Acceptance Period within Regular Market Hours; and
    v. Displayed portions of limit orders on the Continuous Book at the 
time of the pause dissemination.
    (2) The term ``Auction Eligible Order'' shall mean all orders that 
are eligible for execution in the upcoming auction on the Auction Book 
and the Continuous Book (collectively, the Order Book) and are not 
Auction Ineligible Orders; such orders are used by the System to 
calculate IEX Auction Information and to determine the clearing price 
of IEX Auctions. For Opening or Closing Auctions, non-displayed buy 
(sell) orders on the Continuous Book with a resting price (as defined 
in IEX Rule 11.350(b)(1)(A)(i)) within the Reference Price Range will 
be priced at the Protected NBB (NBO) for the purpose of determining the 
clearing price, but will be ranked and eligible for execution in the 
Opening or Closing Auction match at the order's resting price.
    (3) The term ``Auction Ineligible Orders'' refers to the orders 
specified below that are not eligible for execution in the auction, and 
shall mean:
    (A) For Opening Auctions:
    i. Pegged orders.
    (B) For IPO Auctions:
    i. Pegged orders.
    (C) For Halt Auctions:
    i. Pegged orders; and
    ii. Non-displayed interest on the Continuous Book at the time of 
the halt.
    (D) For Volatility Auctions:
    i. Pegged orders; and
    ii. Non-displayed interest on the Continuous Book at the time of 
the pause.
    (4) The term ``Continuous Book'' shall be in reference to all 
orders resting on the Order Book that are not on the Auction Book and 
are available for continuous trading. Market orders and orders with a 
TIF of IOC or FOK do not rest on the Continuous Book. During the

[[Page 21639]]

Pre-Market Session, Auction Ineligible Orders queued for the Regular 
Market Session are not on the Continuous Book. There is no Continuous 
Book when continuous trading in a security is halted or paused; in the 
event of a halt or pause, Auction Eligible Orders on the Continuous 
Book shall be incorporated into the Halt or Volatility Auction Book, as 
applicable.
    (5) The term ``Display Only Period'' shall be in reference to the 
period of the time during which IEX disseminates IEX Auction 
Information for IPO, Halt, and Volatility Auctions. The Display Only 
Period begins thirty (30) minutes prior to the scheduled auction match 
for an IPO Auction, and the start of the Order Acceptance Period for 
Halt and Volatility Auctions. The Display Only Period shall end when 
the applicable auction match occurs.
    (6) The term ``Final Consolidated Last Sale Eligible Trade'' shall 
mean the last trade prior to the end of Regular Market Hours, or where 
applicable, prior to trading in the security being halted or paused, 
that is last sale eligible and reported to the Consolidated Tape System 
(``Consolidated Tape'').
    (A) If there is no qualifying Final Consolidated Last Sale Eligible 
Trade for the current day, the previous official closing price; and
    (B) In the case of an IPO or launch of a new issue, the issue 
price.
    (7) The term ``Final Last Sale Eligible Trade'' shall mean the last 
trade on IEX prior to the end of Regular Market Hours, or where 
applicable, prior to trading in the security being halted or paused, 
that is last sale eligible and reported to the Consolidated Tape.
    (A) If there is no qualifying Final Last Sale Eligible Trade for 
the current day, the previous official closing price; and
    (B) In the case of an IPO or launch of a new issue, the issue 
price.
    (8) The term ``Hyper-aggressive Auction Orders'' shall mean:
    (A) For Opening Auctions, MOO orders and market orders with a TIF 
of DAY, as well as LOO orders and limit orders with a TIF of DAY or GTX 
to buy (sell) priced above (below) the latest upper (lower) threshold 
of the Opening/Closing Auction Collar calculated by the System.
    (B) For Closing Auctions, MOC orders and LOC orders to buy (sell) 
priced above (below) the latest upper (lower) threshold of the Opening/
Closing Auction Collar calculated by the System.
    (9) The term ``IEX Auction Information'' shall mean the information 
disseminated pursuant to Rule 11.330(a) regarding the current status of 
price, size, imbalance information, auction collar information, and 
other relevant information related to auctions conducted by the 
Exchange. IEX Auction Information shall include:
    (A) Reference Price: The single price at or within the Reference 
Price Range at which orders on the Auction Book would match if the IEX 
Auction were to occur at that time of dissemination. The Reference 
Price is set to the price that maximizes the number of the shares from 
orders on the Auction Book to be executed in the auction. If more than 
one price maximizes the number of shares that will execute, the 
Reference Price is set to the entered price at which shares will remain 
unexecuted in the auction (i.e., the price of the most aggressive 
unexecuted order). If more than one price satisfies the above 
conditions (i.e., shares are maximized at each price at or higher than 
the most aggressive unexecuted buy order and at or lower than the most 
aggressive unexecuted sell order, resulting in an ``auction price 
range''), the Reference Price is set to the price within the auction 
price range that minimizes the distance from either the Volume Based 
Tie Breaker (if the auction price range includes prices in the 
Reference Price Range) or the Reference Price Range (if the auction 
price range does not include prices in the Reference Price Range) at 
the time of dissemination. In the case of an IPO or Halt Auction, the 
Reference Price shall be the same as the Auction Book Clearing Price.
    (B) Paired Shares: The number of shares from orders on the Auction 
Book that can be matched with other orders on the Auction Book at the 
Reference Price at the time of dissemination.
    (C) Imbalance Shares: The number of shares from orders on the 
Auction Book that may not be matched with other orders on the Auction 
Book at the Reference Price at the time of dissemination.
    (D) Imbalance Side: The buy/sell direction of any imbalance at the 
time of dissemination.
    (E) Indicative Clearing Price: The single price at or within the 
Opening/Closing Auction Collar at which Auction Eligible Orders would 
match if the IEX Auction were to occur at the time of dissemination 
pursuant to the procedures for determining the clearing price set forth 
in the applicable auction rule. In the case of an IPO, Halt, or 
Volatility Auction, the Indicative Clearing Price shall be the same as 
the Auction Book Clearing Price.
    (F) Auction Book Clearing Price: The single price at which orders 
on the Auction Book would match if the IEX Auction were to occur at the 
time of dissemination pursuant to the procedures for determining the 
clearing price set forth in the applicable auction rule, but shall not 
be constrained by the Opening/Closing Auction Collar, as applicable. If 
shares from market orders would remain unexecuted, IEX shall 
disseminate an indicator for ``market buy'' or ``market sell.''
    (G) Collar Reference Price: Opening/Closing Auction Collar 
Reference Price for the Opening and Closing Auctions. Volatility 
Auction Collar Reference Price for the Volatility Auction.
    (H) Lower Auction Collar: The lower threshold of the Opening/
Closing Auction Collar for the Opening and Closing Auctions. The lower 
threshold of the Volatility Auction Collar for the Volatility Auction.
    (I) Upper Auction Collar: The upper threshold of the Opening/
Closing Auction Collar for the Opening and Closing Auctions. The upper 
threshold of the Volatility Auction Collar for the Volatility Auction.
    (J) Scheduled Auction Time: The projected time of the auction 
match.
    (K) Extension Number: The total number of automatic Order 
Acceptance Period extensions an IPO, Halt, or Volatility Auction has 
received.
    (10) The term ``IEX Official Closing Price'' shall mean the price 
disseminated by the Exchange to the Consolidated Tape as the market 
center official close of an IEX-listed security.
    (11) The term ``IEX Official IPO Opening Price'' shall mean the 
price disseminated by the Exchange to the Consolidated Tape following 
an IPO Auction as the market center official open for an initial public 
offering of an IEX-listed security.
    (12) The term ``IEX Official Opening Price'' shall mean the price 
disseminated by the Exchange to the Consolidated Tape as the market 
center official open of an IEX-listed security.
    (13) The term ``IEX Re-opening Trade'' shall mean the trade 
resulting from a Halt Auction or Volatility Auction (conducted prior to 
the Closing Auction Lock-in Time) that is disseminated by the Exchange 
to the Consolidated Tape as the market center re-opening trade of an 
IEX-listed security.
    (14) Reserved.
    (15) The term ``Initial Consolidated Last Sale Eligible Trade'' 
shall mean the first trade during Regular Market Hours that is last 
sale eligible and reported to the Consolidated Tape, including the 
Closing Auction.
    (A) If there is no qualifying Initial Consolidated Last Sale 
Eligible Trade for the current day, the previous official closing price 
will be used.

[[Page 21640]]

    (16) The term ``Initial Last Sale Eligible Trade'' shall mean the 
first trade on IEX during Regular Market Hours that is last sale 
eligible and reported to the Consolidated Tape, including the Closing 
Auction.
    (A) If there is no qualifying Initial Last Sale Eligible Trade for 
the current day, the previous official closing price will be used.
    (17) The term ``Impermissible Price'' shall mean, for a Volatility 
Auction, an indeterminable auction price due to a market order 
imbalance, or an Indicative Clearing Price higher (lower) than the 
upper (lower) threshold of the Volatility Auction Collar at the 
scheduled auction match.
    (18) Reserved.
    (19) The term ``Latest Consolidated Last Sale Eligible Trade'' 
shall mean the last trade immediately prior to trading in the security 
being halted or paused that is last sale eligible and reported to the 
Consolidated Tape.
    (A) If there is no qualifying Latest Consolidated Last Sale 
Eligible Trade for the current day, the previous official closing 
price.
    (20) The term ``Limit-On-Close'' or ``LOC'' shall mean a limit 
order that specifically requests execution at the IEX Official Closing 
Price and is designated for execution in the Closing Auction, or in a 
Volatility Auction when such auction is determining the IEX Official 
Closing Price pursuant to Rule 11.350(f)(3). An LOC order submitted as 
a pegged order will be rejected. An LOC order submitted with a User 
instructed display quantity pursuant to Rule 11.190(b)(2) will be 
accepted, but the instruction will not be supported.
    (21) The term ``Limit-On-Open'' or ``LOO'' shall mean a limit order 
that specifically requests execution at the IEX Official Opening Price 
(or the IEX Official IPO Opening Price in the case of an IPO Auction) 
and is designated for execution in the Opening Auction, IPO Auction, or 
Halt Auction when queued prior to Regular Market Hours if a Pre-Market 
Session halt persists through the start of Regular Market Hours. An LOO 
order submitted as a pegged order will be rejected. An LOO order 
submitted with a User instructed display quantity pursuant to Rule 
11.190(b)(2) will be accepted, but the instruction will not be 
supported.
    (22) The term ``Lock-in Time'' shall mean two (2) minutes prior to 
the Opening Auction match (i.e., 9:28 a.m.), and ten (10) minutes prior 
to the Closing Auction match (i.e., 3:50 p.m., or 10 minutes prior to 
the end of the Regular Market Session on days that IEX is subject to an 
early closing), at which time:
    (A) Auction Eligible Orders on the Auction Book may not be canceled 
or modified prior to the auction match (i.e., locked in);
    (B) Hyper-aggressive Auction Orders are rejected upon receipt; and
    (C) IEX begins to disseminate IEX Auction Information.
    (23) The term ``Lock-out Time'' shall mean ten (10) seconds prior 
to the Opening and Closing Auction match, at which time any new Auction 
Eligible Order is restricted from entering the Auction Book and is 
rejected upon receipt (i.e., locked out). Orders must be on the Auction 
Book prior to the Lock-out Time to guarantee eligibility for the 
auction. Orders submitted to the Continuous Book after the Lock-out 
Time remain eligible for execution on the Continuous Book, and in the 
upcoming Opening or Closing Auction match.
    (24) The term ``Market-On-Close'' or ``MOC'' shall mean a market 
order that specifically requests execution at the IEX Official Closing 
Price and is designated for execution in the Closing Auction, or in a 
Volatility Auction when such auction is determining the IEX Official 
Closing Price pursuant to Rule 11.350(f)(3). An MOC order submitted as 
a pegged order will be rejected. An MOC order submitted with a User 
instructed display quantity pursuant to Rule 11.190(b)(2) will be 
accepted, but the instruction will not be supported.
    (25) The term ``Market-On-Open'' or ``MOO'' shall mean a market 
order that specifically requests execution at the IEX Official Opening 
Price (or the IEX Official IPO Opening Price in the case of an IPO 
Auction) and is designated for execution in the Opening Auction, IPO 
Auction, or Halt Auction when queued prior to Regular Market Hours if a 
Pre-Market Session halt persists through the start of Regular Market 
Hours. An MOO order submitted as a pegged order will be rejected. An 
MOO order submitted with a User instructed display quantity pursuant to 
Rule 11.190(b)(2) will be accepted, but the instruction will not be 
supported.
    (26) The term ``Maximum Percentage'' will vary depending on the 
midpoint of the Protected NBBO (``Protected Midpoint Price''), and 
shall mean:
    (A) 5% if the Protected Midpoint Price is less than or equal to 
$25.00;
    (B) 2.5% if the Protected Midpoint Price is greater than $25.00 but 
less than or equal to $50.00; or
    (C) 1.5% if the Protected Midpoint Price is greater than $50.00.
    (27) The term ``Opening/Closing Auction Collar'' shall mean, 
collectively, the upper and lower threshold prices at or within which 
the Opening and Closing Auction match must occur. The Opening/Closing 
Auction Collar is established by taking the greater of fifty cents 
($0.50) or a default threshold percentage of ten percent (10%) applied 
to the Opening/Closing Auction Collar Reference Price, which shall be 
added to (subtracted from) the Protected NBO (NBB) to establish the 
upper (lower) threshold of the Opening/Closing Auction Collar.
    (A) If the Protected NBBO is crossed, the greater of fifty cents 
($0.50) or a default threshold percentage of ten percent (10%) applied 
to the Opening/Closing Auction Collar Reference Price, shall be added 
to (subtracted from) the IEX best offer (bid) to establish the upper 
(lower) threshold of the Opening/Closing Auction Collar.
    (B) If the Protected NBBO, or, when utilized, the IEX best bid and 
best offer (``IEX BBO''), is not two-sided, the greater of fifty cents 
($0.50) or a default threshold percentage of ten percent (10%) applied 
to the Opening/Closing Auction Collar Reference Price, shall be added 
to (subtracted from) the Opening/Closing Auction Collar Reference Price 
to establish the upper (lower) threshold of the Opening/Closing Auction 
Collar.
    (28) The term ``Opening/Closing Auction Collar Reference Price'' 
shall be the Volume Based Tie Breaker.
    (29) The term ``Order Acceptance Period'' shall be in reference to 
the period of time during which IEX accepts orders submitted for 
participation in an IPO, Halt, or Volatility Auction. The Order 
Acceptance Period shall end when the applicable auction match occurs. 
The Order Acceptance Period shall begin:
    (A) For an IPO Auction, 8:00 a.m., but is subject to change;
    (B) For a Halt Auction, five (5) minutes prior to the scheduled 
auction match, or immediately after a Level 1 or Level 2 Market Decline 
pursuant to Rule 11.280(a)(1)-(3); and
    (C) For a Volatility Auction, immediately after the pause 
dissemination.
    (30) The term ``Reference Price Range'' is in reference to, for a 
Volatility Auction, the prices between and including the applicable 
Volatility Auction Collar, or, for an Opening or Closing Auction, the 
prices between and including the Protected NBB and Protected NBO for a 
particular security where the Protected NBBO is a Valid Protected NBBO.
    (A) The Protected NBBO is a ``Valid Protected NBBO'' where:
    i. There is both a Protected NBB and Protected NBO for the 
security;
    ii. The Protected NBBO is not crossed; and

[[Page 21641]]

    iii. The midpoint of the Protected NBBO is less than or equal to 
the Maximum Percentage away from both the Protected NBB and the 
Protected NBO.
    (B) Where the Protected NBBO is not a Valid Protected NBBO, the IEX 
BBO will be used where the IEX BBO is a Valid IEX BBO.
    i. The IEX BBO is a ``Valid IEX BBO'' where:
    1. There is both an IEX best bid and an IEX best offer for the 
security; and
    2. The midpoint of the IEX BBO is less than or equal to the Maximum 
Percentage away from both the IEX best bid and the IEX best offer.
    (C) Where the IEX BBO is not a Valid IEX BBO, the Reference Price 
Range is set to the higher (lower) price of the following:
    i. The Final Consolidated Last Sale Eligible Trade; or
    ii. the Protected NBB (NBO), if not crossed, or the IEX best bid 
(offer).
    (D) If there is neither a Protected NBBO nor an IEX BBO, the 
Reference Price Range will be the Final Consolidated Last Sale Eligible 
Trade.
    (31) The term ``Volatility Auction Collar'' represents the range of 
prices at or within which the Volatility Auction match can occur, and 
shall mean:
    (A) If the Volatility Auction Collar Reference Price is the Lower 
(Upper) Price Band, the initial lower (upper) threshold of the 
Volatility Auction Collar is 5% less (greater) than the Volatility 
Auction Collar Reference Price, rounded to the nearest passive MPV, and 
the upper (lower) threshold of the Volatility Auction Collar is the 
Upper (Lower) Price Band; or
    (B) For securities with a Volatility Auction Collar Reference Price 
of $3.00 or less, the initial lower (upper) threshold of the Volatility 
Auction Collar is $0.15 less (greater) than the Volatility Auction 
Collar Reference Price, rounded to the nearest passive MPV and the 
upper (lower) threshold of the Volatility Auction Collar is the Upper 
(Lower) Price Band.
    (32) The term ``Volatility Auction Collar Reference Price'' shall 
mean the reference price for calculating the applicable Volatility 
Auction Collar, and shall equal the price of the Upper or Lower Price 
Band that triggered the LULD trading pause.
    (33) The term ``Volume Based Tie Breaker'' shall mean, for an 
Opening or Closing Auction, the midpoint of the Reference Price Range. 
If the Reference Price Range is a single price, the Volume Based Tie 
Breaker shall be equal to the Reference Price Range. In the case of a 
Halt Auction, or Volatility Auction that is not determining the IEX 
Official Closing Price, the Volume Based Tie Breaker shall be equal to 
the Latest Consolidated Last Sale Eligible Trade. In the case of a 
Volatility Auction that is determining the IEX Official Closing Price, 
the Volume Based Tie Breaker shall be equal to the Final Consolidated 
Last Sale Eligible Trade. In the case of an IPO Auction, the Volume 
Based Tie Breaker shall be equal to the issue price.
IEX Auction Priority
    Pursuant to proposed Rule 11.350(b), orders resting on the Order 
Book shall be ranked in the Opening, Closing, IPO, Halt, and Volatility 
Auction based on price-display-time priority, just as they are during 
normal trading pursuant to IEX Rule 11.220. The proposed auction 
priority is substantially similar to the auction priority of Nasdaq and 
Bats.\30\ The best priced Auction Eligible Order (the highest priced 
resting order to buy or the lowest priced resting order to sell) has 
priority over all other orders to buy (or orders to sell) in all cases. 
Market orders (including MOO and MOC orders) have precedence over limit 
orders. Auction Eligible Orders resting on the Continuous Book are 
ranked by the price at which they are resting on the Continuous Book; 
Auction Eligible Orders resting on the Auction Book are ranked by the 
limit price defined by the User, if any (in either case, the orders 
``resting price''), as follows:
---------------------------------------------------------------------------

    \30\ See e.g., Nasdaq Rule 4752(d)(3)(A)-(D), and Bats Rule 
11.23(b)(2)(C), describing priority for the Opening Auction.
---------------------------------------------------------------------------

     Midpoint peg orders are ranked and eligible for execution 
in the Closing Auction at the less aggressive of the Midpoint Price or 
the order's limit price, if any.
     Primary peg orders are ranked and eligible for execution 
in the Closing Auction at the less aggressive of one (1) MPV below 
(above) the NBB (NBO) for buy (sell) orders or the order's limit price, 
if any, but may exercise price discretion up (down) to the auction 
match price, subject to the less aggressive of the NBB (NBO) or the 
order's limit price, if any, except during periods of quote 
instability, as defined in IEX Rule 11.190(g). When exercising price 
discretion, primary peg orders are ranked behind any non-displayed 
interest at the auction match price for the duration of the Closing 
Auction. If multiple primary peg orders are exercising price discretion 
during the Closing Auction, they maintain their relative time priority 
at the auction match price.
     Discretionary Peg orders are ranked and eligible for 
execution in the Closing Auction at the less aggressive of the NBB 
(NBO) for buy (sell) orders or the order's limit price, if any, but may 
exercise price discretion up (down) to the auction match price, subject 
to the less aggressive of the Midpoint Price or the order's limit 
price, if any, except during periods of quote instability, as defined 
in IEX Rule 11.190(g). When exercising price discretion, Discretionary 
Peg orders are ranked behind any non-displayed interest at the auction 
match price for the duration of the Closing Auction. If multiple 
Discretionary Peg orders are exercising price discretion during the 
Closing Auction, they maintain their relative time priority at the 
auction match price.
     Non-displayed limit orders and non-displayed portions of 
reserve orders on the Continuous Book are ranked and eligible for 
execution in the Opening or Closing Auction at the less aggressive of 
the Midpoint Price or the order's limit price.
     Displayed limit orders on the Continuous Book are ranked 
and eligible for execution in the Opening or Closing Auction at the 
order's resting price.
     Limit orders, including LOO and LOC orders, on the Auction 
Book are ranked and eligible for execution in an auction at the order's 
limit price.
    Displayed portions of limit orders on the Continuous Book at the 
time of a halt or pause dissemination are ranked on the Auction Book by 
the price at which such orders were resting on the Continuous Book at 
the time of the halt or pause dissemination.
    Equally priced Auction Eligible Orders are ranked by display 
priority. On-Open and On-Close orders are ranked with display priority. 
Limit orders with a time-in-force of IOC or FOK are ranked with 
displayed priority. Displayed orders (including On-Open and On-Close 
orders) and displayed portions of orders on the Auction Book and 
Continuous Book will have precedence over non-displayed orders and non-
displayed portions of orders on the Auction Book and Continuous Book at 
a given price.
    Equally priced Auction Eligible Orders with the same display 
priority are ranked in time priority. Where orders to buy (or sell) are 
ranked at the same price with the same display priority, the oldest 
order (determined by the order's timestamp) at such price and display 
shall have precedence at that price and display. Orders are ranked by 
the time at which they are posted to the Order Book at a given price, 
the first to be posted at a given price being the oldest. Orders 
maintain their time priority once booked until (i) an Order on the 
Auction Book is incremented by

[[Page 21642]]

the User; (ii) an Order on the Auction Book is re-priced by the User; 
(iii) Minimum Quantity for an order on the Auction Book is amended by 
the User; or (iv) any one of the events specified in IEX Rule 
11.220(a)(1)(C) occurs to an order on the Continuous Book, at which 
time such order will receive a new timestamp.
IEX Auction Clearing Price Determination
    The IEX Auction process is designed to efficiently maximize the 
number of shares executed at a single price for each of the Opening, 
Closing, IPO, Halt, and Volatility Auctions. The Exchange is proposing 
a uniform methodology to determine the clearing price of an auction for 
IEX-listed securities. Each of the Opening Auction, Closing Auction, 
IPO Auction, Halt Auction and Volatility Auction operated by IEX will 
be a double auction to match buy and sell orders at the single price at 
which the most shares would execute (the ``clearing price,'' ``match 
price,'' or ``price of the auction''). An Opening, Closing, IPO, Halt, 
or Volatility Auction for an IEX-listed security will only take place 
if Auction Eligible Orders have overlapping prices, meaning that the 
highest bid price is equal to or higher than the lowest offer price 
(``crossing interest'').
    If crossing interest exists, the auction match price will be 
established by determining the price level that maximizes the number of 
shares to be executed at a single price. In the event of a volume based 
tie at multiple price levels, the auction shall occur at the entered 
price at which shares will remain unexecuted in the auction (i.e., the 
price of the most aggressive unexecuted order). If more than one price 
exists at which shares are maximized and at which shares will remain 
unexecuted in the auction (i.e., shares are maximized at each price at 
or higher than the most aggressive unexecuted buy order and at or lower 
than the most aggressive unexecuted sell order, resulting in an 
``auction price range''), the auction shall occur at the price that 
minimizes the distance from the Volume Based Tie Breaker within the 
auction price range (i.e., the price at or higher than the most 
aggressive unexecuted buy order and at or lower than the most 
aggressive unexecuted sell order that is closest or equal to the Volume 
Based Tie Breaker).\31\
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    \31\ The Volume Based Tie Breaker in defined as the midpoint of 
the Reference Price Range, and in the case of an Opening or Closing 
Auction is generally the midpoint of the Protected NBBO; for Halt 
Auctions, it will be the price of the Latest Consolidated Last Sale 
Eligible Trade; for IPO Auctions it will be the issue price; and for 
a Volatility Auction, it will be the price of the Latest 
Consolidated Last Sale Eligible Trade, or the Final Consolidated 
Last Sale Eligible Trade if the Volatility Auction is determining 
the IEX Official Closing Price. See proposed Rules 11.350(a)(33) and 
(30).
---------------------------------------------------------------------------

    In the case of an Opening and Closing Auction, if the auction 
clearing price is below (above) the lower (upper) threshold of the 
Opening/Closing Auction Collar, the official auction price will be the 
price at or within the range of prices between the lower (upper) 
threshold of the Opening/Closing Auction Collar and the lower (upper) 
threshold of the Reference Price Range that best satisfies the 
conditions described above, and in no case will the Opening Auction 
match occur at a price lower (higher) than the lower (upper) threshold 
of the Opening/Closing Auction Collar. In the case of a Volatility 
Auction, if the auction clearing price is outside the Volatility 
Auction Collar, the Volatility Auction Order Acceptance Period shall be 
extended in accordance with proposed Rule 11.350(f)(2)(C)(ii). In the 
case of a Halt or IPO Auction, no auction collars are applied. All AGID 
modifiers as defined in Rule 11.190(e), and Minimum Quantity 
instructions as defined in Rule 11.190(b)(11), will not be supported in 
the Opening, Closing, IPO, Halt, or Volatility Auction match, but will 
be enforced on all unexecuted shares released to the Continuous Book 
following the auction match.\32\
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    \32\ See proposed Rules 11.350(c)(2)(C), 11.350(d)(2)(C), 
11.350(e)(2)(D), and 11.350(f)(2)(F) and (f)(3)(B)(iii), 
respectively.
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    The following examples are designed to illustrate the clearing 
price determination process described above. Each example below assumes 
the Protected NBBO \33\ is $10.09 by $10.11, and includes Auction 
Eligible Orders on the Closing Auction Book at the time of the Closing 
Auction match:
---------------------------------------------------------------------------

    \33\ See Regulation NMS, Rule 600(b)(57).
---------------------------------------------------------------------------

 Example 1
    [cir] The Closing Auction Book includes the following orders:
    [ssquf] LOC order to buy 1,500 shares with a limit price of $10.10; 
and
    [ssquf] LOC order to sell 1,000 shares with a limit price of 
$10.10.
    [cir] Shares are maximized at $10.10; therefore
    [ssquf] 1,000 shares would execute at the IEX Official Closing 
Price of $10.10.
 Example 2
    [cir] The Closing Auction Book contains the following orders:
    [ssquf] LOC order to buy 1,500 shares with a limit price of $10.10; 
and
    [ssquf] MOC order to sell 1,000 shares.
    [cir] Shares are maximized at each price at and between the lower 
threshold of the Opening/Closing Auction Collar (i.e., $9.08) and 
$10.10;
    [cir] The price at which shares will remain unexecuted in the 
auction is $10.10; \34\ therefore
---------------------------------------------------------------------------

    \34\ Note, while shares are maximized at and between the lower 
threshold of the Opening/Closing Auction Collar ($9.08) and $10.10, 
the entered price at which shares will remain unexecuted in the 
auction is $10.10, as $10.10 is the resting price of the most 
aggressive order where shares remain unexecuted.
---------------------------------------------------------------------------

    [ssquf] 1,000 shares would execute at the IEX Official Closing 
Price of $10.10.
 Example 3
    [cir] The Closing Auction Book contains the following orders:
    [ssquf] LOC order to buy 2,000 shares with a limit price of $10.11;
    [ssquf] LOC order to sell 2,000 shares with a limit price of 
$10.09.
    [cir] The Continuous Book contains the following orders:
    [ssquf] Displayed limit order to buy 500 shares with a limit price 
of $10.09;
    [ssquf] Displayed limit order to sell 600 shares with a limit price 
of $10.11.
    [cir] Shares are maximized at each price at or between $10.09 and 
$10.11;
    [cir] The range of prices at or between the prices at which shares 
will remain unexecuted in the auction is $10.09 and $10.11;
    [cir] Because a range of prices exist after evaluating the prior 
two conditions (i.e., an auction price range), the price closest to the 
Volume Based Tie Breaker (i.e., the midpoint of the Protected NBBO) 
within the auction price range is $10.10; therefore
    [ssquf] 2,000 shares would execute at the IEX Official Closing 
Price of $10.10.
    For Opening and Closing Auctions, pursuant to proposed Rule 
11.350(a)(2), the Exchange is proposing that non-displayed buy (sell) 
orders on the Continuous Book with a resting price (as defined in 
proposed Rule 11.350(b)(1)(A)(i)) within the Reference Price Range will 
be priced at the Protected NBB (NBO) for the purpose of determining the 
clearing price,\35\ but will be ranked and eligible for execution in 
the Opening or Closing Auction match at the order's resting price. 
Thus, non-displayed orders will influence the clearing price if such 
price is at or outside the Reference Price Range, but

[[Page 21643]]

not if the clearing price is within the Reference Price Range.
---------------------------------------------------------------------------

    \35\ Note, non-displayed buy (sell) orders on the Continuous 
Book with a resting price (as defined in proposed Rule 
11.350(b)(1)(A)(i)) within the Reference Price Range will be priced 
at the Protected NBB (NBO) for the purpose of determining the 
clearing price and the Indicative Clearing Price disseminated in IEX 
Auction Information as set forth in proposed Rule 11.350(a)(9)(E).
---------------------------------------------------------------------------

    The proposed treatment of non-displayed interest on the Continuous 
Book resting within the Reference Price Range is designed to protect 
the anonymity of resting non-displayed interest on the Continuous Book 
during the dissemination of IEX Auction Information.\36\ Specifically, 
the Exchange believes that without such treatment information leakage 
would occur if the Indicative Clearing Price is closer to the midpoint 
of the NBBO than the Reference Price that is disseminated via IEX 
Auction Information. This would indicate that there is non-displayed 
interest resting on the Continuous Book for at least the size of the 
imbalance and priced at least as aggressive as the Reference Price.
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    \36\ The Exchange notes that in the case of an IPO, Halt, or 
Volatility Auction, there is no continuous trading and therefore no 
Continuous Book. Accordingly, there would be no non-displayed 
interest on the Continuous Book to which the proposed functionality 
would apply.
---------------------------------------------------------------------------

    The following examples are designed to illustrate the clearing 
price determination process including non-displayed orders on the 
Continuous Book with a resting price within the Reference Price Range, 
as described above. Each example below assumes the Protected NBBO is 
$20.19 by $20.21, and includes a non-displayed order to buy on the 
Continuous Book, and Auction Eligible Orders on the Closing Auction 
Book, at the time of the Closing Auction match:
 Example 1
    [cir] The Regular Market Continuous Book Contains the following 
orders:
    [ssquf] Midpoint Peg order to buy 2,500 shares with a resting price 
of $20.20.
    [cir] The Closing Auction Book includes the following orders:
    [ssquf] LOC order to buy 500 shares with a limit price of $20.18; 
and
    [ssquf] LOC order to sell 2,000 shares with a limit price of 
$20.18.
    [cir] For purposes of determining the clearing price, the Midpoint 
Peg order is priced to the Protected NBB ($20.19), but remains ranked 
and eligible to execute at its resting price;
    [cir] Accordingly, shares are maximized at each price between 
$20.18 and $20.19, and the price at which shares are left unexecuted 
within such range, is $20.19; therefore
    [ssquf] 2,000 shares would execute at the IEX Official Closing 
Price of $20.19;
     Both the Midpoint Peg buy order and LOC sell order would 
receive an execution of 2,000 shares; and
     The LOC buy order would not receive an execution, because 
the LOC sell order is fully filled after matching with the Midpoint Peg 
buy order with superior priority.
 Example 2
    [cir] The Regular Market Continuous Book Contains the following 
orders:
    [ssquf] Midpoint Peg order to buy 2,500 shares with a resting price 
of $20.20.
    [cir] The Closing Auction Book includes the following orders:
    [ssquf] LOC order to buy 500 shares with a limit price of $20.19; 
and
    [ssquf] LOC order to sell 2,000 shares with a limit price of 20.18.
    [cir] For purposes of determining the clearing price, the Midpoint 
Peg order is priced to the Protected NBB ($20.19), but remains ranked 
and eligible to execute at its resting price;
    [cir] Accordingly, shares are maximized at each price between 
$20.18 and $20.19, and the price at which shares are left unexecuted 
within such range, is $20.19; therefore
    [ssquf] 2,000 shares would execute at the IEX Official Closing 
Price of $20.19;
     The Midpoint Peg buy order would receive an execution of 
2,000 shares;
     The LOC sell order would receive an execution of 2,000 
shares; and
     The LOC buy order would not receive an execution, because 
the LOC sell order is fully filled after matching with the Midpoint Peg 
buy order with superior priority.
 Example 3
    [cir] The Regular Market Continuous Book Contains the following 
orders:
    [ssquf] Primary Peg order to buy 2,500 shares with a resting price 
of $20.18, and limit price of $20.20.
    [cir] The Closing Auction Book includes the following orders:
    [ssquf] LOC order to buy 500 shares with a limit price of $20.19; 
and
    [ssquf] LOC order to sell 2,000 shares with a limit price of 20.19.
    [cir] For purposes of determining the clearing price, the Primary 
Peg order is priced at its resting price ($20.18) because it is resting 
outside the Reference Price Range ($20.19 to $20.21); the Primary Peg 
order is eligible exercise price discretion up to the auction match 
price, so long as the match price is at or below the less aggressive of 
the NBB or the order's limit price.
    [cir] Accordingly, shares are maximized at $20.19; therefore
    [ssquf] 2,000 shares would execute at the IEX Official Closing 
Price of $20.19;
     The LOC buy order would receive an execution of 500 
shares;
     Assuming IEX has determined the quote to be stable 
pursuant to IEX Rule 11.190(g), the Primary Peg buy order would 
exercise discretion up to the auction match price and receive an 
execution of 1,500 shares; and
     Assuming IEX has determined the quote to be stable 
pursuant to IEX Rule 11.190(g), the LOC sell order would receive an 
execution of 2,000 shares. If IEX has determined the quote to be 
unstable pursuant to IEX Rule 11.190(g), the LOC sell order would 
receive an execution of 500 shares.
 Example 4
    [cir] The Regular Market Continuous Book Contains the following 
orders:
    [ssquf] Midpoint Peg order to buy 2,500 shares with a resting price 
of $20.20.
    [cir] The Closing Auction Book includes the following orders:
    [ssquf] LOC order to buy 500 shares with a limit price of $20.20; 
and
    [ssquf] LOC order to sell 2,000 shares with a limit price of 
$20.20.
    [cir] For purposes of determining the clearing price, the Midpoint 
Peg order is priced to the Protected NBB ($20.19), but remains ranked 
and eligible to execute at its resting price;
    [cir] Accordingly, shares are maximized at $20.20; therefore
    [ssquf] 2,000 shares would execute at the IEX Official Closing 
Price of $20.20;
     The LOC buy order would receive an execution of 500 
shares;
     The Midpoint Peg buy order would receive an execution of 
1,500 shares; and
     The LOC sell order would receive an execution of 2,000 
shares.
 Example 5
    [cir] The Regular Market Continuous Book Contains the following 
orders:
    [ssquf] Discretionary Peg order to buy 2,500 shares with a resting 
price of $20.19, and limit price of $20.21.
    [cir] The Closing Auction Book includes the following orders:
    [ssquf] LOC order to buy 500 shares with a limit price of $20.20; 
and
    [ssquf] LOC order to sell 2,000 shares with a limit price of 
$20.20.
    [cir] For purposes of determining the clearing price, the 
Discretionary Peg order is priced at its resting price ($20.19) because 
it is resting at the Reference Price Range ($20.19 to $20.21); the 
Discretionary Peg order is eligible exercise price discretion up to the 
auction match price, so long as the match price is at or below the less 
aggressive of the midpoint of the NBBO or the order's limit price.
    [cir] Accordingly, shares are maximized at $20.20; therefore
    [ssquf] 2,000 shares would execute at the IEX Official Closing 
Price of $20.20;
     The LOC buy order would receive an execution of 500 
shares;

[[Page 21644]]

     Assuming IEX has determined the quote to be stable 
pursuant to IEX Rule 11.190(g), the Discretionary Peg buy order would 
exercise discretion up to the auction match price and receive an 
execution of 1,500 shares; and
     Assuming IEX has determined the quote to be stable 
pursuant to IEX Rule 11.190(g), the LOC sell order would receive an 
execution of 2,000 shares. If IEX has determined the quote to be 
unstable pursuant to IEX Rule 11.190(g), the LOC sell order would 
receive an execution of 500 shares.
    As noted above, the Exchange will not offer an imbalance order type 
(i.e., an order type that by its terms is designed to solely offset a 
buy or sell order imbalance in the auction), which is currently offered 
by Nasdaq, but not by Bats.\37\ However, Users who wish to offset buy 
or sell imbalances in an auction may do so by entering LOO, LOC, and 
limit orders priced within the applicable auction collar, or 
specifically in the case of an Opening or Closing Auction, non-
displayed interest on the Continuous Book with a resting price within 
the Reference Price Range, which, as described further below, is 
eligible to offset imbalance within the Reference Price Range without 
influencing the determination of the clearing price.
---------------------------------------------------------------------------

    \37\ See, e.g., Nasdaq Rule 4702(b)(10) and (13).
---------------------------------------------------------------------------

    After informal discussion with various Members, the Exchange 
believes that imbalance only order types are generally employed by 
Users deploying sophisticated auction trading strategies, and are 
seldom used by long-term or natural investors. Accordingly, the 
Exchange believes that not offering a special imbalance only order type 
that is unlikely to garner broad User adoption, while still offering 
investors the opportunity to offset imbalances using LOO, LOC, and 
limit orders, or specifically in the case of an Opening or Closing 
Auction, non-displayed interest on the Continuous Book with a resting 
price within the Reference Price Range, will simplify the process of 
participating in auctions and attract more trading interest from a 
broad range of market participants, thereby resulting in robust price 
discovery for IEX Auctions, consistent with the protection of investors 
and the public interest.
    The clearing price determination process proposed by the Exchange 
takes an approach similar to Nasdaq, with certain modifications as 
described below. Specifically, as proposed, the clearing price 
determination for both Nasdaq and IEX would first maximize the number 
of shares executable in the auction at a single price. However, in the 
event there is more than one price at which shares are maximized, 
Nasdaq Rule 4752(d)(2)(B) states that the auction shall match at the 
price that minimizes any imbalance, and if there is more than one price 
at which shares are maximized and imbalance is minimized, Nasdaq Rule 
4752(d)(2)(C) states that the auction shall match at the price at which 
shares will remain unexecuted in the auction. The Exchange believes 
that Nasdaq Rule 4752(d)(2)(B) and (C) often arrive at the same price, 
because the price at which imbalance is minimized is often also the 
price at which shares remain unexecuted in the auction. Accordingly, 
the Exchange is proposing to consolidate these two conditions, and 
instead utilize the price at which shares will remain unexecuted in the 
auction (i.e., the price of the most aggressive unexecuted order).\38\
---------------------------------------------------------------------------

    \38\ The Exchange notes that in the rare event that Auction 
Eligible Orders are perfectly matched at multiple prices, the prices 
at which imbalance is minimized and the prices at which shares will 
remain unexecuted are different. In such cases, the range of prices 
within which the auction can occur on Nasdaq would be one (1) MPV 
less aggressive than the prices within which the auction can occur 
as proposed by the Exchange. Furthermore, in the event that Auction 
Eligible Orders are perfectly matched at two prices that create a 
one cent range, the price at which imbalance is minimized and the 
price at which shares remain unexecuted is the same.
---------------------------------------------------------------------------

    Moreover, in the event the clearing price determination process 
results in a clearing price range (i.e., shares are maximized at each 
price at or higher than the most aggressive unexecuted buy order and at 
or lower than the most aggressive unexecuted sell order, resulting in 
an ``auction price range''), the Exchange proposes to utilize the price 
at or closest the Volume Based Tie Breaker within the auction price 
range (i.e., the price at or higher than the most aggressive unexecuted 
buy order and at or lower than the most aggressive unexecuted sell 
order that is closest or equal to the Volume Based Tie Breaker).\39\ 
This differs from Nasdaq in that in the event the clearing price 
determination process results in a clearing price range, Nasdaq Rule 
4752(d)(2)(D) states that the auction shall match at the price that 
minimizes the distance from the bid-ask midpoint of the inside 
quotation on Nasdaq prevailing at the time of the auction. The proposed 
rule is designed to match the auction at the price closest to the 
Volume Based Tie Breaker (e.g., midpoint of the Protected NBBO). The 
Exchange believes that when the clearing price determination process 
results in a clearing price range, matching the auction at the price 
closest to the midpoint of the Protected NBBO, is consistent with the 
protection of investors and the public interest, because such prices 
reflect the broader market for the security.\40\
---------------------------------------------------------------------------

    \39\ See proposed Rule 11.350(a)(33).
    \40\ Note, as described in detail below, in the event the 
Protected NBBO is crossed, the Volume Based Tie Breaker will be the 
midpoint of a Valid IEX BBO. If there is not a Valid IEX BBO, the 
Volume Based Tie Breaker will be the higher (lower) of the Final 
Consolidated Last Sale Eligible Trade, or the Protected NBB (NBO), 
if not crossed, or the IEX best bid (offer). See proposed Rules 
11.350(a)(33) and (30).
---------------------------------------------------------------------------

    Lastly, in the event the clearing price determined pursuant to the 
procedures above is below (above) the lower (upper) threshold of the 
Opening/Closing Auction Collar in the Opening or Closing Auction, the 
official auction price will be the price at or within the range of 
prices between the lower (upper) threshold of the Opening/Closing 
Auction Collar and the lower (upper) threshold of the Reference Price 
Range that best satisfies the conditions described above. This differs 
from Nasdaq in that under Nasdaq Rule 4752(d)(2)(E), if the auction 
price is outside of the Nasdaq opening or closing auction collars, the 
auction shall occur at a price within the threshold amounts that best 
satisfies the conditions of Nasdaq Rule 4752(d)(2)(A) through (D). The 
Exchange believes that the proposed rule is designed to provide greater 
clarity to Users regarding the range of prices within which the Opening 
or Closing Auction will occur (because the range of possible auction 
match prices is narrower) in the event the clearing price is outside of 
the collar.
    The Exchange notes that the clearing price determination processes 
utilized by other primary listing markets are not homogeneous. As 
described above, the Exchange designed IEX Auctions with certain 
features that are substantially similar to current functionality 
offered by other listings markets, while making certain changes 
designed to democratize auction participation among all Members via 
simplification and transparency. Accordingly, the Exchange believes 
that the proposed auction design will provide a transparent, efficient, 
and robust process to aggregate trading interest submitted by a broad 
range of market participants to be matched at a single clearing price, 
consistent with the protection of investors and the public interest, 
and in alignment with issuers' interests.

[[Page 21645]]

Reference Price Range and Volume Based Tie Breaker
    Each of the Opening Auction, Closing Auction, IPO Auction, Halt 
Auction, and Volatility Auction operated by IEX will be an auction to 
match buy and sell orders at the single price at which the most shares 
would execute. If more than one price maximizes the number of shares to 
be executed in the auction, and shares are also left unexecuted at more 
than one price (resulting in an ``auction price range''), the clearing 
price shall be the price within the auction price range that minimizes 
the distance from the Volume Based Tie Breaker.\41\ Similar to Bats, 
the Volume Based Tie Breaker for an Opening or Closing Auction will be 
the midpoint of the Reference Price Range.\42\ For a Volatility 
Auction, the Reference Price Range is defined in proposed Rule 
11.350(a)(1)(30) [sic] as the prices between and including the 
applicable Volatility Auction Collar. For an Opening or Closing 
Auction, the Reference Price Range is defined in proposed Rule 
11.350(a)(1)(30) [sic] as the prices between and including the 
protected national best bid (``Protected NBB'') and protected national 
best offer (``Protected NBO'') if the Protected NBBO is valid. The 
Protected NBBO is valid when there is both a Protected NBB and 
Protected NBO in the security, the Protected NBBO is not crossed, and 
the midpoint of the Protected NBBO is less than or equal to the Maximum 
Percentage away from both the Protected NBB and Protected NBO.\43\ The 
Exchange will utilize Maximum Percentage values identical to those used 
by Bats,\44\ which are as follows: \45\
---------------------------------------------------------------------------

    \41\ Generally, the Volume Based Tie breaker will be the 
midpoint of the Protected NBBO.
    \42\ See proposed Rules 11.350(a)(33) and 11.350(a)(30). See 
also Bats Rule 11.23(a)(23).
    \43\ Note, the Volume Based Tie Breaker is distinguishable from 
Bats in that the Exchange will utilize the midpoint of a valid 
Protected NBBO, whereas Bats utilizes the midpoint of the NBBO 
(emphasis added).
    \44\ Bats Rule 11.23(a)(23) states that ``the Maximum Percentage 
will be determined by the Exchange and will be published in a 
circular distributed to Members with reasonable advance notice prior 
to initial implementation and any change thereto.'' The Bats US 
Equities Auction Process specification (Version 1.5.1) identifies 
the Maximum Percentage values at 5.
    \45\ The Exchange anticipates modifying the Maximum Percentage 
values in response to market-wide events that are driving price 
volatility, and would therefore benefit from temporarily widening 
such values in the interest of allowing robust price discovery, 
consistent with the protection of investors and the public interest. 
The Exchange notes that modification of the Maximum Percentage 
values are subject to the provisions of Section 19(b)(1) under the 
Act, and Rule 19b-4 thereunder. See 15 U.S.C. 78s(b)(1), and 17 CFR 
240.19b-4.
---------------------------------------------------------------------------

    (A) 5% if the Protected Midpoint Price is less than or equal to 
$25.00;
    (B) 2.5% if the Protected Midpoint Price is greater than $25.00 but 
less than or equal to $50.00; or
    (C) 1.5% if the Protected Midpoint Price is greater than $50.00.
    In the event that the Protected NBBO is not valid, the Reference 
Price Range will be the IEX BBO, if the IEX BBO is a Valid IEX BBO.\46\ 
The IEX BBO is Valid IEX BBO where there is both an IEX best bid and 
IEX best offer in the security, and the midpoint of the IEX BBO is less 
than or equal to the Maximum Percentage away from both the IEX best bid 
and best offer. Where the IEX BBO is not a Valid IEX BBO, the Reference 
Price Range is set to the higher (lower) price of the Final 
Consolidated Last Sale Eligible Trade, or the Protected NBB (NBO), if 
not crossed, or the IEX best bid (offer), which is similar to the 
Volume Based Tie Breaker used by Bats in the event the midpoint of the 
NBBO is not valid.\47\ If the Reference Price Range is a single price, 
the Volume Based Tie Breaker shall be equal to the Reference Price 
Range. In the case of a Halt Auction, or Volatility Auction that is not 
determining the IEX Official Closing Price, the Volume Based Tie 
Breaker shall be equal to the Latest Consolidated Last Sale Eligible 
Trade. In the case of a Volatility Auction that is determining the IEX 
Official Closing Price, the Volume Based Tie Breaker shall be equal to 
the Final Consolidated Last Sale Eligible Trade. In the case of an IPO 
Auction, the Volume Based Tie Breaker shall be equal to the issue 
price.
---------------------------------------------------------------------------

    \46\ Nasdaq utilizes a similar volume based tie-breaker, which 
is defined as the bid-ask midpoint of the inside quote on the Nasdaq 
order book prevailing at 09:30 a.m. See e.g., Nasdaq Rule 
4752(d)(2)(D).
    \47\ See Bats Rule 11.23(a)(23), except that Bats does not test 
the Final Last Sale Eligible Trade against the available quotations 
in the market. The proposed functionality is designed to avoid 
providing a reference price beyond the best protected bid or offer.
---------------------------------------------------------------------------

    The proposed Maximum Percentage validation of the Protected NBBO 
(or IEX BBO, as applicable) is designed to avoid using an excessively 
wide spread as the Reference Price Range, or the midpoint price of such 
spread as the Volume Based Tie Breaker. As described above, in the 
event the midpoint of the Protected NBBO (or IEX BBO) is greater than 
the Maximum Percentage away from either the NBB (or IEX best bid) or 
NBO (or IEX best offer), then the Exchange will utilize prices that 
reflect the most recent trading or quoting activity (e.g., the Final 
Consolidated Last Sale Eligible Trade), in an effort for the Reference 
Price Range and Volume Based Tie Breaker to more closely reflect the 
current market for the security.
    Under proposed Rule 11.350(a)(6), the Final Consolidated Last Sale 
Eligible Trade will be the last trade prior to the end of Regular 
Market Hours, or where applicable, prior to trading in the security 
being halted or paused, that is last sale eligible and reported to the 
Consolidated Tape. If no such transaction was executed in accordance 
with the preceding sentence, then the Final Consolidated Last Sale 
Eligible Trade will be the previous official closing price, or the 
issue price in the case of an IPO or launch of a new issue. Under 
proposed Rule 11.350(a)(19), the Latest Consolidated Last Sale Eligible 
Trade will be the last trade immediately prior to trading in the 
security being halted or paused that is last sale eligible and reported 
to the Consolidated Tape. If no such transaction was executed in 
accordance with the preceding sentence, then the Latest Consolidated 
Last Sale Eligible Trade will be the previous official closing 
price.\48\ The Exchange believes that utilizing the final (latest) 
consolidated last sale eligible trade is consistent with the protection 
of investors and the public interest in that such price best reflects 
the broader market for the security.
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    \48\ Collectively, the Final Consolidated Last Sale Eligible 
Trade and the Latest Consolidated Last Sale Eligible Trade are 
substantially similar in definition to the Final Last Sale Eligible 
Trade used by Bats pursuant to Bats Rule 11.23(a)(9), except that 
the Exchange does not require that the last sale eligible trade have 
been executed on the Exchange within one second prior to the auction 
match, or where applicable, the halt, or pause. See Bats Rule 
11.23(a)(9).
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Auction Collars
Opening/Closing Auction Collar
    Pursuant to proposed Rule 11.350(a)(27), the Opening and Closing 
Auction match must occur at or within the upper and lower thresholds of 
the Opening/Closing Auction Collar. If the clearing price determination 
results in a clearing price below (above) the lower (upper) threshold 
of the Opening/Closing Auction Collar, the price of the auction will be 
set to the price at or within the range of prices between the lower 
(upper) threshold of the Opening/Closing Auction Collar and the lower 
(upper) threshold of the Reference Price Range that best satisfies the 
clearing price determination.\49\
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    \49\ See proposed Rules 11.350(c)(2)(B)(iv) and 
11.350(d)(2)(B)(iv).
---------------------------------------------------------------------------

    The Opening/Closing Auction Collar shall mean, collectively, the 
upper and lower threshold prices at or within which the Opening and 
Closing Auction match must occur. The Opening/Closing Auction Collar is 
established by taking the greater of fifty cents ($0.50) or a default 
threshold percentage of ten

[[Page 21646]]

percent (10%) applied to the Opening/Closing Auction Collar Reference 
Price (defined as the Volume Based Tie Breaker, which is generally the 
midpoint of the Protected NBBO), which shall be added to (subtracted 
from) the Protected NBO (NBB) to establish the upper (lower) threshold 
of the Opening/Closing Auction Collar. The Opening/Closing Auction 
Collar default threshold is identical to the default auction collar 
thresholds used by Nasdaq; however, Nasdaq utilizes the midpoint of the 
best bid and offer on Nasdaq's book as the collar reference price.\50\
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    \50\ See e.g., Nasdaq Rule 4752(d)(2)(E).
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    The Exchange is proposing to utilize a default threshold percentage 
of ten percent (10%) for the Opening/Closing Auction Collar because, 
based on informal discussion with various Members, as well as Nasdaq's 
usage of identical default threshold percentage values, such values 
typically provide an appropriate range within which price discovery may 
occur to maximize the number of shares executed in the auction. 
Furthermore, the Exchange believes utilizing the midpoint of the 
Protected NBBO to establish the Opening/Closing Auction Collar 
Reference Price is consistent with the protection of investors and the 
public interest in that the Protected NBBO represents the range of 
prices that best reflect the market for a security. Furthermore, 
utilizing the midpoint of the Protected NBBO may be less susceptible to 
volatility and manipulation, because in order to move the midpoint of 
the Protected NBBO to influence the auction, one or more Users would 
need to sweep the entire market, rather than simply entering aggressive 
interest on the Exchange.\51\
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    \51\ The Exchange anticipates modifying such benchmarks and 
thresholds in response to market-wide events that are driving price 
volatility, and would therefore benefit from temporarily widening 
threshold values in the interest of allowing robust price discovery, 
consistent with the protection of investors and the public interest. 
The Exchange notes that modification of the default threshold 
percentage values for the Opening/Closing Auction Collar are subject 
to the provisions of Section 19(b)(1) under the Act, and Rule 19b-4 
thereunder. See 15 U.S.C. 78s(b)(1), and 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    For example, if the Protected NBBO is $10.00 x $11.00, then the 
Opening/Closing Auction Collar Reference Price equals $10.50 and the 
threshold percentage is 10%, resulting in a threshold value of $1.05 
(10% of $10.50 = $1.05). This threshold value is then added to the 
Protected NBO and subtracted from the Protected NBB to obtain the 
auction's Opening/Closing Auction Collar. In this example, it would 
result in a lower threshold of $8.95 ($10.00 - $1.05 = $8.95) and an 
upper threshold of $12.05 ($11.00 + $1.05 = $12.05), thus creating a 
range of $8.95 to $12.05, at or within which the auction can occur. 
This means $8.95 is the lowest price at which the auction can occur and 
$12.05 is the highest price at which it can occur. The Opening/Closing 
Auction Collar is dynamic, and as the Protected NBBO changes, the 
Opening/Closing Auction Collar updates to reflect such changes.
    If the Protected NBBO is crossed, the Opening/Closing Auction 
Collar will be the greater of fifty cents ($0.50) or a default 
threshold percentage of ten percent (10%) applied to the Opening/
Closing Auction Collar Reference Price (defined as the Volume Based Tie 
Breaker, which in the case of a crossed market, is the midpoint of the 
IEX BBO), which shall be added to (subtracted from) the IEX best offer 
(bid) to establish the upper (lower) threshold of the Opening/Closing 
Auction Collar.\52\ If the Protected NBBO, or, when utilized, the IEX 
BBO is not two-sided (i.e., do not have both a bid and offer), the 
greater of fifty cents ($0.50) or a default threshold percentage of ten 
percent (10%) will be applied to the Opening/Closing Auction Collar 
Reference Price (defined as the Volume Based Tie Breaker, which in the 
event the Protected NBBO or IEX BBO do not exist, is the Final 
Consolidated Last Sale Eligible Trade), shall be added to (subtracted 
from) the Opening/Closing Auction Collar Reference Price to establish 
the upper (lower) threshold of the Opening/Closing Auction Collar.
---------------------------------------------------------------------------

    \52\ In the event the Protected NBBO is crossed, the Exchange 
will utilize the midpoint of the IEX BBO, which as noted above, is 
substantially similar to Nasdaq. See e.g., Nasdaq Rule 
4752(d)(2)(E).
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Volatility Auction Collar
    Pursuant to proposed Rule 11.350(a)(31), the Volatility Auction 
match must occur at or within the upper and lower thresholds of the 
Volatility Auction Collar. If there is a market order imbalance or the 
clearing price determination arrives at a clearing price above (below) 
the upper (lower) threshold of the Volatility Auction Collar, the 
Volatility Auction Order Acceptance Period will be extended five (5) 
minutes due to an Impermissible Price and the Volatility Auction Collar 
will be updated as described below.
    If the Volatility Auction Collar Reference Price (defined in 
proposed Rule 11.350(a)(32)) [sic] as the Upper or Lower LULD Price 
Band that triggered the LULD trading pause) is the Lower (Upper) Price 
Band, the initial lower (upper) threshold of the Volatility Auction 
Collar is five percent (5%) less (greater) than the Volatility Auction 
Collar Reference Price, rounded to the nearest passive MPV and the 
upper (lower) threshold of the Volatility Auction Collar is the Upper 
(Lower) Price Band. For securities with a Volatility Auction Collar 
Reference Price of three dollars ($3.00) or less, the initial lower 
(upper) threshold of the Volatility Auction Collar is fifteen cents 
($0.15) less (greater) than the Volatility Auction Collar Reference 
Price, rounded to the nearest passive MPV and the upper (lower) 
threshold of the Volatility Auction Collar is the Upper (Lower) Price 
Band. The Volatility Auction Collar, as proposed, is identical to the 
auction collars imposed by Bats, Nasdaq, and Arca when conducting an 
auction to resume a security subject to an LULD trading pause.\53\
---------------------------------------------------------------------------

    \53\ See 81 FR 75875 (November 1, 2016) (SR-BatsBZX-2016-61); 
79158 (October 26, 2016), 81 FR 75879 (November 1, 2016) (SR-NASDAQ-
2016-131); and 79107 (October 18, 2016), 81 FR 73159 (October 24, 
2016) (File No. SR-NYSEArca-2016-130).
---------------------------------------------------------------------------

    Furthermore, the proposed Volatility Auction Collar functionality 
is consistent with the commitment made by each primary listing exchange 
set forth in Amendment 12 to the Plan to Address Extraordinary Market 
Volatility Pursuant to Rule 608 of Regulation NMS under the Act (the 
``Limit Up-Limit Down Plan'') to file rule changes with the Commission 
under Section 19(b) of the Exchange Act to amend its respective trading 
practice for automated reopening's following a trading pause consistent 
with a standardized approach agreed to by Limit Up-Limit Down Plan 
Participants that would allow for extensions of an LULD trading pause 
if equilibrium cannot be met for a reopening price within specified 
parameters.\54\ At the beginning of a Volatility Auction Order 
Acceptance Period extension caused by a market order imbalance or an 
Indicative Clearing Price higher (lower) than the upper (lower) 
threshold of the Volatility Auction Collar (in either case, an 
``Impermissible Price''), the upper (lower) threshold of the Volatility 
Auction Collar will be increased (decreased) by five percent (5%) in 
the direction of the Impermissible Price, rounded to the nearest 
passive MPV. For

[[Page 21647]]

securities with a Volatility Auction Collar Reference Price of three 
dollars ($3.00) or less, the upper (lower) threshold of the Volatility 
Auction Collar will be increased (decreased) in fifteen-cent ($0.15) 
increments in the direction of the Impermissible Price, rounded to the 
nearest passive MPV.
---------------------------------------------------------------------------

    \54\ See for example, Securities Exchange Act Release Nos. 79162 
(October 26, 2016), 81 FR 75875 (November 1, 2016) (SR-BatsBZX-2016-
61); 79158 (October 26, 2016), 81 FR 75879 (November 1, 2016) (SR-
NASDAQ-2016-131); and 79107 (October 18, 2016), 81 FR 73159 (October 
24, 2016) (File No. SR-NYSEArca-2016-130) and Securities and 
Exchange Act Release No. 34-79410; File No. 4-631 (Notice of Filing 
of the Twelfth Amendment to the National Market System Plan to 
Address Extraordinary Market Volatility).
---------------------------------------------------------------------------

    For example, if the Lower and Upper Price Bands are $10.00 and 
$11.00, respectively, and a pause is triggered following a Limit State 
at the Lower Price Band, the Volatility Auction Collar Reference Price 
would be equal to the Lower Price Band, $10.00. The lower threshold of 
the Volatility Auction Collar (``lower Volatility Auction Collar'') 
would be calculated by subtracting 5% of the Volatility Auction Collar 
Reference Price, or $0.50 (5% of $10.00 = $0.50), from the Volatility 
Auction Collar Reference Price. The upper threshold of the Volatility 
Auction Collar (``upper Volatility Auction Collar'') would be equal to 
the Upper Price Band. In this example, it would result in a lower 
Volatility Auction Collar of $9.50 ($10.00 - $0.50 = $9.50) and an 
upper Volatility Auction Collar of $11.00, thus creating a range of 
$9.50 to $11.00, within which the Volatility Auction can occur. This 
means $9.50 is the lowest price at which the Volatility Auction can 
occur and $11.00 is the highest price at which it can occur.
    The Volatility Auction Collar is static during the Order Acceptance 
Period and only updates at the beginning of each five (5) minute 
Volatility Auction Order Acceptance Period extension caused by an 
Impermissible Price. In this example, if the LULD trading pause was 
triggered at 12:00 p.m., the above calculated Volatility Auction Collar 
would be in effect during the Order Acceptance Period from 12:00 until 
12:05 p.m. To continue the example, if the Indicative Clearing Price 
was above the upper Volatility Auction Collar at the time of the 
scheduled auction match, 12:05 p.m., then the Volatility Auction would 
receive an extension of five (5) minutes (the ``Initial Extension 
Period'') and the upper Volatility Auction Collar would be updated by 
adding 5% of the upper Volatility Auction Collar, or $0.55 (5% of 
$11.00 = $0.55), to the upper Volatility Auction Collar.\55\ The lower 
Volatility Auction Collar remains unchanged. In this example, it would 
result in an upper Volatility Auction Collar of $11.55 ($11.00 + $0.55 
= $11.55) and a lower Volatility Auction Collar of $9.50, thus creating 
a range of $9.50 to $11.55, within which the Volatility Auction can now 
occur. This means $9.50 is the lowest price at which the Volatility 
Auction can occur and $11.55 is the highest price at which it can now 
occur at the next scheduled auction match five (5) minutes from now, at 
12:10 p.m.
---------------------------------------------------------------------------

    \55\ See proposed Rules 11.350(f)(2)(C)(ii), and 
11.350(f)(2)(D).
---------------------------------------------------------------------------

    Furthermore, continuing the example, if the Indicative Clearing 
Price was below the lower Volatility Auction Collar at the time of the 
scheduled auction match of 12:10 p.m., then the Volatility Auction 
would receive an extension of five (5) minutes (an ``Additional 
Extension Period'') and the lower Volatility Auction Collar would be 
updated by subtracting 5% of the lower Volatility Auction Collar, or 
$0.47 (5% of $9.50 = $0.47, when rounded to the nearest passive MPV), 
from the lower Volatility Auction Collar.\56\ Thus, it would result in 
a lower Volatility Auction Collar of $9.03 ($9.50 - $0.47 = $9.03) and 
an upper Volatility Auction Collar or $11.55, creating a range of $9.03 
to $11.55 within which the Volatility Auction can now occur. This means 
$9.03 is the lowest price at which the Volatility Auction can occur and 
$11.55 is the highest price at which it can now occur, and the Exchange 
shall attempt to conduct a Volatility Auction every one second during 
the course of each Additional Extension Period until the clearing price 
falls at or within the Volatility Auction Collar.
---------------------------------------------------------------------------

    \56\ See proposed Rule 11.350(f)(2)(D).
---------------------------------------------------------------------------

Opening Auction
Order Entry and Cancellation Before Opening Auction
    As proposed in Rule 11.350(c)(1), the Exchange will allow Users to 
submit orders eligible for execution in the Opening Auction at the 
beginning of the Pre-Market Session, which begins at 8:00 a.m.\57\ Any 
orders designated for the Opening Auction Book will be queued until 
9:30 a.m. at which time they will be eligible to be executed in the 
Opening Auction. Auction Ineligible Orders with a TIF of IOC or FOK 
will be rejected prior to the auction match; Auction Ineligible Orders 
that may rest on the Order Book will be queued and maintained prior to 
the auction match in accordance with Rule 11.220(a)(1). Orders on the 
Opening Auction Book, as proposed, would include MOO orders, LOO 
orders, market orders with a time-in-force of DAY,\58\ and limit orders 
with a time-in-force of DAY or GTX. In addition to orders on the 
Opening Auction Book, limit orders on the Continuous Book with a time-
in-force of SYS or GTT are eligible to execute in the Opening Auction 
(``Pre-market Continuous Book'').
---------------------------------------------------------------------------

    \57\ All times referenced herein are Eastern Time.
    \58\ Market orders with a time-in-force of DAY will be 
functionally equivalent to MOO orders in the Opening Auction (i.e., 
such orders will be executable at the Opening Auction match price, 
and any unfilled shares will be immediately canceled following the 
Opening Auction match). Market orders with a time-in-force other 
than DAY will not be eligible for execution in the Opening Auction.
---------------------------------------------------------------------------

    Pursuant to proposed Rule 11.350(c)(1)(B), beginning at the Opening 
Auction Lock-in Time (i.e., 9:28 a.m.), the Opening Auction will be 
subject to certain ``lock-in'' and ``lock-out'' restrictions. 
Specifically, Users may enter, cancel, or modify Auction Eligible 
Orders until the Opening Auction Lock-in Time, at which time orders on 
the Opening Auction Book can no longer be canceled or modified before 
the Opening Auction match. After the Opening Auction Lock-in Time, the 
Exchange will begin to reject Hyper-aggressive Auction Orders upon 
entry. Hyper-aggressive Auction Orders, as proposed, include market and 
MOO orders, as well as LOO and limit orders with a time-in-force of DAY 
or GTX with a limit price more aggressive than the latest Opening/
Closing Auction Collar calculated by the System (i.e., buy (sell) 
orders priced above (below) the latest upper (lower) threshold of the 
Opening/Closing Auction Collar calculated by the System). Bats 
implements a similar Opening Auction cut-off time (9:28 a.m.), at which 
time LOO and MOO as well as market orders will be rejected (and Regular 
Hours Only (RHO) orders \59\ are converted to Late Limit On-Open (LLOO) 
orders).\60\ In the context of the IEX Opening Auction, such orders are 
similar to the order types on the Opening Auction Book. Furthermore, 
Bats restricts Users from canceling or modifying Eligible Auction 
Orders between the Lock-out Time and the auction match, except for RHO 
orders, which may be canceled [sic] until the auction match.\61\ 
Similarly, Nasdaq also applies a 9:28 a.m. cut-off time.\62\
---------------------------------------------------------------------------

    \59\ See Bats Rule 11.9(b)(7), defining Regular Hours Only 
(``RHO'') as a time in force applied to a limit or market order that 
is designated for execution only during Regular Trading Hours, which 
includes the Opening Auction, the Closing Auction, and IPO/Halt 
Auctions for BZX listed securities and the Opening Process for non-
BZX-listed securities (as such terms are defined in Rule 11.23 and 
11.24). Any portion of a market RHO order will be cancelled 
immediately following any auction in which it is not executed.
    \60\ See e.g., Bats Rule 11.23(b)(1)(A).
    \61\ See, e.g., Bats Rule 11.23(b)(1)(A)-(B). The Commission 
notes that Bats Rule 11.23(b)(1)(B) provides that ``RHO limit orders 
designated for the Opening Auction may be modified, but not 
cancelled, between 9:28 a.m. and 9:30 a.m.''
    \62\ See Nasdaq Rules 4702(b)(8), (9), and (10), as well as 
Nasdaq Rule 4752(a)(7), which sets forth the various order types 
eligible to participate in the Nasdaq cross, as well as the various 
applicable timing restrictions.

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

[[Page 21648]]

    The Exchange is proposing a similar approach to Bats and Nasdaq, in 
applying a 9:28 a.m. Lock-out [sic]\63\ Time where LOO and MOO orders 
are no longer accepted [sic]\64\ and may no longer be modified or 
canceled; however, after informal discussion with various Members, the 
Exchange is proposing that LOO orders and limit orders with a time-in-
force of DAY or GTX will continue to be accepted until the Opening 
Auction Lock-out Time (i.e., 9:29:50 a.m., ten (10) seconds prior to 
the Opening Auction match) so long as they are not Hyper-aggressive 
Auction Orders, which will allow Users to continue to express interest, 
and offset imbalances via orders designated for the Auction Book in the 
minutes leading up to the auction match. Such orders entered into the 
Auction Book after the Lock-in Time cannot be canceled or modified. 
Furthermore, Hyper-aggressive Auction Orders will be rejected, which is 
designed to minimize the increase of imbalances or large price swings 
resulting from aggressively priced orders in the Auction Book during 
the last two minutes of the auction process. Instead, the Exchange is 
proposing to allow for price discovery to occur on the Auction Book and 
Continuous Book within the applicable auction collars leading up to the 
auction match, allowing for a convergence of the Auction Book with the 
Continuous Book to establish equilibrium. The Exchange notes that 
allowing Users to offset imbalances on the Auction Book after the Lock-
in Time is designed to promote stability and equilibrium leading into 
the auction match because such orders are not able to be canceled or 
modified after entry (i.e., they are locked-in), which is in direct 
contrast with offsetting orders on the Continuous Book that may be 
fleeting, because they are eligible for cancellation, modification, and 
execution until the auction match.
---------------------------------------------------------------------------

    \63\ The Commission notes that, for opening auctions, IEX is 
proposing a Lock-in (not Lock-out) time of 9:28 a.m. See proposed 
Rule 11.350(a)(22) (defining ``Lock-in Time'').
    \64\ The Commission notes that, for opening auctions, IEX is 
proposing to: (1) Accept LOO orders until the Lock-out time as long 
as they are not Hyper-aggressive Auction Orders, and (2) not accept 
MOO orders after the Lock-in Time.
---------------------------------------------------------------------------

    Orders eligible to join the Opening Auction Book that are received 
after the Opening Auction Lock-out Time will be rejected upon entry. 
Limit orders designated for the Pre-Market Continuous Book (as well as 
Auction Ineligible Orders) may continue to be entered and modified or 
canceled at any time prior to execution.\65\ Pegged orders may be 
submitted, canceled, and/or modified beyond the Opening Auction Lock-in 
Time and Lock-out Time, and will not be eligible for execution in the 
Opening Auction. The proposed Lock-Out Time of 9:29:50 a.m., ten (10) 
seconds prior to the Opening Auction, is designed to freeze the Auction 
Book, and provide Users an opportunity to offset any remaining 
imbalance by submitting limit orders on the Continuous Book.
---------------------------------------------------------------------------

    \65\ Bats offers identical functionality for all Continuous Book 
orders eligible for execution in the Bats Pre-Opening Session. See 
Bats Rule 11.23(b)(1)(C). Similarly, NYSE Arca allows orders to 
enter the Continuous Book after the Opening and Closing Auction 
Imbalance Freeze. See Arca Rule 7.35(c)(3)(D). Accordingly, the 
Exchange believes that allowing orders to enter the Continuous Book 
and be eligible for execution in the auction match until immediately 
before the auction match does not present any unique concerns 
regarding attempted manipulation of the auction match. The Exchange 
notes that pursuant to the Regulatory Services Agreement between 
FINRA and the Exchange, FINRA will be running surveillance patterns 
to identify potentially manipulative trading activity in IEX 
Auctions. Furthermore, the Exchange is developing internal market 
quality surveillances to identify potentially manipulative trading 
activities.
---------------------------------------------------------------------------

Opening Auction Process for IEX-Listed Securities
    Pursuant to proposed Rule 11.350(c)(2), beginning at the Opening 
Auction Lock-in Time and updated every one second thereafter, the 
Exchange will disseminate IEX Auction Information via electronic means, 
as described below. Auction Eligible Orders will be ranked and 
maintained in accordance with IEX Auction Priority, described above. 
The Exchange will attempt to conduct an Opening Auction for all IEX-
listed securities at the start of Regular Market Hours (i.e., 9:30 
a.m.) in accordance with the clearing price determination process, 
described above, and set forth in proposed Rule 11.350(c)(2)(B). All 
orders eligible for execution in the Opening Auction (i.e., orders on 
the Opening Auction Book and orders on the Pre-Market Continuous Book) 
are Auction Eligible Orders. The resting price (as defined in proposed 
Rule 11.350(b)(1)(A)(i)) of Auction Eligible Orders are used to 
calculate the Indicative Clearing Price disseminated in IEX Auction 
Information, and the auction match price. As described above, non-
displayed buy (sell) orders on the Continuous Book with a resting price 
within the Reference Price Range will be priced at the Protected NBB 
(NBO) for the purpose of determining the clearing price (and the 
Indicative Clearing Price disseminated in IEX Auction Information every 
one second leading into the auction match), but will be ranked and 
eligible for execution in the Opening Auction match at the order's 
resting price.\66\
---------------------------------------------------------------------------

    \66\ See proposed Rule 11.350(a)(2).
---------------------------------------------------------------------------

    Pursuant to proposed Rule 11.350(c)(2)(C), Auction Eligible Orders 
matched in the Opening Auction will execute in accordance with IEX 
Auction Priority, as described above. Market and MOO orders have 
priority over all other Auction Eligible Orders, and to the extent 
there is executable contra side interest, such market and MOO orders 
will execute at the IEX Official Opening Price in accordance with time 
priority. After the execution of all market and MOO orders, the 
remaining Auction Eligible Orders (i.e., LOO orders and limit orders 
with a time-in-force of DAY, GTT, GTX, or SYS) with a resting price 
more aggressive than the IEX Official Opening Price will be executed in 
price-display-time priority at the IEX Official Opening Price. All 
remaining Auction Eligible Orders with a resting price equal to the IEX 
Official Opening Price shall execute in display-time priority at the 
IEX Official Opening Price. Upon completion of the Opening Auction for 
IEX-listed securities (or the IEX Halt Auction during the Regular 
Market Session for IEX-listed securities that have not traded during 
the Regular Market Session on that trading day), the IEX Official 
Opening Price for the security will be disseminated to the Consolidated 
Tape along with a bulk execution. The IEX Official Opening Price will 
be the price of the auction. If a security does not have an Opening 
Auction (e.g., there is insufficient crossing interest to conduct an 
Opening Auction), the security will be released for trading pursuant to 
proposed Rule 11.350(c)(3), described below, and the IEX Official 
Opening Price will be the price of the Initial Last Sale Eligible 
Trade.\67\
---------------------------------------------------------------------------

    \67\ See, e.g., Nasdaq Rule 4753(b)(4) regarding the official 
Nasdaq opening price for stocks that are subject to a pre-market 
halt, which is similar to the functionality proposed by the Exchange 
concerning the official opening price in the event there is no 
Opening Auction for a security due to a lack of crossing interest. 
See also proposed Rule 11.350(a)(16).
---------------------------------------------------------------------------

    Under proposed Rule 11.350(c)(2)(D), if an IEX-listed security is 
subject to a Pre-Market Session halt, all orders on the Opening Auction 
Book will remain open. Users may resume submission of new or 
modifications to existing Auction Eligible Orders for the halted 
security during the Order Acceptance Period. Users may cancel open 
Auction Eligible Orders at any time during the halt. If a halt persists 
through the start of Regular Market Hours, no Opening

[[Page 21649]]

Auction will occur, orders on the Opening Auction Book (i.e., MOO 
orders, LOO orders, limit orders with a time-in-force of DAY or GTX, 
and market orders with a time-in-force of DAY) will become part of the 
Halt Auction Book, and the Halt Auction will determine the IEX Official 
Opening Price in accordance with Rule 11.350(e) below. The Exchange 
believes that transferring orders queued on the Opening Auction Book to 
the Halt Auction if a halt persists through the start of Regular Market 
Hours is in the best interest of investors and the public interest, 
because Users will not need to account for auction interest that is 
canceled back, and subsequently be required resubmit such interest 
during the Order Acceptance Period. The Exchange believes this process 
represents a simplified way for Users to submit interest for 
participation in the auction that is determining the IEX Official 
Opening Price for an IEX-listed security, and in the event the Halt 
Auction is determining such price, the Exchange must incorporate such 
On-Open interest in order to ensure robust price discovery. If there is 
insufficient crossing interest to complete the Halt Auction, the 
transition to the Regular Market Session shall be conducted pursuant to 
proposed Rule 11.350(e)(3), described below, no auction will occur and 
the IEX Official Opening Price will be the price of the Initial Last 
Sale Eligible Trade.\68\
---------------------------------------------------------------------------

    \68\ See proposed Rule 11.350(a)(16).
---------------------------------------------------------------------------

    Under proposed Rule 11.350(c)(2)(E), the Halt Auction will 
determine the IEX Official Opening Price for an IEX-listed security 
pursuant to Rule 11.350(e) below if a Halt Auction is scheduled to 
occur during the Regular Market Session, and IEX has not determined an 
IEX Official Opening Price due to (i) an overnight trading halt, or 
(ii) a lack of crossing interest during the Opening Auction, there is 
no Initial Last Sale Eligible Trade, and the security is subsequently 
halted. Similarly, under proposed Rule 11.350(c)(2)(F), The Volatility 
Auction will determine the IEX Official Opening Price for an IEX-listed 
security pursuant to Rule 11.350(f) below if IEX has not determined an 
IEX Official Opening Price due to a lack of crossing interest during 
the Opening Auction, there is no Initial Last Sale Eligible Trade, and 
the security is subsequently paused.
Opening Auction Contingency Procedures
    When a disruption occurs that prevents the execution of the Opening 
Auction as set forth above, IEX shall apply the Opening Auction 
Contingency Procedures pursuant to proposed Rule 11.350(c)(4). 
Specifically, IEX will publicly announce that no Opening Auction will 
occur, and the price of the Initial Consolidated Last Sale Eligible 
Trade will be used for the IEX Official Opening Price.\69\ All orders 
on the Order Book will be canceled, and IEX will open the security for 
trading without an auction. If a security's IEX Official Opening Price 
cannot be determined based on this procedure, IEX will not publish an 
Official Opening Price for the security. The Regular Market Session 
will begin either as scheduled, or upon resolution of the disruption 
that triggered IEX to operate the Opening Auction Contingency 
Procedures. The Exchange believes that providing transparent Opening 
Auction Contingency Procedures is consistent with the protection of 
investors and the public interest in that Users will have more clarity 
regarding the methodology for arriving at the IEX Official Opening 
Price and the status of open orders, therefore allowing for such Users 
to resubmit such interest in the Regular Market Session, or re-route 
such interest to an alternate trading center after IEX has opened the 
security for trading. In addition, the Opening Auction Contingency 
Procedures are designed to ensure the orderly and timely opening of 
IEX-listed securities, which will help to ensure a fair and orderly 
market for securities listed on the Exchange.
---------------------------------------------------------------------------

    \69\ Note, the Exchange intends to disseminate a System Status 
Alert to publicly announce contingency plans, which automatically 
publishes an email alert, twitter update, and text message to all 
persons registered to receive such alerts, as well as publishing to 
the IEX public Web site. To register for System Status Alerts, visit 
https://www.iextrading.com/status/#/.
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Transition to Regular Market Session
    Pursuant to proposed Rule 11.350(c)(3), LOO, MOO, and market orders 
that are not fully executed at the conclusion of the Opening Auction 
will be canceled immediately after the Opening Auction match. Limit 
orders to buy (sell) with a TIF of DAY or GTX and a limit price above 
(below) the upper (lower) threshold of the Opening/Closing Auction 
Collar that are not fully executed at the conclusion of the Opening 
Auction will be canceled immediately after the Opening Auction 
match.\70\ All remaining shares from Auction Eligible Orders that are 
not canceled by the System immediately after the Opening Auction match, 
along with all Auction Ineligible Orders queued for trading in the 
Regular Market Session, shall be released to the Continuous Book for 
trading in the Regular Market Session, subject to the orders' 
instructions. Routable orders that are released to the Continuous Book 
will be routed in accordance with IEX Rule 11.230(c) (Re-Sweep 
Behavior), subject to the orders instructions.
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    \70\ The Exchange's cancellation of MOO, LOO, and market orders, 
as well as limit orders with a time-in-force of DAY or GTX with a 
limit price more aggressive than Opening Auction match price that 
are not executed in the auction match is identical to order handling 
offered by Bats pursuant to Bats Rule 11.23(b)(3)(B)-(C), which 
states that RHO orders queued for the Opening Auction with a limit 
price more aggressive than the auction match that are not executed 
in the auction match will be canceled following the auction match.
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Closing Auction
Order Entry and Cancellation Before Closing Auction
    As proposed in Rule 11.350(d)(1), the Exchange will allow Users to 
submit orders eligible for execution in the Closing Auction at the 
beginning of the Pre-Market Session, or at the beginning of the Order 
Acceptance Period for an IPO, which in both cases begins at 8:00 a.m. 
Any MOC and LOC orders designated for the Closing Auction Book will be 
queued until the end of the Regular Market Session (e.g., 4:00 p.m., or 
such earlier time as the Regular Market Session ends on days that IEX 
is subject to an early closing), at which time they will be eligible to 
be executed in the Closing Auction. Orders on the Closing Auction Book, 
as proposed, would include and be limited to MOC and LOC orders. In 
addition to orders on the Closing Auction Book, limit and pegged orders 
on the Continuous Book with a time-in-force of DAY, GTX, GTT, or SYS 
are eligible for execution in the Closing Auction (``Regular Market 
Continuous Book'').\71\ All orders eligible for execution in the 
Closing Auction (i.e., orders on the Closing Auction Book and orders on 
the Regular Market Continuous Book) are Auction Eligible Orders. The 
resting price (as defined in proposed Rule 11.350(b)(1)(A)(i)) of 
Auction Eligible Orders are used to calculate the auction match price, 
and the Indicative Clearing Price disseminated in IEX Auction 
Information. Non-displayed buy (sell) orders on the Continuous Book 
with a resting price within the Reference Price Range will be priced at 
the Protected NBB (NBO) for the purpose of determining the clearing 
price (and determining the Indicative Clearing

[[Page 21650]]

Price disseminated in IEX Auction Information leading up to the auction 
match), but will be ranked and eligible for execution in the Closing 
Auction match at the order's resting price.
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    \71\ The following types of orders are not eligible for 
execution in the Closing Auction: Market orders (except MOC orders) 
and orders with a time-in-force of IOC or FOK. As described above, 
Market orders entered during the Regular Market Session and orders 
marked IOC or FOK do not rest on the Continuous Book, and therefore 
are not Auction Eligible Orders.
---------------------------------------------------------------------------

    Pursuant to proposed Rule 11.350(d)(1), beginning at the Closing 
Auction Lock-in Time (i.e., 3:50 p.m., or 10 minutes prior to the end 
of the Regular Market Session on days that IEX is subject to an early 
closing), the Closing Auction will be subject to certain ``lock-in'' 
and ``lock-out'' restrictions.\72\ Specifically, under proposed Rule 
11.350(d)(1)(B), Users may enter, cancel, or modify Auction Eligible 
Orders until the Closing Auction Lock-in Time, at which time orders on 
the Closing Auction Book can no longer be canceled or modified, except 
that between the Closing Auction Lock-in Time and five minutes before 
the Closing Auction match (e.g., 3:55 p.m.), LOC and MOC orders can be 
canceled only if the participant requests that IEX correct a legitimate 
error in the order (e.g., side, size, symbol, price, or duplication of 
an order). LOC and MOC orders cannot be canceled or modified at or 
after five minutes before the Closing Auction match (e.g., 3:55 p.m.) 
for any reason.\73\ After the Closing Auction Lock-in Time, the 
Exchange will begin to reject Hyper-aggressive Auction Orders upon 
entry.\74\ For the Closing Auction, Hyper-aggressive Auction Orders, as 
proposed, include MOC orders, and LOC orders with a limit price more 
aggressive than the latest Opening/Closing Auction Collar calculated by 
the System (i.e., buy orders priced above the latest upper auction 
collar threshold and sell orders priced below the latest lower auction 
collar threshold calculated by the System). LOC orders entered with a 
limit price that is not more aggressive than the latest Opening/Closing 
Auction Collar calculated by the System will continue to be accepted 
until the Closing Auction Lock-out Time (i.e., 3:59:50 p.m., ten (10) 
seconds prior to the Closing Auction match).\75\ As noted above in the 
context of the Opening Auction, the Exchange similarly believes that 
rejecting Hyper-aggressive Auction Orders in the Closing Auction after 
the Lock-in Time, while allowing LOC orders that are priced within the 
applicable auction collar to be entered and be eligible for execution 
in the Closing Auction until the Lock-out Time will allows Users to 
continue to express interest and offset imbalances in the minutes 
leading up to the auction match, while also avoiding the increase of 
imbalances resulting from aggressively priced orders in the Auction 
Book during the last ten minutes of the auction process. Instead, the 
Exchange is proposing to allow for price discovery to occur on the 
Auction Book and Continuous Book within the applicable auction collars 
leading up to the auction match, allowing for a convergence of the 
Auction Book with the Continuous Book to establish equilibrium.\76\ 
Limit orders designated for the Regular Market Continuous Book may 
continue to be entered and modified or canceled at any time prior to 
execution. Similar to the Opening Auction, the proposed Lock-Out Time 
of 3:59:50 p.m., ten (10) seconds prior to the Closing Auction, is 
designed to provide Users an opportunity to offset any remaining 
imbalance during a period of relative stability (while the Auction Book 
is locked) by submitting limit orders on the Continuous Book.
---------------------------------------------------------------------------

    \72\ Bats implements a less restrictive cut-off time, allowing 
LOC and MOC orders to be submitted until 3:55 p.m., but still 
allowing orders eligible for continuous trading and LLOC orders to 
be entered until immediately before the auction match. See Bats Rule 
11.23(C)(1)(A). Nasdaq implements an identical cut-off time (3:50 
p.m.), but still allows orders eligible for continuous trading and 
imbalance only orders to be entered until immediately before the 
auction match. See Nasdaq Rules 4702(b)(11)-(13).
    \73\ See proposed Rule 11.350(d)(1)(C).
    \74\ See proposed Rule 11.350(d)(1)(B).
    \75\ NYSE applies a similar restriction for its closing auction 
under NYSE Rule 70.25, which states that d-Quotes may be entered, 
modified, and canceled until 10 seconds before the end of the 
Regular Market Session (emphasis added). The Exchange notes that as 
explained by a recent study on NYSE auctions conducted by Greenwich 
Associates, NYSE d-Quotes (which can be entered by brokers that have 
relationships with NYSE floor brokers, or trading algorithms that 
are able to enter orders directly via FIX) contribute a meaningful 
portion of closing auction volume, as evidenced by the significant 
increase and fluctuations of indicative volume taken as a percentage 
of realized volume in the closing auction. Specifically, NYSE's 
auction data feed shows a material spike in indicative volume at 
3:55 p.m., when d-Quotes are first included in the NYSE auction data 
feed, followed by fluctuations in indicative volume as a percent of 
realized volume. The Exchange further notes that the proposed 
handling of LOO, LOC, and limit orders submitted after the Lock-in 
Time that are not priced beyond the Opening/Closing Auction Collars 
is distinguishable from NYSE d-Quotes in that d-Quotes can be 
entered at any price, and can be canceled. As proposed, LOO, LOC, 
and limit orders submitted after the Lock-in Time that are not 
priced beyond the Opening/Closing Auction Collars cannot be 
canceled. The proposed order handling and IEX Auction information 
dissemination is designed to reflect ``locked-in'' interest on the 
Auction Book, which is intended to stimulate price discovery, and 
reduce fluctuations indicative volume taken as a percentage of 
realized volume that are caused by Users canceling orders on the 
Auction Book. See Trading the Auctions, Greenwich Associates, 2017, 
Doc ID 16-2068 (https://www.greenwich.com/equities/trading-auctions).
    \76\ As discussed above, the Exchange notes that allowing Users 
to offset imbalances on the Auction Book after the Lock-in Time is 
designed to promote price discovery and stability, and establish 
equilibrium leading into the auction match because such orders are 
not able to be canceled or modified after entry (i.e., they are 
locked-in), which is in direct contrast with offsetting orders on 
the Continuous Book that may be fleeting, because they are eligible 
for cancellation, modification, or execution until the auction 
match. Orders eligible for the Closing Auction Book that are 
received after the Closing Auction Lock-out Time will be rejected 
upon entry.
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Closing Auction Process for IEX-Listed Securities
    Under proposed Rule 11.350(d)(2)(A), beginning at the Closing 
Auction Lock-in Time and updated every one second thereafter, the 
Exchange will disseminate IEX Auction Information via electronic means, 
as described below. The Exchange will attempt to conduct a Closing 
Auction for all IEX-listed securities at 4:00 p.m., or such earlier 
time as the Regular Market Session ends on days that IEX is subject to 
an early closing in accordance with the clearing price determination 
process, described above and set forth in proposed Rule 
11.350(d)(2)(B). Auction Eligible Orders will be ranked in accordance 
with IEX Auction Priority, described above, and as set forth in 
proposed Rule 11.350(b).
    For example, if the Continuous Book and Closing Auction Book were 
to contain the following orders:

[[Page 21651]]

[GRAPHIC] [TIFF OMITTED] TN09MY17.000

    Shares are maximized and left unexecuted at $20.01, therefore the 
IEX Closing Auction would execute 11,000 shares at $20.01.
    Auction Eligible Orders matched in the Closing Auction will execute 
in accordance with IEX Auction Priority, described above. Specifically, 
as set forth in proposed Rule 11.350(d)(2)(C), MOC orders have priority 
over all other Auction Eligible Orders, and to the extent there is 
executable contra side interest, such MOC orders will execute at the 
IEX Official Closing Price in accordance with time priority. After the 
execution of all MOC orders, the remaining Auction Eligible Orders 
(i.e., LOC, as well as limit and pegged orders with a time-in-force of 
DAY, GTT, GTX, or SYS) with a resting price more aggressive than the 
IEX Official Closing Price will be executed in price-display-time 
priority at the IEX Official Closing Price. All remaining Auction 
Eligible Orders with a resting price equal to the IEX Official Closing 
Price shall execute in display-time priority at the IEX Official 
Closing Price. Upon completion of the Closing Auction for IEX-listed 
securities, the IEX Official Closing Price for the security will be 
disseminated to the Consolidated Tape along with a bulk execution. The 
IEX Official Closing Price will be the price of the auction. If there 
is insufficient crossing interest to conduct a Closing Auction, no 
Closing Auction will occur, and the IEX Official Closing Price will be 
the price of the Final Last Sale Eligible Trade.\77\ In such cases, the 
transition to the Post-Market Session shall be conducted pursuant to 
proposed Rule 11.350(d)(3), described below.
---------------------------------------------------------------------------

    \77\ See proposed Rule 11.350(a)(7).
---------------------------------------------------------------------------

    Pursuant to proposed Rule 11.350(d)(2)(D), if a halt is 
disseminated in an IEX-listed security prior to the Closing Auction, 
all orders on the Auction Book will remain open. Users may resume 
submission of new or make modifications to existing Auction Eligible 
Orders for the halted security during the Order Acceptance Period. 
Users may cancel open Auction Eligible Orders at any time during the 
halt. If a halt persists through the end of Regular Market Hours, no 
Closing Auction will occur. All On-Open orders, On-Close orders, and 
pegged orders will be canceled at the conclusion of Regular Market 
Hours, and the Final Last Sale Eligible Trade will be the IEX Official 
Closing Price. However, where an IEX-listed security is paused pursuant 
to IEX Rule 11.280(e) at or after the Closing Auction Lock-in Time, or 
the Order Acceptance Period of a Volatility Auction for a security 
paused before the Closing Auction Lock-in Time pursuant to IEX Rule 
11.280(e) would otherwise be extended by the Exchange to a time after 
the Closing Auction Lock-in Time, On-Close orders are added to the 
Volatility Auction and such auction will be used to determine the IEX 
Official Closing Price for the subject security at the conclusion of 
Regular Market Hours in accordance with proposed Rule 11.350(f)(3), 
described below.
Closing Auction Contingency Procedures
    Pursuant to proposed Rule 11.350(d)(4), when a disruption occurs 
that prevents the execution of the Closing Auction as set forth above, 
IEX proposes to apply either the Primary or Secondary Closing Auction 
Contingency Procedures. The proposed contingency procedures are 
identical to those recently proposed by Nasdaq in conjunction with NYSE 
and NYSE Arca, and the exclusive securities information processors for 
the Nasdaq UTP Plan and the Consolidated Quote/Consolidated Tape Plan 
(the ``SIPs''), as part of a larger industry initiative to ensure the 
orderly execution and dissemination of official closing prices.\78\
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    \78\ See, for example, Nasdaq Rule 4754(b)(8); Bats Rule 
11.23(i); Arca Rule 1.1(gg).
---------------------------------------------------------------------------

    IEX will employ the Primary Closing Auction Contingency Procedures 
if at all possible, and it will employ the Secondary Closing Auction 
Contingency Procedures only if it determines that both the standard 
procedures and the Primary Closing Auction Contingency Procedures are 
unavailable. The determination to employ Primary or Secondary Closing 
Auction Contingency Procedures will be based upon all available 
information including the type of disruption, the system or sub-system 
disrupted, the availability of testing and diagnostic data, and 
observed Member and market impact. The determination to implement 
Primary or Secondary Closing Auction Contingency Procedures shall be 
made by the President of IEX or a senior level employee designated by 
the President. If such a disruption occurs, IEX shall publicly announce 
at the earliest possible time the initiation of Primary or Secondary 
Closing Auction Contingency procedures via system status alerts and 
email notification directories.
Primary Closing Contingency Procedures
    If IEX determines to initiate the Primary Closing Auction 
Contingency Procedures, IEX will publicly announce that no Closing 
Auction will occur. The price of the Final Consolidated Last Sale 
Eligible Trade will be used for the IEX Official Closing Price. The IEX 
Official Closing Price will be published to the Consolidated Tape. IEX 
will execute orders on the Closing Auction Book at the IEX Official 
Closing Price to the extent that executable buy and sell interest 
exists on the Closing Auction

[[Page 21652]]

Book. All orders on the Order Book will be canceled at the conclusion 
of the contingency process. IEX will report the resulting execution to 
the Consolidated Tape and deliver execution reports to participants. If 
a security's IEX Official Closing Price cannot be determined by this 
subsection, IEX will not publish an Official Closing Price for the 
security and cancel all orders on the Order Book. The Post-Market 
Session shall begin either as scheduled, or upon resolution of the 
disruption that triggered IEX to operate the Primary Contingency 
Procedures.
Designation of a Back-Up Exchange
    When a determination to implement Secondary Closing Auction 
Contingency Procedures has been made by the President of IEX or a 
senior level employee designated by the President, IEX shall publicly 
announce this determination at the earliest possible time via system 
status alerts and email notification directories. If the Secondary 
Closing Auction Contingency Procedures are implemented, IEX will 
designate an alternate exchange to provide an official closing price 
for all or a subset of IEX-listed securities. The Exchange would 
publicly announce the exchange designated as the alternate exchange via 
Trader Alert, and will confirm the designated alternate exchange via 
system status alert and email notification directories at the time of 
announcing the implementation of Secondary Closing Auction Contingency 
Procedures.
Secondary Closing Contingency Procedures
    If IEX determines to follow Secondary Closing Auction Contingency 
Procedures for one or more securities at or before 3:00 p.m., IEX will 
designate an alternate exchange to provide an official closing price 
for all or a subset of IEX-listed securities. IEX will cancel all open 
orders on the Order Book in the impacted securities to give Members the 
opportunity to route their orders to alternative execution venues. The 
IEX Official Closing Price will be the official closing price 
established for the security under the rules of the designated back-up 
exchange. If there is no official closing price in a security on the 
designated back-up exchange, the IEX Official Closing Price will be the 
volume weighted average price (``VWAP'') of the last sale eligible 
trades reported to the Consolidated Tape during the last five minutes 
of Regular Market Hours on that trading day, including any closing 
transactions on an exchange and any trade breaks or corrections up to 
the time the VWAP is processed. If there are no last sale eligible 
trades reported to the Consolidated Tape during the last five minutes 
of Regular Market Hours, the IEX Official Closing Price of such 
security will be the Final Consolidated Last Sale Eligible Trade for 
the security on that trading day. If there were no last sale eligible 
trades reported to the Consolidated Tape on that trading day, the IEX 
Official Closing Price will be the previous official closing price. The 
IEX Official Closing Price will be published to the Consolidated Tape. 
If a security's IEX Official Closing Price cannot be determined under 
this subsection, IEX will not publish an IEX Official Closing Price for 
the security, and the Post-Market Session shall begin either as 
scheduled, or upon resolution of the disruption that triggered IEX to 
operate the Secondary Contingency Procedures.
    If IEX determines to follow Secondary Closing Auction Contingency 
Procedures for one or more securities after 3:00 p.m., IEX will cancel 
all open orders on the Order Book in the impacted securities to give 
Members the opportunity to route their orders to alternative execution 
venues. The IEX Official Closing Price will be the VWAP of the last 
sale eligible trades reported to the Consolidated Tape during the last 
five minutes of Regular Market Hours on that trading day, including any 
closing transactions on an exchange and any trade breaks or corrections 
up to the time the VWAP is processed. If there are no last sale 
eligible trades reported to the Consolidated Tape during the last five 
minutes of Regular Market Hours, the IEX Official Closing Price of such 
security will be the Final Consolidated Last Sale Eligible Trade for 
the security on that trading day. If there were no last sale eligible 
trades reported to the Consolidated Tape on that trading day, the IEX 
Official Closing Price will be the previous official closing price. The 
IEX Official Closing Price will be published to the Consolidated Tape. 
If a security's IEX Official Closing Price cannot be determined under 
this subsection, IEX will not publish an IEX Official Closing Price for 
the security, and the Post Market Session shall begin either as 
scheduled, or upon resolution of the disruption that triggered IEX to 
operate the Secondary Contingency Procedures.
Transition to the Post-Market Session
    Pursuant to proposed Rule 11.350(d)(3), LOC, MOC, and pegged 
orders, as well as limit orders with a time-in-force of DAY that are 
not fully executed at the conclusion of the Closing Auction will be 
canceled immediately after the Closing Auction match. All remaining 
shares from Auction Eligible Orders that are not canceled by the System 
immediately after the Closing Auction match will be released to the 
Continuous Book for trading in the Post-Market Session, subject to the 
orders' instructions. Routable orders that are released to the 
Continuous Book will be routed in accordance with IEX Rule 11.230(c) 
(Re-Sweep Behavior), subject to the orders' instructions.
IPO and Halt Auctions
    For trading in an IEX-listed security in an initial public offering 
(an ``IPO''), or launch of a new issue, the Exchange will conduct an 
IPO Auction pursuant to proposed Rule 11.350(e), as described further 
below. Following a trading halt in an IEX-listed security pursuant to 
Supplementary Material .01 to Rule 14.207 and proposed Rule 
11.280(g)(1), (4), or (5), the Exchange will conduct a Halt Auction, as 
described below.
Order Entry and Cancellation Before an IPO/Halt Auction
    As proposed in Rule 11.350(e)(1), the Exchange will allow Users to 
submit orders for potential participation in an IPO or Halt Auction 
during the Order Acceptance Period. Similar to Bats and Nasdaq, the 
Order Acceptance Period for an IPO Auction begins at the start of 
System Hours (i.e., 8:00 a.m.), and five (5) minutes prior to the 
scheduled auction match for a Halt Auction.\79\ Note, however, the 
Exchange will not execute any orders in the applicable security prior 
to the auction match. All Auction Eligible Orders associated with an 
IPO or Halt Auction will be queued until the applicable auction match, 
at which time they will be eligible to be executed in the associated 
auction. All orders associated with an IPO or Halt Auction must be 
received prior to the auction match in order to be eligible to execute 
in the auction. Auction Ineligible Orders with a TIF of IOC or FOK will 
be rejected prior to the auction match; Auction Ineligible Orders that 
may rest on the Order Book will be queued and maintained during the 
Order Acceptance Period in accordance with Rule 11.220(a)(1). Auction 
Eligible Orders associated with an IPO or Halt Auction may be canceled 
or modified at any time prior to the auction match. At the conclusion 
of Regular Market Hours, On-Open orders, On-Close orders, pegged 
orders, market orders, and limit orders with a TIF of DAY will be 
canceled automatically by the System. In the event the Exchange cannot

[[Page 21653]]

complete an IPO or Halt Auction before the end of Post-Market Hours 
(i.e., 5:00 p.m.), all open orders in the subject security on the Order 
Book will be canceled.\80\
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    \79\ See Bats Rule 11.23(d)(1)(A); Nasdaq Rules 4120(c)(7)(A) 
and 4120(c)(8)(A). Note, Nasdaq permits Users to submit orders 
beginning at 4:00 a.m., the start of Nasdaq System Hours.
    \80\ The Order Acceptance Period extensions proposed by the 
Exchange are substantially similar to the criteria set forth in Bats 
Rule 11.23(d)(2)(B) regarding the extension of the Bats Quote-Only 
Period.
---------------------------------------------------------------------------

    For an IPO Auction, Auction Eligible Orders, as proposed, would 
include MOO, LOO, and market orders with a time-in-force of DAY, as 
well as limit orders with a time-in-force of DAY, GTX, GTT, SYS, FOK, 
or IOC.\81\ For a Halt Auction, pursuant to proposed Rule 
11.350(a)(1)(D), Auction Eligible Orders would include:
---------------------------------------------------------------------------

    \81\ Note, limit orders with a time-in-force of IOC or FOK will 
be executed in the same manner as LOO orders and market orders with 
a time-in-force of DAY, FOK, or IOC will be executed in the same 
manner as MOO orders in the IPO Auction, and all unexecuted shares 
will be canceled immediately following the auction match.
---------------------------------------------------------------------------

     On-Open orders queued prior to Regular Market Hours if a 
Pre-Market Session halt persists through the start of Regular Market 
Hours and the Halt Auction is scheduled to occur during the Regular 
Market Session;
     Limit orders with a TIF of GTT, SYS, FOK, or IOC received 
during the Order Acceptance Period;
     Limit orders with a TIF of DAY received during the Order 
Acceptance Period within the Regular Market Session or queued prior to 
the Regular Market Session for securities that have not traded during 
the Regular Market Session on that trading day;
     Limit orders with a TIF of GTX received during the Order 
Acceptance Period within the Regular Market Session or Post-Market 
Session or queued prior to the Regular Market Session for securities 
that have not traded during the Regular Market Session on that trading 
day;
     Market orders with a TIF of FOK or IOC received during the 
Order Acceptance Period within the Regular Market Session;
     Market orders with a TIF of DAY received during the Order 
Acceptance Period within the Regular Market Session or queued prior to 
the Regular Market Session for securities that have not traded during 
the Regular Market Session on that trading day; and
     Displayed portions of limit orders on the Continuous Book 
at the time of the halt dissemination.
    IPO and Halt Auctions are not subject to ``lock-in'' or ``lock-
out'' restrictions. Pegged orders and non-displayed orders on the 
Continuous Book at the time of the halt dissemination will not be 
eligible to execute in the Halt Auction. Pegged orders submitted during 
the Order Acceptance Period will not be eligible to execute in the IPO 
or Halt Auction.
IPO and Halt Auction Process for IEX-Listed Securities
    Pursuant to proposed Rule 11.350(e)(2)(A), at the beginning of the 
Display Only Period (i.e., thirty minutes prior to the scheduled 
auction match for an IPO Auction, and the start of the Order Acceptance 
Period for a Halt Auction), and updated every one second thereafter 
until the IPO or Halt Auction match, the Exchange will disseminate IEX 
Auction Information via electronic means, as described below.
    The Order Acceptance Period may be extended at the time of the 
auction match pursuant to proposed Rule 11.350(e)(2)(B)(i)-(iii) 
automatically for five (5) minutes in an IPO Auction when there are 
unmatched shares from market orders on the IPO Auction Book, or when 
the Indicative Clearing Price at the auction match differs by the 
greater of five percent (5%) or fifty cents ($0.50) from any of the 
previous fifteen (15) Indicative Clearing Price disseminations, 
automatically during the Pre-Launch Period when the clearing price is 
above (below) the upper (lower) price band selected by the underwriter 
pursuant to proposed Rule 11.280(h)(8), until the clearing price is 
within such bands, or a manual extension may be implemented upon 
request from the underwriter at any time prior to the auction match. 
For a Halt Auction, pursuant to Rule 11.350(e)(2)(B)(i)-(ii), the Order 
Acceptance Period may be extended automatically for one (1) minute when 
there are unmatched shares from market orders on the Halt Auction Book, 
or when the Indicative Clearing Price at the auction match differs by 
the greater of five percent (5%) or fifty cents ($0.50) from any of the 
previous fifteen (15) Indicative Clearing Price disseminations.
    The Exchange will generally attempt to conduct an auction for 
corporate IPOs beginning at 10:15 a.m., or 9:30 a.m. for new issues, in 
accordance with the clearing price determination process, described 
above and as set forth in proposed Rule 11.350(e)(2)(C). Auction 
Eligible Orders will be ranked in accordance with IEX Auction Priority, 
described above and as set forth in proposed Rule 11.350(b). Auction 
Eligible Orders are used to calculate the auction match price. Auction 
Eligible Orders matched in the IPO or Halt Auction will execute in 
accordance with IEX Auction Priority, described above. Specifically, as 
set forth in proposed Rule 11.350(e)(2)(D), market and MOO orders have 
priority over all other Auction Eligible Orders, and to the extent 
there is executable contra side interest, such market and MOO orders 
will execute at the IEX Official IPO Price or the price of the IEX Re-
Opening Trade in accordance with time priority. After the execution of 
all market and MOO orders, the remaining Auction Eligible Orders with a 
resting price more aggressive than the IEX Official IPO Price or the 
price of the IEX Re-Opening Trade will be executed in price-display-
time priority at the IEX Official IPO Price, or the price of the IEX 
Re-Opening Trade. All remaining Auction Eligible Orders with a resting 
price equal to the IEX Official IPO Price or the price of the IEX Re-
Opening Trade execute in display-time priority at the IEX Official IPO 
Price, or the price of the IEX Re-Opening Trade. Upon completion of an 
IPO Auction for IEX-listed securities, the IEX Official IPO Opening 
Price for the security will be the price of auction, and shall be 
disseminated to the Consolidated Tape along with a bulk execution. Upon 
completion of a Halt Auction for IEX-listed securities, the IEX Re-
Opening Trade for the security will be the execution that resulted from 
the Halt Auction. If a security does not have a Halt Auction (e.g., 
there is insufficient crossing interest to conduct a Halt Auction), no 
Halt Auction will occur, and the transition to continuous trading shall 
be conducted pursuant to proposed Rule 11.350(e)(3), described below.
    If IEX has not determined the IEX Official Opening Price for an 
IEX-listed security, and the Halt Auction is scheduled to occur during 
the Regular Market Session, the IEX Official Opening Price will be the 
price of the Halt Auction pursuant to proposed Rule 11.350(c)(2)(D) or 
(E), as applicable. If there is insufficient crossing interest to 
complete the Halt Auction, the transition to the Regular Market Session 
shall be conducted pursuant to proposed Rule 11.350(e)(3), described 
below, no auction will occur, and the IEX Official Opening Price will 
be the Initial Last Sale Eligible Trade.\82\ If a security remains 
halted at the end of Regular Market Hours, no Closing Auction will 
occur, and all On-Open orders, On-Close orders, pegged orders, market 
orders, and limit orders with a time-in-force of DAY will be canceled 
at

[[Page 21654]]

the conclusion of Regular Market Hours.\83\
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    \82\ See proposed Rule 11.350(a)(16).
    \83\ See proposed Rule 11.350(d)(2)(D). Note, in the event the 
Exchange cannot complete a Halt Auction before the end of Post-
Market Hours (i.e., 5:00 p.m.), all open orders in the subject 
security on the Order Book will be canceled pursuant to proposed 
Rule 11.350(e)(1)(D).
---------------------------------------------------------------------------

Contingency Procedures
    When a disruption occurs that prevents the execution of an IPO or 
Halt Auction as set forth above, IEX shall apply the IPO or Halt 
Auction Contingency Procedures as set forth in proposed Rule 
11.350(e)(4). Specifically, for an IPO Auction, IEX will publicly 
announce that the Order Acceptance Period will be reset for the subject 
security, at which point IEX will cancel all orders on the Order Book, 
and shall disseminate a new scheduled time for the Order Acceptance 
Period and auction match. For a Halt Auction, IEX will publicly 
announce that no Halt Auction will occur. All orders on the Order Book 
will be canceled, and IEX will open the security for trading without an 
auction.
Transition to Continuous Trading
    Under proposed Rule 11.350(e)(3), LOO, MOO, and market orders, as 
well as Auction Eligible Orders with a TIF of FOK or IOC that are not 
fully executed at the conclusion of the IPO Auction will be canceled 
immediately after the IPO Auction match. Auction Eligible Orders with a 
time-in-force of FOK or IOC and market orders (as well as On-Open 
orders when the Halt Auction is determining the IEX Official Opening 
Price) that are not fully executed at the conclusion of the Halt 
Auction will be canceled immediately after the Halt Auction match. All 
remaining shares from Auction Eligible Orders that are not canceled by 
the System immediately after an IPO or Halt Auction match and Auction 
Ineligible Orders will be released to the Continuous Book for execution 
in the Pre-Market, Regular Market, or Post-Market Session, as 
applicable, subject to the orders instructions. Routable orders that 
are released to the Continuous Book will be routed in accordance with 
IEX Rule 11.230(c) (Re-Sweep Behavior), subject to the orders 
instructions.
Volatility Auction
    IEX will conduct a Volatility Auction pursuant to proposed Rule 
11.350(f) to re-open an IEX-listed security after such security is 
subject to an LULD trading pause pursuant to IEX Rule 11.280(e). 
Furthermore, as described below, IEX will close IEX-listed securities 
using a Volatility Auction under proposed Rule 11.350(f)(3) when an 
IEX-listed security is subject to an LULD trading pause at or after the 
Closing Auction Lock-in Time, or the Order Acceptance Period of a 
Volatility Auction for a security paused before the Closing Auction 
Lock-in Time pursuant to the LULD Plan would otherwise be extended by 
the Exchange to a time after the Closing Auction Lock-in Time. As noted 
above in the description of the proposed Volatility Auction Collars, 
the proposed Volatility Auction functionality is substantially similar 
to the functionality proposed by Bats, Nasdaq, and NYSE Arca for 
conducting an auction to resume a security subject to an LULD trading 
pause. Furthermore, the proposed Volatility Auction functionality is 
consistent with the commitment made by each primary listing exchange 
set forth in Amendment 12 to the Limit Up-Limit Down Plan to file rule 
changes with the Commission under Section 19(b) of the Exchange Act to 
amend its respective trading practice for automated reopening's 
following a trading pause consistent with a standardized approach 
agreed to by Limit Up-Limit Down Plan Participants that would allow for 
extensions of an LULD trading pause if equilibrium cannot be met for a 
reopening price within specified parameters.\84\
---------------------------------------------------------------------------

    \84\ See Securities Exchange Act Release Nos. 79162 (October 26, 
2016), 81 FR 75875 (November 1, 2016) (SR-BatsBZX-2016-61); 79158 
(October 26, 2016), 81 FR 75879 (November 1, 2016) (SR-NASDAQ-2016-
131); and 79107 (October 18, 2016), 81 FR 73159 (October 24, 2016) 
(File No. SR-NYSEArca-2016-130) and Securities and Exchange Act 
Release No. 34-79410; File No. 4-631 (Notice of Filing of the 
Twelfth Amendment to the National Market System Plan to Address 
Extraordinary Market Volatility).
---------------------------------------------------------------------------

Order Entry and Cancellation for a Volatility Auction
    As set forth in proposed Rule 11.350(f)(1), the Exchange will allow 
Users to submit orders for potential participation in a Volatility 
Auction during the Order Acceptance Period, which is generally five (5) 
minutes, and begins immediately after the pause dissemination. However, 
when an IEX-listed security is paused pursuant to IEX Rule 11.280(e) at 
or after the Closing Auction Lock-in Time, or if the Order Acceptance 
Period of a Volatility Auction for a security paused before the Closing 
Auction Lock-in Time pursuant to IEX Rule 11.280(e) would be in effect 
at the Closing Auction Lock-in Time, the Order Acceptance Period shall 
continue to the end of the Regular Market Session.\85\
---------------------------------------------------------------------------

    \85\ See proposed Rule 11.350(f)(1)(A).
---------------------------------------------------------------------------

    The Exchange will not execute any orders in the applicable security 
prior to the auction match. Auction Eligible Orders submitted during 
the Order Acceptance Period will join the Volatility Auction Book and 
be queued until the Volatility Auction match. All orders associated 
with a Volatility Auction must be received prior to the auction match 
in order to be eligible for execution in the auction. Auction 
Ineligible Orders with a TIF of IOC or FOK will be rejected prior to 
the auction match; Auction Ineligible Orders that may rest on the Order 
Book will be queued and maintained during the Order Acceptance Period 
in accordance with Rule 11.220(a)(1). Auction Eligible Orders 
associated with a Volatility Auction may be canceled or modified at any 
time prior to the auction match.\86\ Auction Eligible Orders, as 
proposed, include the following.\87\
---------------------------------------------------------------------------

    \86\ See proposed Rule 11.350(f)(1)(B)-(C).
    \87\ See proposed Rules 11.350(a)(1) and 11.350(a)(2). Note, 
when an IEX-listed security is paused at or after the Closing 
Auction Lock-in Time, or the Order Acceptance Period of a Volatility 
Auction for a security paused before the Closing Auction Lock-in 
Time would otherwise be extended by the Exchange to a time after the 
Closing Auction Lock-in Time, i.e., when a Volatility Auction is 
determining the IEX Official Closing Price pursuant to proposed Rule 
11.350(f)(3), the Auction Eligible Orders for the Volatility Auction 
include MOC and LOC orders.
---------------------------------------------------------------------------

     Limit orders with a TIF of GTX, GTT, SYS, FOK, or IOC 
received during the Order Acceptance Period;
     Limit orders with a TIF of DAY received during the Order 
Acceptance Period within Regular Market Hours;
     Market orders with a TIF of FOK, IOC, or DAY received 
during the Order Acceptance Period within Regular Market Hours; and
     Displayed portions of limit orders on the Continuous Book 
at the time of the pause dissemination.
    Auction Eligible Orders associated with a Volatility Auction may be 
canceled or modified at any time prior to execution. Volatility 
Auctions are not subject to ``lock-in'' or ``lock-out'' restrictions. 
Pegged orders and non-displayed orders on the Continuous Book at the 
time of the pause dissemination will not be eligible for execution in 
the Volatility Auction. Pegged orders submitted during the Order 
Acceptance Period will not be eligible for execution in the Volatility 
Auction.
Volatility Auction Process for IEX-Listed Securities
    Pursuant to proposed Rule 11.350(f)(2)(A), at the beginning of the 
Display Only Period (i.e., the start of the Order Acceptance Period), 
and updated

[[Page 21655]]

every one second thereafter, the Exchange will disseminate IEX Auction 
Information via electronic means, as described below.
    Pursuant to proposed Rule 11.350(a)(29)(C), the Order Acceptance 
Period for a Volatility Auction shall commence immediately after a 
trading pause dissemination. Under proposed Rules 11.350(f)(2)(C)(i)-
(ii), the conditions in which the Order Acceptance Period may be 
extended automatically for five (5) minutes pursuant to Rule 
11.350(f)(2)(D)(ii) at the time of the Volatility Auction match include 
when: (i) There are unmatched shares from market orders on the 
Volatility Auction Book, or when the Indicative Clearing Price is 
higher (lower) than the upper (lower) threshold of the Volatility 
Auction Collar (in either case, an ``Impermissible Price''); or (ii) 
when the Indicative Clearing Price differs by the greater of five 
percent (5%) or fifty cents ($0.50) from any of the previous fifteen 
(15) Indicative Clearing Price disseminations. In addition, under 
proposed Rule 11.350(f)(2)(C)(iii), the Order Acceptance Period will be 
extended automatically to the end of the Regular Market Session where 
an IEX-listed security is paused at or after the Closing Auction Lock-
in Time, or the Order Acceptance Period of a Volatility Auction for a 
security paused before the Closing Auction Lock-in Time would otherwise 
be in effect at the Closing Auction Lock-in Time, in which case the IEX 
Official Closing Price will be determined by the Volatility Auction 
pursuant to proposed Rule 11.350(f)(3).
    Under proposed Rule 11.350(f)(2)(D)(ii), the Order Acceptance 
Period may be extended for five (5) minutes under proposed rule 
11.350(f)(2)(C)(i) or (C)(ii) described above (the ``Initial Extension 
Period''). After the Initial Extension Period, the Order Acceptance 
Period may be extended for additional five (5) minute periods pursuant 
to proposed Rule 11.350(f)(2)(C)(i) or (C)(ii) described above (each an 
``Additional Extension Period'') until a Volatility Auction occurs. The 
Exchange shall attempt to conduct a Volatility Auction every one second 
during the course of each Additional Extension Period. Should the Order 
Acceptance Period for a Volatility Auction be extended to a time past 
the Closing Auction Lock-in Time (i.e., ten (10) minutes prior to the 
end of the Regular Market Session), the Volatility Auction shall be 
conducted pursuant to proposed Rule 11.350(f)(3), described below. At 
the beginning of the Order Acceptance Period, the Volatility Auction 
Collar Reference Price and the Volatility Auction Collar shall be 
determined in accordance with proposed Rules 11.350(a)(32) and 
11.350(a)(31), respectively.\88\ At the beginning of the Initial 
Extension Period the upper (lower) Volatility Auction Collar shall be 
increased (decreased) by five (5) percent in the direction of the 
Impermissible Price, rounded to the nearest passive MPV. For securities 
with a Volatility Auction Collar Reference Price of $3.00 or less, the 
Volatility Auction Collar shall be increased (decreased) in $0.15 
increments in the direction of the Impermissible Price, rounded to the 
nearest passive MPV. At the beginning of each Additional Extension 
Period pursuant to proposed Rule 11.350(f)(2)(C)(ii), the Volatility 
Auction Collar shall be widened as described in this paragraph, in the 
same manner as the Initial Extension Period.
---------------------------------------------------------------------------

    \88\ See proposed Rule 11.350(f)(2)(D)(i).
---------------------------------------------------------------------------

    The Exchange will attempt to conduct a Volatility Auction for all 
IEX-listed securities to resume trading following an LULD trading 
pause, in accordance with the clearing price determination process 
described above and set forth in proposed Rule 11.350(f)(2)(E). If the 
Volatility Auction price established by subparagraphs (i) through (iii) 
is outside the Volatility Auction Collar, the Order Acceptance Period 
shall be extended pursuant to 11.350(f)(2)(C)(ii) and the Volatility 
Auction Collars shall be updated pursuant to Rule 11.350(f)(2)(D)(ii). 
If the Volatility Auction price established by subparagraphs (i) 
through (iii) meets the conditions for extending the Order Acceptance 
Period described in Rule 11.350(f)(2)(C)(i), the Order Acceptance 
Period shall be extended pursuant to 11.350(f)(2)(C)(i).
    Auction Eligible Orders matched in the Volatility Auction will 
execute in accordance with IEX Auction Priority, described above. 
Specifically, as set forth in proposed Rule 11.350(f)(2)(F), market 
orders have priority over all other Auction Eligible Orders, and to the 
extent there is executable contra side interest, such market orders 
will execute at the price of the IEX Re-Opening in accordance with time 
priority. After the execution of all market orders, the remaining 
Auction Eligible Orders with a resting price more aggressive than the 
price of the IEX Re-Opening will be executed in price-display-time 
priority at the price of the IEX Re-Opening Trade. All remaining 
Auction Eligible Orders with a resting price equal to the price of the 
IEX Re-Opening Trade execute in display-time priority at the price of 
the IEX Re-Opening Trade. Upon completion of a Volatility Auction, the 
IEX Re-opening Trade for the security will be the execution that 
resulted from the Volatility Auction. If a security does not have a 
Volatility Auction (e.g., there is insufficient crossing interest to 
conduct a Volatility Auction), the transition to continuous trading 
shall be conducted pursuant to proposed Rule 11.350(f)(2)(G), described 
below, and no Volatility Auction will occur. Pursuant to Rule 
11.350(c)(2)(F), if IEX has not determined the IEX Official Opening 
Price for an IEX-listed security, and the security is subject to an 
LULD trading pause, the IEX Official Opening Price will be the price of 
the Volatility Auction.
Volatility Auction Contingency Procedures
    When a disruption occurs that prevents the execution of a 
Volatility Auction as set forth above, IEX shall apply the Volatility 
Auction Contingency Procedures set forth in proposed Rule 
11.350(f)(2)(H). Specifically, IEX will publicly announce that no 
Volatility Auction will occur, and the Exchange will immediately notify 
the single plan processor responsible for consolidation of information 
for the security. All orders on the Order Book will be canceled, and 
IEX will open the security for trading without an auction after the 
single plan processor responsible for consolidation of information for 
the security has disseminated Price Bands.
Transition to Continuous Trading
    Pursuant to proposed Rule 11.350(f)(2)(G), Auction Eligible Orders 
with a TIF of FOK or IOC and market orders that are not fully executed 
in a Volatility Auction will be canceled immediately after the 
Volatility Auction match. All remaining shares from Auction Eligible 
Orders and Auction Ineligible Orders that are not canceled by the 
System immediately after a Volatility Auction match will be released to 
the Continuous Book for trading in the Regular Market Session, subject 
to the orders' instructions. Routable orders that are released to the 
Continuous Book will be routed in accordance with IEX Rule 11.230(c) 
(Re-Sweep Behavior), subject to the orders' instructions.
Closing With a Volatility Auction
    Where an IEX-listed security is paused pursuant to IEX Rule 
11.280(e) at or after the Closing Auction Lock-in Time, or the Order 
Acceptance Period of a Volatility Auction for a security paused before 
the Closing Auction Lock-in Time pursuant to IEX Rule 11.280(e)

[[Page 21656]]

would otherwise be extended by the Exchange to a time after the Closing 
Auction Lock-in Time, no Closing Auction for the security will occur. 
Instead, the Exchange will conduct a Volatility Auction at the end of 
Regular Market Hours to determine the IEX Official Closing Price for 
the security pursuant to proposed Rule 11.350(f)(3).
Order Entry and Cancellation Before Closing With a Volatility Auction
    Pursuant to proposed Rule 11.350(f)(3)(A), Auction Eligible Orders 
may be submitted to the Exchange at the beginning of the Order 
Acceptance Period for participation in a Volatility Auction. All 
Auction Eligible Orders will be queued until the auction match. All 
orders associated with a Volatility Auction must be received prior to 
the auction match in order to be eligible for execution in the 
Volatility Auction. Auction Ineligible Orders will be rejected prior to 
the auction match. MOC and LOC orders queued for the Closing Auction 
will be incorporated into the Auction Book for the Volatility Auction. 
When an IEX-listed security is paused pursuant to IEX Rule 11.280(e) at 
or after the Closing Auction Lock-in Time, or the Order Acceptance 
Period of a Volatility Auction for a security paused before the Closing 
Auction Lock-in Time pursuant to IEX Rule 11.280(e) would otherwise be 
extended by the Exchange to a time after the Closing Auction Lock-in 
Time, non-displayed interest with a TIF of DAY and pegged orders will 
be immediately canceled, in order to allow Users to re-enter such 
interest as Auction Eligible Orders. Auction Eligible Orders associated 
with a Volatility Auction may be canceled or modified at any time prior 
to the auction match. In the event the Exchange cannot complete a 
Volatility Auction before the end of Post-Market Hours (i.e., 5:00 
p.m.), all open orders in the subject security on the Order Book will 
be canceled.\89\
---------------------------------------------------------------------------

    \89\ See proposed Rule 11.350(f)(3)(A)(v).
---------------------------------------------------------------------------

Process for Closing With a Volatility Auction
    Under proposed Rule 11.350(f)(3)(B)(i), at the start of the Display 
Only Period and updated every one second thereafter, IEX Auction 
Information associated with the Volatility Auction will be disseminated 
via electronic means. The Exchange shall execute the Volatility Auction 
to determine the IEX Official Closing Price of a security in accordance 
with the clearing price determination process described above and set 
forth in proposed Rule 11.350(f)(3)(B)(ii). If the Volatility Auction 
price established by proposed Rule 11.350(f)(3)(B)(ii) is outside the 
Volatility Auction Collar, the Order Acceptance Period shall be 
extended pursuant to 11.350(f)(2)(C)(ii) and the Volatility Auction 
Collars shall be updated pursuant to Rule 11.350(f)(2)(D)(ii), 
described above. If the Volatility Auction match price meets the 
conditions for extending the Order Acceptance Period described in Rule 
11.350(f)(2)(C)(i), the Order Acceptance Period shall be extended 
pursuant to 11.350(f)(2)(C)(i).
    Auction Eligible Orders matched in the Volatility Auction will 
execute in accordance with IEX Auction Priority, described above. 
Specifically, as set forth in proposed Rule 11.350(f)(3)(B)(iii), 
market and MOC orders have priority over all other Auction Eligible 
Orders in the Volatility Auction. To the extent there is executable 
contra side interest, such market and MOC orders will be executed at 
the IEX Official Closing Price according to time priority. After the 
execution of all market and MOC orders, the remaining Auction Eligible 
Orders with a resting price more aggressive than the IEX Official 
Closing Price will be executed in price-display-time priority at the 
IEX Official Closing Price. All remaining Auction Eligible Orders with 
a resting price equal to the IEX Official Closing Price shall execute 
in display-time priority at the IEX Official Closing Price. All AGID 
modifiers as defined in Rule 11.190(e), and Minimum Quantity 
instructions as defined in Rule 11.190(b)(11), will not be supported in 
the Volatility Auction, but will be enforced on all unexecuted shares 
released to the Continuous Book following the Volatility Auction match. 
The IEX Official Closing Price will be the price of the Volatility 
Auction. If there is insufficient trading interest (i.e., no crossing 
interest) in the System to execute the Volatility Auction for that 
security, the Final Last Sale Eligible Trade shall be used as the IEX 
Official Closing Price in that security, and the security will be 
released for trading pursuant to proposed Rule 11.350(f)(3)(C), 
described below. Pursuant to Rule 11.350(c)(2)(F), if IEX has not 
determined the IEX Official Opening Price for an IEX-listed security, 
and the security is subject to an LULD trading pause, the IEX Official 
Opening Price will be the price of the Volatility Auction.
Contingency Procedures for Closing With a Volatility Auction
    Under proposed Rule 11.350(f)(3)(D), when a disruption occurs that 
prevents the execution of the Volatility Auction as set forth above, 
IEX will utilize the Closing Auction Contingency Procedures as defined 
in proposed Rule 11.350(d)(4).
Transition to Post-Market Session
    Pursuant to proposed Rule 11.350(f)(3)(C), LOC, MOC, and market 
orders, as well as all orders with a TIF of DAY, FOK, or IOC that are 
not fully executed at the conclusion of the Volatility Auction will be 
canceled immediately after the Volatility Auction match. All remaining 
shares from Auction Eligible Orders that are not canceled immediately 
by the System after the Volatility Auction match will be released to 
the Continuous Book for trading in the Post-Market Session, subject to 
the orders' instructions. Routable orders that are released to the 
Continuous Book will be routed in accordance with IEX Rule 11.230(c) 
(Re-Sweep Behavior), subject to the orders' instructions.
Short Sale Order Handling
    For Opening, Closing, Halt, and Volatility Auctions for covered 
securities, when the Short Sale Price Test of Rule 201 of Regulation 
SHO is in effect, the Exchange will not execute or display short sale 
orders not marked short exempt at a price at or below the current 
NBB.\90\ Specifically, when the Short Sale Price Test of Rule 201 of 
Regulation SHO is in effect during the auction match for covered 
securities, and the inclusion of one or more sell short orders not 
marked short exempt would push the auction match price to a price at or 
below the current NBB at the time of the auction match (i.e., the time 
of execution of orders in the auction), then such short sale orders not 
marked short exempt and all other short sale orders not marked short 
exempt with lesser priority shall not receive an execution in the 
auction match.
---------------------------------------------------------------------------

    \90\ See Rule 201(b)(1) of Regulation SHO.
---------------------------------------------------------------------------

    In addition, the Exchange notes that short sale orders not marked 
short exempt for a covered security subject to the Short Sale Price 
Test of Rule 201 of Regulation SHO submitted to the Continuous Book are 
subject to Rule 11.190(h)(4) (Short Sale Price Sliding), and will 
therefore not be displayed at a price at or below the current NBB. 
Furthermore, short sale orders submitted to the Auction Book that are 
not marked short exempt for a covered security subject to the Short 
Sale Price Test of Rule 201 of Regulation SHO submitted to the Auction 
Book are not displayed, and therefore will not be displayed at a price 
at or below the current NBB. In the case of an IPO

[[Page 21657]]

Auction, the security will never be subject to the Short Sale Price 
Test of Rule 201 of Regulation SHO since there will have been no prior 
trading.\91\
---------------------------------------------------------------------------

    \91\ Note, IPO Auctions are used to open securities that are the 
subject of a new security offering pursuant to Section 6 of the 
Securities Act of 1933 on the first day of trading on the Exchange. 
Pursuant to question 3.2 of the Responses to Frequently Asked 
Questions Concerning Rule 201 of Regulation SHO, on the first day of 
trading of a covered security on any listing market, pursuant to a 
new security offering, there will not be a closing price for the 
covered security for the prior day. Thus, Rule 201 will not apply to 
such covered securities until the second day of trading.
---------------------------------------------------------------------------

    Accordingly, when the Short Sale Price Test of Rule 201 of 
Regulation SHO is in effect during an auction for a covered security, a 
short sale Auction Eligible Order not marked short exempt with a 
resting (as defined in proposed Rule 11.350(b)(1)(A)(i)) price at or 
below the auction match price will not participate (in whole or in 
part) in the clearing price determination or receive an execution (in 
whole or in part) in the auction match (despite such orders 
marketability against the auction match price) if the short sale 
order's participation in the clearing price determination of the 
auction would push the auction match price to a price at or below the 
current NBB price. The following describes the execution priority for 
auctions in a security when the Short Sale Price Test pursuant to Rule 
201 of Regulation SHO is in effect:
     Auction Eligible Order that are market orders, including 
MOO and MOC orders, to buy, sell long, or sell short that do not push 
the auction match price to a price at or below the current NBB, will 
execute in time priority.
     All other Auction Eligible Orders priced more aggressively 
than the auction match price to buy, sell long, or sell short that do 
not push the auction match price to a price at or below the current 
NBB, will execute in price-display-time priority.
     All other Auction Eligible Orders priced equal to the 
auction match price to buy, sell long, or sell short that do not push 
the auction match price to a price at or below the current NBB, will 
execute in display-time priority.
    Proposed Rule 11.350(h) states that whenever in the judgment of the 
Exchange, the interests of a fair and orderly markets so require, the 
Exchange may adjust the timing of or suspend the auctions set forth in 
this IEX Rule with prior notice to Users. The Exchange believes that 
reserving qualified discretion to adjust the timing or suspend IEX 
Auctions in the interest of fair and orderly markets is inherently 
consistent with the protection of investors and the public interest. 
The Exchange believes that this discretion is necessary to give the 
Exchange latitude to adapt to quickly changing, volatile market 
conditions that may negatively impact market participants. The Exchange 
further notes that Bats Rule 11.23(f) reserves identical discretion, 
stating ``[w]henever, in the judgment of [Bats], the interests of a 
fair and orderly market so require, the Exchange may adjust the timing 
of or suspend the auctions set forth in this Rule with prior notice to 
Users''.
    Proposed Rule 11.350(i) states that for purposes of Rule 611(b)(3) 
of Regulation NMS and section VI(D)(6) of the plan to Implement a Tick 
Size Pilot Program, orders executed pursuant to the Opening Auction, 
Closing Auction, IPO Auction, Halt Auction, and Volatility Auction may 
trade-through or trade-at the price of any other Trading Center's 
Manual or Protected Quotations if the transaction that traded-at or 
constituted the trade-through was a single-priced opening, re-opening, 
or closing transaction by the trading center. Each of the orders 
executed pursuant to the Opening Auction, Closing Auction, IPO Auction, 
Halt Auction, and Volatility Auction are by definition a single priced 
opening, re-opening, or closing transactions, and therefore meet the 
letter and spirit of Rule 611(B)(3) of Regulation NMS and section 
VI(D)(6) of the plan to Implement a Tick Size Pilot Program, and are 
consistent with the protection of investors and the public interest.
IEX Auction Information
    In addition to the amendments to IEX Rule 11.350 to govern Exchange 
Auctions, the Exchange proposes to amend IEX Rule 11.330 to describe 
the addition of IEX Auction Information to recipients of the IEX Top of 
Book Quote and Last Sale feed (``TOPS''), the IEX Depth of Book and 
Last Sale feed (``DEEP''), as well as the IEX Data Platform, which is 
available on the Exchange's public Web site. TOPS, DEEP, and the IEX 
Data Platform is available to Exchange data recipients \92\ free of 
charge.
---------------------------------------------------------------------------

    \92\ Exchange data recipients include Members of the Exchange as 
well as non-Members that have entered into an agreement with the 
Exchange that permits them to receive Exchange data.
---------------------------------------------------------------------------

    As defined in proposed Rule 11.350(a)(9), IEX Auction Information 
contains the current status of price, size, imbalance information, 
auction collar information, and other relevant information related to 
auctions conducted by the Exchange, described below.\93\ IEX intends to 
disseminate substantially the same information through the Consolidated 
Quotation System operated by the Consolidated Tape Association 
(``CTA'') SIP, pending approval by the Operating Committee of the CTA. 
Following such approval, IEX will amend Rule 11.330 to reflect this 
additional means of dissemination.
---------------------------------------------------------------------------

    \93\ The Exchange does not charge fees for any of its data feeds 
or for ports used for receipt of data from the Exchange.
---------------------------------------------------------------------------

    IEX Auction Information as proposed is substantially similar to the 
Bats Auction Feed, and the Nasdaq Net Imbalance Order Indicator 
(NOII).\94\ However, consistent with the commitment made by each 
primary listing exchange set forth in Amendment 12 to the Limit Up-
Limit Down Plan, the Exchange is proposing to include the applicable 
auction collar values and the reference price from which the collar is 
derived, the scheduled time of the auction, and the number of auction 
extensions, if any. Furthermore, the Exchange will disseminate IEX 
Auction Information every one second, which is a more frequent interval 
than auction information is disseminated by Bats and Nasdaq, but less 
frequent than NYSE Arca.\95\ IEX Auction Information will contain the 
following data elements:
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    \94\ See Bats Rule 11.22(i), as well as the Bats Auction Feed 
Specification. See also Nasdaq Rules 4752(a)(2), 4753(a)(3), and 
4754(a)(7), as well as the Nasdaq Net Order Imbalance Indicator User 
Guide.
    \95\ See Bats Rules 11.23(b)(2)(A), 11.23(c)(2)(A), 
11.23(d)(2)(A), and 11.23(e)(2)(A), which state that Bats auction 
information will be disseminated in 5 second intervals; See Nasdaq 
Rule 4752(d)(1), which states that an Order Imbalance Indicator 
shall be disseminated every five seconds between 9:28 a.m. and the 
Nasdaq Opening Cross, Nasdaq Rule 4754(b)(1), which states that an 
Order Imbalance Indicator shall be disseminated every five seconds 
between 3:50 p.m. and the Nasdaq Closing Cross, and Nasdaq Rule 
4753(b)(1), which states that an Order Imbalance Indicator shall be 
disseminated every five seconds at the beginning the Display Only 
Period for a Nasdaq Halt Cross and continuing through the resumption 
of trading; See Arca Rule 7.35(a)(4)(A), which states that Auction 
Imbalance Information is updated at least every second, unless there 
is no change to the information, as well as the XDP Integrated Feed 
Client Specification version 1.16b, Section 13.2 at 27, which states 
that Auction Imbalance Information is published in real time.
---------------------------------------------------------------------------

     Reference Price: The single price at or within the 
Reference Price Range at which orders on the Auction Book would match 
if the IEX Auction were to occur at that time of dissemination. The 
Reference Price is set to the price that maximizes the number of the 
shares from orders on the Auction Book to be executed in the auction. 
If more than one price maximizes the number of shares that will 
execute, the Reference Price is set to the entered price at which 
shares will remain unexecuted in the

[[Page 21658]]

auction (i.e., the price of the most aggressive unexecuted order). If 
more than one price satisfies the above conditions (i.e., shares are 
maximized at each price at or higher than the most aggressive 
unexecuted buy order and at or lower than the most aggressive 
unexecuted sell order, resulting in an ``auction price range''), the 
Reference Price is set to the price within the auction price range that 
minimizes the distance from either the Volume Based Tie Breaker (if the 
auction price range includes prices in the Reference Price Range) or 
the Reference Price Range (if the auction price range does not include 
prices in the Reference Price Range) at the time of dissemination. In 
the case of an IPO or Halt Auction, the Reference Price shall be the 
same as the Auction Book Clearing Price.
     Paired Shares: The number of shares from orders on the 
Auction Book that can be matched with other orders on the Auction Book 
at the Reference Price at the time of dissemination.
     Imbalance Shares: The number of shares from orders on the 
Auction Book that may not be matched with other orders on the Auction 
Book at the Reference Price at the time of dissemination.
     Imbalance Side: The buy/sell direction of any imbalance at 
the time of dissemination.
     Indicative Clearing Price: The single price at or within 
the Opening/Closing Auction Collar at which Auction Eligible Orders 
would match if the IEX Auction were to occur at the time of 
dissemination pursuant to the procedures for determining the clearing 
price set forth in the applicable auction rule. In the case of an IPO, 
Halt, or Volatility Auction, the Indicative Clearing Price shall be the 
same as the Auction Book Clearing Price.
     Auction Book Clearing Price: The single price at which 
orders on the Auction Book would match if the IEX Auction were to occur 
at the time of dissemination pursuant to the procedures for determining 
the clearing price set forth in the applicable auction rule, but shall 
not be constrained by the Opening/Closing Auction Collar, as 
applicable. If shares from market orders would remain unexecuted, IEX 
shall disseminate an indicator for ``market buy'' or ``market sell.''
     Collar Reference Price: Opening/Closing Auction Collar 
Reference Price for the Opening and Closing Auctions. Volatility 
Auction Collar Reference Price for the Volatility Auction.
     Lower Auction Collar: The lower threshold of the Opening/
Closing Auction Collar for the Opening and Closing Auctions. The lower 
threshold of the Volatility Auction Collar for the Volatility Auction.
     Upper Auction Collar: The upper threshold of the Opening/
Closing Auction Collar for the Opening and Closing Auctions. The upper 
threshold of the Volatility Auction Collar for the Volatility Auction.
     Scheduled Auction Time: The projected time of the auction 
match.
     Extension Number: The total number of automatic Order 
Acceptance Period extensions an IPO, Halt, or Volatility Auction has 
received.
    Note that the Reference Price, Indicative Clearing Price, and 
Auction Book Clearing Price will show the same value during an IPO or 
Halt Auction since there is no Continuous Book and no applicable 
auction collar. In addition, if there is a market order imbalance in an 
IPO or Halt Auction, the Reference Price, Indicative Clearing Price, 
and Auction Book Clearing Price will all have a value of zero, 
indicating that an auction match price cannot be calculated, the 
Imbalance Side will indicate the side of the market order imbalance, 
and the Imbalance Shares will indicate the size of the market order 
imbalance. Lastly, if there is a market order imbalance in an Opening 
or Closing Auction, the Auction Book Clearing Price will all have a 
value of zero. IEX Auction Information will be disseminated every one 
second between the Lock-in Time and the auction match for Opening and 
Closing Auctions, and during the Display Only Period for IPO, Halt, and 
Volatility Auctions.
    The fields proposed for dissemination in IEX Auction Information 
are strategically tailored to the IEX Auction model, and were developed 
after informal discussion with various Members, as well as reference to 
existing fields offered in auction data provided by other exchanges, 
including the Nasdaq NOII, and the Bats Auction Feed. Specifically, the 
Indicative Clearing Price and Auction Book Clearing Price are 
substantially similar to the Nasdaq ``Near Clearing Price'' and ``Far 
Clearing Price'' as well as the Bats ``Indicative Price'' and ``Auction 
Only Price'', and should therefore be familiar to Members that trade in 
the Nasdaq and Bats auctions.\96\ Similarly, the proposed Reference 
Price field is substantially similar to the Reference Price utilized by 
Bats, and Nasdaq.\97\
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    \96\ See the Bats US Equities Auction Process specification at 
8, as well as the Nasdaq Net Order Imbalance Indicator User Guide at 
4-5.
    \97\ See the Bats US Equities Auction Process specification at 
7, and 5, which define the Reference Price as the price within the 
Reference Price Range that maximizes the number of shares to be 
executed, minimizes the imbalance, and minimizes the distance to the 
Volume Based Tie Breaker. See also e.g., Nasdaq Rule 4754(a)(7)(A), 
which defines the Current Reference Price for the Nasdaq closing 
cross.
---------------------------------------------------------------------------

    Moreover, as proposed, the Exchange will utilize orders on the 
Auction Book to calculate the Paired Shares, Imbalance Shares, and 
Imbalance Side fields included in IEX Auction Information (i.e., both 
displayed and non-displayed orders on the Continuous Book are not 
accounted for when determining the number of shares that can be matched 
or remain unexecuted at the current Reference Price). The proposed 
Paired Shares, Imbalance Shares, and Imbalance Side fields are designed 
to enhance the reliability of the fields disseminated in IEX Auction 
Information, and mitigate potential gaming scenarios that could 
negatively impact Users trading in IEX Auctions.
    Specifically, the fields as proposed are designed to avoid 
disseminating Paired Shares and Imbalance Shares based on orders on the 
Continuous Book that may be fleeting. Orders on the Continuous Book are 
not subject to lock-in or lock-out restrictions, and may therefore be 
canceled or executed at any time before the auction match. Including 
potentially fleeting orders in the Paired Shares and Imbalance Shares 
fields could have negative implications for price discovery leading up 
to the auction match by discouraging Users from offsetting Imbalance 
Shares, leaving unmatched shares on the Auction Book at the time of the 
match when Continuous Book orders that were ostensibly offsetting the 
Imbalance Shares (and contributing to Paired Shares) are canceled or 
executed prior to the auction.
    Furthermore, as proposed, the Paired Shares field is designed to 
allow Users to determine the likelihood of their Eligible Auction 
Orders being executed in the auction. Specifically, because Paired 
Shares only reflects orders that are locked in to the auction (and 
therefore will be eligible for execution only in the auction), Users 
can assess their chances of receiving an execution in the auction match 
based on the marketability of their order against the Indicative 
Clearing Price, and the number of Paired Shares against their order 
size. For example, if the final Indicative Clearing Price is $10.00, 
and IEX has 100,000 shares paired, a User that has a LOC order to buy 
10,000 shares with a limit price of $10.50 has a high likelihood of 
receiving a 10,000 share execution in the Closing Auction. To continue 
the example and highlight the positive effects of the proposed 
functionality on price discovery, if the

[[Page 21659]]

Indicative Clearing Price were to have moved away from the participant 
(to $10.50, for example), such User's chances of receiving an execution 
in the auction are diminished because the auction match price has moved 
to the order's limit price, and such order is ``locked-in'' (i.e., 
ineligible for modification or cancelation). Accordingly, Users are 
incentivized to express their full limit on Auction Eligible Orders in 
order to increase the likelihood of receiving an execution in the 
Opening or Closing Auction at a price they believe reflects the 
fundamental value of the security. This truthful representation of full 
limit prices is designed to enhance price discovery leading into the 
auction match.
    The Exchange further notes that as proposed, the Paired Shares, 
Imbalance Shares, and Imbalance Side fields are substantially similar 
to the ``Reference Buy Shares'' and ``Reference Sell Shares'' fields 
currently offered by Bats on the Bats Auction Feed, which provide the 
number of shares associated with buy (sell) side Eligible Auction 
Orders (which are on the Bats auction book, as defined in Bats Rule 
11.23(a)(8)) that are priced equal to or greater (less) than the 
Reference Price. However, rather than market participants deriving the 
number of Paired Shares, Imbalance Shares, and the Imbalance Side, the 
Exchange is proposing to derive and disseminate each value 
independently.\98\ Moreover, Paired Shares, Imbalance Shares, and 
Imbalance Side fields are substantially similar to the Paired Shares, 
Imbalance Shares, and Imbalance Side fields that are currently offered 
by Nasdaq in the NOII.\99\
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    \98\ Note, paired shares would be equal to the lesser of 
Reference Buy Shares and Reference Sell Shares; Imbalance Shares 
would be equal to the absolute value of Reference Sell Shares minus 
Reference Buy Shares; and the side of the greater between Reference 
Buy Shares and Reference Sell Shares is the imbalance side.
    \99\ See the Nasdaq Net Order Imbalance Indicator User Guide at 
4-5.
---------------------------------------------------------------------------

    For example, in the case of a Closing Auction if the Continuous 
Book were to contain the following orders at the Lock-in Time, and the 
NBBO were to be $19.99 x $20.00:
[GRAPHIC] [TIFF OMITTED] TN09MY17.001

    And the Closing Auction Book at the time were to contain the 
following orders:
[GRAPHIC] [TIFF OMITTED] TN09MY17.002

    IEX would disseminate the following IEX Auction Information:

 Reference Price: $20.00
 Paired Shares: 10,000
 Imbalance Shares: 1,000
 Imbalance Side: Buy
 Indicative Clearing Price: $20.01
 Auction Book Clearing Price: $20.02
 Collar Reference Price: $19.995
 Lower Auction Collar: $18.00
 Upper Auction Collar: $21.99
 Scheduled Auction Time: 16:00:00
 Extension Number: 0
Trading Halts and LULD Plan
    Exchange Rule 11.280 governs trading halts due to Extraordinary 
Market Volatility and pursuant to the LULD Plan. In order to address 
the obligations of a listing market under the LULD Plan, the Exchange 
proposes several amendments to IEX Rule 11.280. First, the Exchange 
proposes to add provisions governing the manner in which auction orders 
would be handled during an LULD trading pause, and how trading would be 
re-opened following such pause. As proposed, IEX Rule 11.280(e)(5)(F) 
provides that Auction Eligible Orders on the Auction Book are not price 
slid or canceled due to LULD price bands. This provision is 
substantially similar to Nasdaq Rule 4120(a)(12)(E)(5). In addition, 
the Exchange proposes to add paragraph (e)(7) to 11.280 to provide that 
the Exchange may declare an LULD trading pause for a NMS Stock listed 
on the

[[Page 21660]]

Exchange during a straddle state. This provision is identical to BATS 
Exchange Rule 11.18(e)(7). The Exchange also proposes a clarifying 
change to the title to IEX Rule 11.280 to reference the Limit Up-Limit 
Down Plan. The Exchange believes that the revised rule title, will 
provide greater clarity to Members and other market participants. 
Lastly, proposed Rule 11.280(e)(8) provides that following a trading 
pause, the Exchange shall re-open trading in IEX-listed securities 
pursuant to the procedures set forth in IEX Rule 11.350(f), and trading 
in non-IEX-listed securities shall re-open upon receipt of the Price 
Bands from the single plan processor responsible for consolidation of 
information for the security. This provision is substantially similar 
to Bats Rule 11.18(e)(8), and is consistent with the commitment made by 
each primary listing exchange set forth in Amendment 12 to Limit Up-
Limit Down Plan to file rule changes with the Commission under Section 
19(b) of the Exchange Act to amend its respective trading practice for 
automated reopening's following a Trading Pause.
    The Exchange also proposes to add new paragraphs (g) and (h) to IEX 
Rule 11.280 governing the initiation and termination of trading halts 
by IEX in IEX-listed securities. Proposed paragraphs (g) and (h) to IEX 
Rule 11.280 are complementary to each other, and to proposed Rule 
11.280(e), in that paragraph (g) sets forth the conditions under which 
the Exchange can initiate trading halts in circumstances in which IEX 
deems it necessary to protect investors and the public interest. 
Furthermore, such trading halts shall be initiated and terminated 
pursuant to the procedures set forth in proposed paragraph (h), which 
sets for the various procedures the Exchange will follow to initiate 
and terminate trading halts, including the procedures related to IPO's 
on the Exchange for IEX-listed securities.
    As proposed, new paragraph (g) provides that in circumstances in 
which IEX deems it necessary to protect investors and the public 
interest, IEX may halt trading in an IEX-listed security, pursuant to 
the procedures set forth in new paragraph (h), under the following 
circumstances:
     IEX Rule 11.280(g)(1) provides that the Exchange may halt 
trading on IEX of an IEX-listed security to permit the dissemination of 
material news,\100\ provided, however, that in the Pre-Market Session, 
IEX will halt trading for dissemination of news only at the request of 
an issuer or pursuant to proposed Rule 11.280(g)(2). Consistent with 
the practices of other listing markets, IEX expects that when a listed 
company releases material news during the Regular Market Session, the 
Exchange will typically halt trading temporarily to ensure full 
dissemination of the news, generally referred to as a regulatory 
trading halt. However, and consistent with NYSE and Nasdaq rules, if an 
IEX-listed company were to issue material news during the Pre-Market 
Session the Exchange would only halt trading if the listed company 
requests that trading in its listed securities be halted pending 
dissemination of a public announcement. The Exchange believes that 
because of lower volume of trading generally during the Pre-Market 
Session, a listed company is best positioned to determine whether a 
trading halt is appropriate given the news it intends to release.\101\ 
This approach is comparable to the rules of the NYSE and Nasdaq.\102\ 
When the Exchange implements a regulatory trading halt in an IEX-listed 
security, trading is halted on all market centers to ensure full 
dissemination of the news to investors.
---------------------------------------------------------------------------

    \100\ The Exchange considers material news to be any news would 
reasonably be expected to affect the value of a company's securities 
or influence investors' decisions.
    \101\ Pursuant to Exchange Rule 14.207, listed companies are 
required to provide notice to the Exchange's Regulation Department 
at least ten minutes prior to release of specified material 
information if such release is made during System Hours (including 
the Pre-Market, Regular and Post-Market Sessions).
    \102\ See Section 202.06 of the NYSE Listed Company Manual and 
Nasdaq Rule 4120(a)(1).
---------------------------------------------------------------------------

     IEX Rule 11.280(g)(2) provides that IEX may halt trading 
on IEX of a security listed on another national securities exchange 
during a trading halt imposed by such exchange to permit the 
dissemination of material news. This provision is designed to prevent 
trading on IEX in a security which is pending disclosure and 
dissemination of material information so that all market participants 
have equal access to such information prior to making a trading 
decision. The provision is also consistent with the rules of other 
exchanges.\103\
---------------------------------------------------------------------------

    \103\ See, e.g., Nasdaq Rule 4120(a)(2).
---------------------------------------------------------------------------

     IEX Rule 11.280(g)(3) provides that IEX halt trading on 
IEX of a security listed on another national securities exchange when 
such exchange imposes a trading halt in that security because of an 
order imbalance or influx (an ``operational trading halt''). Further, 
IEX may halt trading on IEX in a security listed on IEX, when the 
security is a derivative or component of a security listed on another 
national securities exchange and such exchange imposes an operational 
trading halt in that security. Unlike with a regulatory trading halt, 
if an operational trading halt is in effect, IEX Members may commence 
quotations and trading otherwise than on IEX at any time following 
initiation of the operational trading halt, without regard to whether 
IEX has terminated the trading halt on IEX. These provisions are 
substantially similar to Nasdaq Rule 4120(a)(3) and are designed to 
enable IEX to provide optionality to IEX members with respect to 
operational trading halts.
     IEX Rule 11.280(g)(4) provides that IEX may halt trading 
in an American Depository Receipt (``ADR'') or other security listed on 
IEX, when the IEX-listed security or the security underlying the ADR is 
listed on or registered with another national or foreign securities 
exchange or market, and the national or foreign securities exchange or 
market, or regulatory authority overseeing such exchange or market, 
halts trading in such security for regulatory reasons. This provision 
is designed to prevent trading on IEX in a security which is pending 
disclosure and dissemination of material information so that all market 
participants have equal access to such information prior to making a 
trading decision. The provision is also consistent with Nasdaq Rule 
4120(a)(4).
     IEX Rule 11.280(g)(5) provides that IEX may halt trading 
in an IEX-listed security when IEX requests from the issuer of such 
security, issuer information relating to material news, the issuer's 
ability to meet IEX listing qualification requirements or any other 
information. This provision, which is substantially similar to Nasdaq 
Rule 4120(a)(5) is designed to assure that market participants do not 
effect transactions in a security when, in the Exchange's opinion, 
there is uncertainty as to whether all material information regarding 
the security, including its ability to meet listing requirements, has 
been fully disclosed to market participants.
     IEX Rule 11.280(g)(6) provides that IEX may halt trading 
in an IEX-listed security when there is extraordinary market activity 
in the security, and IEX determines that such activity is likely to 
have a material effect on the market for such security and believes 
that such activity is caused by the misuse or malfunction of an 
electronic quotation, communication, reporting or execution system 
operated by, or linked to, IEX. This provision also provides that IEX 
may halt a security traded on IEX on an unlisted trading privileges 
basis that is subject to extraordinary market activity,

[[Page 21661]]

if, after consultation with another national securities exchange or 
FINRA, IEX believes that such activity is caused by a misuse or 
malfunction of an electronic quotation, communication, reporting or 
execution system operated by, or linked to such other exchange or 
FINRA, as applicable. This provision is substantially similar to Nasdaq 
Rule 4120(a)(6).
     IEX Rule 11.280(g)(7) provides that IEX may halt trading 
in a security that is the subject of an IPO on IEX. This provision, 
which is substantially similar to Nasdaq Rule 4120(a)(7), is designed 
to provide flexibility to enable a trading halt in the event of an 
unexpected system or other issue, or otherwise in connection with the 
start of trading in an IPO.
    As noted above, proposed paragraph (h) provides the procedures for 
initiating and terminating a trading halt and is substantially similar 
to Nasdaq Rule 4120(c). As proposed, subparagraphs (h)(1), and (h)(2) 
provide that IEX issuers are required to notify IEX of the release of 
certain material news prior to the release of such information to the 
public, as required by Rule 14.207(b)(1) and directly to IEX's 
Regulation Department in the manner specified by IEX. Paragraph (h)(3) 
provides that, upon receipt of the information from issuer or other 
source, IEX will promptly evaluate the information, estimate its 
potential impact on the market and determine whether a trading halt in 
the security is appropriate.
    Paragraph (h)(4) provides that should IEX determine that a basis 
exists under IEX Rule 11.280(g) or (e) for initiating at trading halt 
or LULD trading pause, the commencement of the trading halt or pause 
will be effective at the time specified by IEX in a notice posted on a 
publicly available IEX Web site. IEX would also effectuate halt notices 
through the Securities Information Processor (``SIP''). The Exchange 
notes that during any trading halt or pause for which a Halt Auction or 
Volatility Auction under IEX Rules 11.350(e) or (f), respectively, will 
not occur, orders entered during the trading halt or pause will not be 
accepted. Paragraph (h)(5) provides that trading in a halted security 
shall resume at the time specified by IEX in a notice posted on a 
publicly available IEX Web site. As with initiation of a trading halt, 
IEX will also effectuate resumption notices through the SIP. These 
provisions are substantially similar to Nasdaq Rule 4120(c)(4) and (5), 
except that IEX will not accept orders with instructions to route to 
another exchange during any trading halt or pause for which a Halt of 
Volatility Auction under IEX Rules 11.350(e) or (f) will not 
occur.\104\
---------------------------------------------------------------------------

    \104\ See Nasdaq Rule 4120(c)(4)(B).
---------------------------------------------------------------------------

    Paragraph (h)(6) specifies the process for trading halts initiated 
under paragraph (g)(6) based on the misuse of malfunction of an 
electronic quotation, communication, reporting, or execution system 
that is not operated by IEX. In such a situation, IEX will promptly 
contact the operator of the system in question (as well as any national 
securities exchange or FINRA facility to which such system is linked) 
to ascertain information that will assist IEX in determining whether a 
misuse or malfunction has occurred, what effect the misuse or 
malfunction is having on trading in a security, and what steps are 
being taken to address the misuse or malfunction. If the operator of 
the system is unavailable when contacted by IEX, IEX will continue 
efforts to contact the operator of the system to ascertain information 
that will assist IEX in determining whether the trading halt should be 
terminated. A trading halt initiated under paragraph (g)(6) shall be 
terminated as soon as IEX determines either that the system misuse or 
malfunction that caused the extraordinary market activity will no 
longer have a material effect on the market for the security or that 
system misuse or malfunction is not the cause of the extraordinary 
market activity. This provision is substantially similar to Nasdaq Rule 
4120(c)(6).
    Paragraph (h)(7) specifies that a trading halt or pause in IEX-
listed securities, initiated under IEX Rule 11.280(e)(2), (7) or 
(g)(1), (4), or (5) shall be terminated when IEX releases the security 
for trading at the conclusion of the Halt or Volatility Auction 
pursuant to IEX Rule 11.350(e) or (f), as applicable.
    Paragraph (h)(8) sets forth the process for terminating a trading 
halt initiated in a security that is the subject of an IPO, pursuant to 
IEX Rule 11.280(g)(7).\105\ As proposed, the trading halt shall be 
terminated when IEX releases the security for trading and the following 
conditions are satisfied:
---------------------------------------------------------------------------

    \105\ The provisions are substantially similar to Nasdaq Rule 
4120(c)(8) except that IEX would provide a 30-minute Display Only 
Period, rather than the 15-minute period that Nasdaq provides, in 
order to increase transparency and price discovery.
---------------------------------------------------------------------------

     Users may enter orders in that security beginning at the 
start of the Order Acceptance Period (generally 8:00 a.m.) which will 
be accepted and entered into the System;
     Prior to terminating the halt there will be a Display Only 
Period during which IEX will disseminate IEX Auction Information via 
electronic means, and Users may continue to enter orders in that 
security in the System and IEX will begin to disseminate IEX Auction 
Information via electronic means;
     Thirty (30) minutes after the start of the Display Only 
Period, unless extended by the underwriter, the security will enter a 
Pre-Launch Period of indeterminate duration. The Pre-Launch Period and 
the Display Only Period will end and the security will be released for 
trading when the requirements of Rule 11.350(e)(2) are satisfied, and 
the following conditions are met:
    [cir] IEX receives notice from the underwriter of the IPO that the 
security is ready to trade. The System will calculate the Indicative 
Clearing Price at that time and display it to the underwriter. If the 
underwriter then approves proceeding, the System will conduct the 
following validation checks:
    [ssquf] The System must determine that all market orders will be 
executed in the IPO Auction; and
    [ssquf] the security must pass the price validation test.\106\
---------------------------------------------------------------------------

    \106\ As specified in Rule 11.280(h)(8)(c)(1) [sic], the 
validation test is as follows: Prior to the conclusion of the Pre-
Launch Period, the underwriter shall select price bands for purposes 
of applying the price validation test. Under the price validation 
test, the System compares the Indicative Clearing Price approved by 
the underwriter under proposed Rule 11.280(h)(8)(A) with the actual 
price calculated by the IPO Auction. If the actual price calculated 
by the IPO Auction differs from the Indicative Clearing Price by an 
amount in excess of the price band selected by the underwriter, the 
security will not be released for trading and the Pre-Launch Period 
will continue. The underwriter shall select an upper price band 
(i.e., an amount by which the actual price may not exceed the 
Indicative Clearing Price approved by the underwriter under proposed 
Rule 11.280(h)(8)(A)) and a lower price band (i.e., an amount by 
which the actual price may not be lower than the Indicative Clearing 
Price approved by the underwriter under proposed Rule 
11.280(h)(8)(A)). If a security does not pass the price validation 
test, the underwriter may, but is not required to, select different 
price bands before recommencing the process to release the security 
for trading. The price bands available for selection shall include 
$0 but shall not be in excess of $0.50. IEX will notify member 
organizations and the public of changes in available price band or 
increments through a notice that is widely disseminated at least one 
week in advance of the change. In selecting available price bands 
and increments, IEX will consider input from underwriters and other 
market participants and the results of past usage of price bands to 
adopt price bands and increments that promote efficiency in the 
initiation of trading and protect investors and the public interest.
---------------------------------------------------------------------------

    The failure to satisfy the above conditions during the process to 
release the security for trading will result in a delay of the release 
for trading of the IPO, and a continuation of the Pre-Launch Period, 
until all conditions have been satisfied. The underwriter, with 
concurrence of IEX, may determine at

[[Page 21662]]

any point during the IPO Auction process up through the conclusion of 
the Pre-Launch Period to postpone and reschedule the IPO. Market 
participants may continue to enter orders and order cancellations for 
participation in the IPO Auction during the Pre-Launch Period until the 
auction match.
    Finally, paragraph (h)(9) provides that the process for halting and 
initial pricing of a security that is the subject of an IPO shall also 
be available for the initial pricing of any other security that has not 
been listed on a national securities exchange or traded in the over-
the-counter market pursuant to FINRA Form 211 immediately prior to the 
initial pricing, provided that a broker-dealer serving in the role of 
financial advisor to the issuer of the securities being listed is 
willing to perform the functions under IEX Rule 11.280(h)(8) that are 
performed by an underwriter with respect to an IPO. This provision is 
substantially similar to Nasdaq Rule 4120(c)(9).
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6(b) \107\ of the Act in general, and furthers 
the objectives of Sections 6(b)(5) \108\ of the Act, in particular, in 
that it is designed to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, 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. 
IEX believes that operation of Exchange auctions for securities listed 
on the Exchange will assist in the price discovery process and help to 
ensure a fair and orderly market for securities listed on the Exchange. 
In this regard, the proposed rule change is integral to its operation 
of a listing market pursuant to rules already approved by the 
Commission.\109\ The existing U.S. exchange listing market for 
operating companies is essentially a duopoly of Nasdaq and NYSE. As of 
March 17, 2017 there were 4,767 operating companies listed on U.S. 
securities exchanges. All but 203, which are listed on NYSE's affiliate 
NYSE MKT, are listed on NYSE or Nasdaq. IEX believes that to the extent 
IEX's listing program is successful, it will provide a competitive 
alternative to the existing duopoly, which will thereby benefit issuers 
and investors, remove impediments to and perfect the mechanism of a 
free and open market and a national market system, consistent with the 
protection of investors and the public interest. Each of the existing 
listing markets offer auctions similar to the proposed Opening, 
Closing, IPO, Halt and Volatility auctions for IEX-listed securities, 
and the Exchange believes that offering such auctions is essential for 
operation of a listing market. Accordingly, the Exchange believes that 
the proposal will allow the Exchange to provide companies with another 
listing option, thereby promoting the aforementioned principles and 
purposes of Section 6(b)(5) \110\ of the Act. For the same reasons, the 
Exchange believes that the proposal is also designed to support the 
principles of Section 11A(a)(1) \111\ of the Act in that it is designed 
to promote fair competition among brokers and dealers and among 
exchange markets by offering a new listing market to compete with the 
existing Nasdaq and NYSE duopoly.
---------------------------------------------------------------------------

    \107\ 15 U.S.C. 78f.
    \108\ 15 U.S.C. 78f(b)(5).
    \109\ See Securities Exchange Act Release No. 34-78101 at 47 
(June 17, 2016), 81 FR 41142 (June 23, 2016) (File No. 10-222).
    \110\ 15 U.S.C. 78f(b)(5).
    \111\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------

    IEX Auctions, along with our market, are designed to incentivize 
and enable a broad range of market participants to enter trading 
interest for potential participation in the auctions. First, IEX does 
not impose membership, connectivity, or market data fees, in contrast 
to Nasdaq and NYSE, so there are no expensive barriers to entry for 
participation in the IEX Auctions. In addition, as proposed, IEX 
Auctions will utilize a simple and transparent price-display-time 
execution priority. Moreover, all Members are permitted to enter any 
type of Auction Eligible Order and there are no privileged participants 
(such as NYSE designated market makers and floor brokers) who receive 
enhanced priority, access to special order types, or receive 
information not available to other market participants.\112\ IEX 
believes that this ``open access'' design will result in auctions that 
attract meaningful trading interest that will enable robust price 
discovery, consistent with the protection of investors and the public 
interest, and in alignment with issuers' interests.
---------------------------------------------------------------------------

    \112\ See NYSE Rule 72(c)(ii) which provides that Floor broker 
and designated market makers have enhanced priority for the purpose 
of share allocation in an execution as compared to orders 
collectively represented in NYSE systems. See also NYSE Rule 70 and 
[sic] Supplementary Material .25 to [sic] NYSE Rule 123C describing 
the availability of discretionary e-Quotes or ``d-Quotes'' to Floor 
brokers. See also NYSE Rule 123C(6)(b) which provides that between 
2:00 p.m. and 3:45 p.m. Floor brokers receive an imbalance data feed 
not available to other market participants.
---------------------------------------------------------------------------

    With respect to the auction design, as described more fully below, 
the Exchange believes that the proposed rule change provides an auction 
methodology that will be a transparent, efficient, and robust process 
to aggregate trading interest submitted by a broad range of market 
participants to be matched at a single clearing price, consistent with 
the protection of investors and the public interest and in alignment 
with issuers' interests. As proposed, the IEX Auction rules are similar 
to auction rules of Nasdaq, NYSE, Arca, and Bats (each of which have 
been approved by the Commission and found to be consistent with the 
protection of investors and the public interest) with several 
differentiators designed to enhance price discovery, transparency and 
participation, each of which are discussed below.
    As discussed in the Purpose Section, after informal discussions 
with various Members, the Exchange believes that excluding all non-
displayed orders (including pegged orders) that were on the Continuous 
Book at the time of a halt dissemination from participating in the Halt 
Auction is consistent with the protection of investors and the public 
interest because Users submitting non-displayed orders are generally 
entrusting the Exchange to price such orders at values that are 
reflective of the market for a security. In the event of a trading 
halt, the market is in the process of reestablishing the value of a 
security, and therefore including non-displayed orders that are priced 
against a reference price that may not reflect adjustments in valuation 
resulting from additional information regarding the security during the 
halt could potentially harm investors. Similarly, as noted above, the 
Exchange believes excluding non-displayed orders from the Volatility 
Auction is consistent with the protection of investors and the public 
interest because Users submitting non-displayed orders are generally 
entrusting the Exchange to price such orders at values that are 
reflective of the market for a security. In the event of a volatility 
trading pause, the security has just experienced sharp price volatility 
and the market is in the process of reestablishing the value of a 
security, and therefore including non-displayed orders that are priced 
against a reference price that may not reflect adjustments in valuation 
during the pause could potentially harm investors.
    While non-displayed limit orders are not necessarily ``pegged'' to 
any particular reference price (such as a midpoint peg order, for 
example), such

[[Page 21663]]

orders are subject to the Midpoint Price Constraint pursuant to IEX 
Rule 11.190(h)(2), which states that non-displayed limit orders posting 
to the Order Book with a limit price more aggressive than the Midpoint 
Price is booked and ranked on the Order Book non-displayed at a price 
equal to the Midpoint Price. To reflect changes to the NBBO, the order 
is automatically re-priced by the System in response to changes in the 
NBBO to be equal to the less aggressive of the order's limit price or 
the Midpoint Price. Accordingly, in volatile markets that have 
triggered a trading pause or halt, limit orders resting on the Order 
Book that are not actively or algorithmically monitored are likely to 
have been restricted by the Midpoint Price Constraint. Accordingly, 
such orders would be priced against a reference price (i.e., the 
Midpoint Price) that may not reflect adjustments in valuation during 
the halt or pause, which could potentially harm such investors.
    As described in the Purpose Section, the Exchange believes that not 
supporting AGID modifiers in IEX Auctions is consistent with the 
protection of investors and the public interest because within the 
context of the aggregated auction match process, counterparties are not 
considered; only the aggregate available volume for execution is 
considered. It is illogical to cancel an order that happens to be 
allocated an execution against an order entered using the same MPID, 
because both orders execute at the exact same price to the exact same 
effect where the orders happen to execute against orders of a different 
MPID. Furthermore, the Exchange believes that supporting AGID modifiers 
and Minimum Quantity instructions as defined in Rule 11.190(b)(11) in 
IEX Auctions would introduce additional technical complexities to the 
clearing price determination process, and the Exchange believes 
providing simplicity in this regard is in the interest of the 
protection of investors and the public interest.\113\
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    \113\ The Exchange notes that Bats does not support broker self-
match restrictions in an IPO auction, or on regular market and limit 
orders in the Opening and Closing auctions. See Bats Rule 
11.23(a)(8)(C)(1) [sic] and Bats US Equities Auction Process 
specification at 9. See also NYSE Arca Rule 7.31(i)(2), which states 
that Orders marked with an STP modifier will not be prevented from 
interacting during any auction. (Emphasis added)
---------------------------------------------------------------------------

    As discussed in the Purpose section, the Exchange is proposing to 
utilize a default threshold percentage of ten (10) percent for the 
Opening/Closing Auction Collar because, based on informal discussion 
with various Members, as well as Nasdaq's usage of identical default 
threshold percentage values, such values typically provide an 
appropriate range within which price discovery may occur to maximize 
the number of shares executed in the auction. Furthermore, the Exchange 
believes utilizing the midpoint of the Protected NBBO to establish the 
Opening/Closing Auction Collar Reference Price is consistent with the 
protection of investors and the public interest in that the Protected 
NBBO represents the range of prices that best reflect the market for a 
security. In addition, utilizing the midpoint of the Protected NBBO may 
be less susceptible to volatility and manipulation, because in order to 
move the midpoint of the Protected NBBO to influence the auction, one 
or more Users would need to sweep the entire market, rather than simply 
entering aggressive interest on the Exchange.
    Moreover, the Exchange believes that the proposed Opening/Closing 
Auction Collars are consistent with the protection of investors and the 
public interest in that the default threshold is identical to the 
default auction collar thresholds used by Nasdaq; however, Nasdaq 
utilizes the midpoint of the best bid and offer on Nasdaq's book as the 
collar reference price.\114\ The Exchange anticipates modifying such 
benchmarks and thresholds in response to market-wide events that are 
driving price volatility, and would therefore benefit from temporarily 
widening threshold values in the interest of allowing robust price 
discovery, consistent with the protection of investors and the public 
interest. The Exchange notes that modification of the default threshold 
percentage values for the Opening/Closing Auction Collar are subject to 
the provisions of Section 19(b)(1) under the Act, and Rule 19b-4 
thereunder.\115\
---------------------------------------------------------------------------

    \114\ See Nasdaq Rule 4752(d)(2)(E).
    \115\ See 15 U.S.C. 78s(b)(1), and 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    As described above, the Exchange believes that the Volatility 
Auction Collar, as proposed, is consistent with the protection of 
investors and the public interest. Specifically, as noted above, the 
Volatility Auction Collar, as proposed, is identical to the auction 
collars imposed by Bats, Nasdaq, and Arca when conducting an auction to 
resume a security subject to an LULD trading pause.\116\ Furthermore, 
the proposed Volatility Auction Collar functionality is consistent with 
the commitment made by each primary listing exchange set forth in 
Amendment 12 to the Limit Up-Limit Down Plan to file rule changes with 
the Commission under Section 19(b) of the Exchange Act to amend its 
respective trading practice for automated reopening's following an LULD 
trading pause consistent with a standardized approach agreed to by 
Limit Up-Limit Down Plan Participants that would allow for extensions 
of an LULD trading pause if equilibrium cannot be met for a reopening 
price within specified parameters.\117\
---------------------------------------------------------------------------

    \116\ See 81 FR 75875 (November 1, 2016) (SR-BatsBZX-2016-61); 
79158 (October 26, 2016), 81 FR 75879 (November 1, 2016) (SR-NASDAQ-
2016-131); and 79107 (October 18, 2016), 81 FR 73159 (October 24, 
2016) (File No. SR-NYSEArca-2016-130).
    \117\ See e.g., Securities Exchange Act Release Nos. 79162 
(October 26, 2016), 81 FR 75875 (November 1, 2016) (SR-BatsBZX-2016-
61); 79158 (October 26, 2016), 81 FR 75879 (November 1, 2016) (SR-
NASDAQ-2016-131); and 79107 (October 18, 2016), 81 FR 73159 (October 
24, 2016) (File No. SR-NYSEArca-2016-130) and Securities and 
Exchange Act Release No. 34-79410; File No. 4-631 (Notice of Filing 
of the Twelfth Amendment to the National Market System Plan to 
Address Extraordinary Market Volatility).
---------------------------------------------------------------------------

    As proposed, Halt and IPO Auctions will not be subject to a collar, 
which is substantially similar to operation of the Bats halt auction 
and the Nasdaq halt cross.\118\ In the case of a Halt or IPO Auction, 
the process for arriving at the clearing price includes methods for 
automatic (and in the case of an IPO, manual) extensions when there is 
a market order imbalance, or the clearing price experiences volatility. 
In addition, there is no continuous trading before a Halt or IPO 
Auction, and therefore there is no reference price that is reflective 
of the market for the security from which to derive an appropriate 
collar. Accordingly, the Halt and IPO Auctions are designed to allow 
for additional price discovery to occur in order for supply and demand 
to efficiently price the security. Furthermore, Halt and IPO Auctions 
are not constrained to occur at a specific time like the Open and 
Closing Auctions (i.e., the start and end of Regular Market Hours), 
therefore the auction process continues until prices converge to an 
equilibrium and collars are not required to constrain prices before an 
equilibrium is reached.
---------------------------------------------------------------------------

    \118\ See Bats Rule 11.23(d), and Nasdaq Rule 4753.
---------------------------------------------------------------------------

    As described in the purpose section, after informal discussion with 
various Members, in the event there is no crossing interest for an IEX 
Auction (and therefore no auction occurs), the Exchange proposes to 
utilize the initial (final) trade on IEX when the Exchange is 
determining the official auction price of an IEX-listed security using 
IEX auctions, because much of the trading interest is aggregated at the 
primary trading center leading into and immediately following the 
auction.

[[Page 21664]]

Therefore, the initial (final) trade on the Exchange is likely to best 
reflect the market for a security in the event no crossing interest 
exists.\119\ Moreover, in the event a disruption prevents the Exchange 
from conducting an auction in an IEX-listed security, the Exchange is 
proposing to utilize the initial, latest, or final consolidated last 
sale eligible trade. If the Exchange is experiencing a disruption that 
is preventing the execution of an auction, market participants would be 
made aware of such disruption pursuant to the contingency procedures 
set forth above, and market participants are therefore likely to re-
route such interest to alternative execution venues. Therefore, the 
initial, latest, or final consolidated last sale eligible trade is 
likely to best reflect the market for a security in the event of a 
disruption on the Exchange that is preventing the execution of an 
auction for an IEX-listed security.\120\ Accordingly, the Exchange 
believes the proposed Rule is consistent with the protection of 
investors and the public interest.
---------------------------------------------------------------------------

    \119\ See e.g., proposed Rules 11.350(c)(2)(B) and 
11.350(d)(2)(B).
    \120\ See e.g., proposed Rules 11.350(c)(4)(i) [sic].
---------------------------------------------------------------------------

    The Exchange also believes that the auction clearing price 
determination is designed to support robust price discovery in a 
transparent manner, consistent with the protection of investors and the 
public interest, and in furtherance of a free and open market and a 
national market system. Specifically, auctions will be matched at the 
price that maximizes the number of shares to be executed at a single 
price, with appropriate tie breakers that reflect supply and demand 
from Auction Eligible Orders in the security and displayed interest in 
the market (i.e., by considering the Protected NBBO, IEX BBO, or Final 
Consolidated Last Sale Eligible Trade, depending on market conditions, 
as the final tie breaker). As discussed below, the Exchange believes 
that its proposed auction clearing price determination methodology is 
consistent with the protection of investors and the public interest 
because it is designed to provide an auction clearing price based on 
robust price discovery that reflects supply and demand in the subject 
security. The clearing price determination process proposed by the 
Exchange is similar to Nasdaq, with certain modifications as described 
in the Purpose Section.
    Specifically, as proposed, the clearing price determination for 
both Nasdaq and IEX would first attempt to maximize the number of 
shares executable in the auction at a single price. However, in the 
event there is more than one price at which shares are maximized, 
Nasdaq Rule 4752(d)(2)(B) states that the auction shall match at the 
price that minimizes any imbalance, and if there is more than one price 
at which shares are maximized and imbalance is minimized, Nasdaq Rule 
4752(d)(2)(C) states that the auction shall match at the price at which 
shares will remain unexecuted in the auction. The Exchange believes 
that Nasdaq Rule 4752(d)(2)(B) and (C) are often the same price, 
because the price at which imbalance is minimized is often also the 
price at which shares remain unexecuted in the auction. Accordingly, 
the Exchange is proposing to consolidate these conditions, and instead 
utilize the price at which shares will remain unexecuted in the auction 
(i.e., the price of the most aggressive unexecuted order).\121\
---------------------------------------------------------------------------

    \121\ The Exchange notes that in the rare event that Auction 
Eligible Orders are perfectly matched at multiple prices, the prices 
at which imbalance is minimized and the prices at which shares will 
remain unexecuted are different. In such cases, the range of prices 
within which the auction can occur on Nasdaq would be one (1) MPV 
less aggressive than the prices within which the auction can occur 
as proposed by the Exchange. Furthermore, in the event that Auction 
Eligible Orders are perfectly matched at two prices that create a 
one cent range, the price at which imbalance is minimized and the 
price at which shares remain unexecuted is the same.
---------------------------------------------------------------------------

    Moreover, in the event the clearing price determination process 
results in a clearing price range (i.e., shares are maximized at each 
price at or higher than the most aggressive unexecuted buy order and at 
or lower than the most aggressive unexecuted sell order, resulting in 
an ``auction price range''), the Exchange proposes to utilize the price 
closest the Volume Based Tie Breaker within the auction price range 
(i.e., the price at or higher than the most aggressive unexecuted buy 
order and at or lower than the most aggressive unexecuted sell order 
that is closest or equal to the Volume Based Tie Breaker).\122\ This 
differs from Nasdaq in that in the event the clearing price 
determination process results in a clearing price range, Nasdaq Rule 
4752(d)(2)(D) states that the auction shall match at the price that 
minimizes the distance from the bid-ask midpoint of the inside 
quotation on Nasdaq prevailing at the time of the auction. The proposed 
rule is designed to match the auction at the Volume Based Tie Breaker 
(e.g., midpoint of the Protected NBBO). The Exchange believes that when 
when the clearing price determination process results in a clearing 
price range, matching the auction at the price closest to the midpoint 
of the Protected NBBO is consistent with the protection of investors 
and the public interest, because such prices reflect the broader market 
for the security.
---------------------------------------------------------------------------

    \122\ The Volume Based Tie Breaker is generally the midpoint of 
the Protected NBBO. See proposed Rule 11.350(a)(33).
---------------------------------------------------------------------------

    Lastly, in the event the clearing price determined pursuant to the 
procedures above is below (above) the lower (upper) threshold of the 
Opening/Closing Auction Collar in the Opening or Closing Auction, the 
value will be the price at or within the range of prices between the 
lower (upper) threshold of the Opening/Closing Auction Collar and the 
lower (upper) threshold of the Reference Price Range that best 
satisfies the conditions described above. This differs from Nasdaq in 
that under Nasdaq Rule 4752(d)(2)(E), if the auction price is outside 
of the Nasdaq opening or closing auction collars, the auction shall 
occur at a price within the threshold amounts that best satisfies the 
conditions of Nasdaq Rule 4752(d)(2)(A) through (D). The Exchange 
believes that the proposed rule is designed to provide greater clarity 
to Users regarding the range of prices within which the Opening or 
Closing Auction will occur (because the range is narrower) in the event 
the clearing price is outside of the collar.
    The Exchange notes that the clearing price determination processes 
utilized by other primary listing markets are not homogeneous. As 
described above, the Exchange designed IEX Auctions with certain 
features that are substantial similar to current functionality offered 
by other listings markets, while making certain changes designed to 
democratize auction participation among all Members via simplification 
and transparency. Accordingly, the Exchange believes that the proposed 
auction design will provide a transparent, efficient, and robust 
process to aggregate trading interest submitted by a broad range of 
market participants to be matched at a single clearing price, 
consistent with the protection of investors and the public interest, 
and in alignment with issuers' interests.
    As discussed in the Purpose Section, for Opening and Closing 
Auctions, the Exchange proposes that non-displayed buy (sell) orders on 
the Continuous Book with a resting price (as defined in proposed Rule 
11.350(b)(1)(A)(i)) within the Reference Price Range will be priced at 
the Protected NBB (NBO) for the purpose of determining the clearing 
price, but will be ranked and eligible for execution in the Opening or 
Closing Auction match at the order's resting price. Thus, non-displayed 
orders will

[[Page 21665]]

influence the clearing price if such price is outside the Reference 
Price Range, but not if the clearing price is within the Reference 
Price Range. The Exchange believes that the proposed treatment of non-
displayed interest on the Continuous Book resting within the Reference 
Price Range is designed to protect the anonymity of such resting non-
displayed interest during the dissemination of IEX Auction Information.
    The Exchange believes that market participants generally choose to 
enter non-displayed interest in order that such interest is not 
publicly disseminated in market data feeds or otherwise. The Exchange 
believes that if non-displayed interest on the Continuous Book 
influenced the determination of the clearing price within the Reference 
Price Range (i.e., generally within the Protected NBBO) for an Opening 
or Closing Auction then the existence of such non-displayed interest 
could be deciphered by market participants through IEX Auction 
Information, thereby leaking order information in a manner inconsistent 
with the terms of the order, and the protection of investors and the 
public interest. For example, and as discussed in the Purpose section, 
the Exchange believes that information leakage could occur if the 
Indicative Clearing Price is closer to the midpoint of the NBBO than 
the Reference Price. This would indicate that there is non-displayed 
interest resting on the Continuous Book for at least the size of the 
imbalance and priced at least as aggressive as the Reference Price. 
Thus, the Exchange proposes to price non-displayed buy (sell) orders on 
the Continuous Book with a resting price within the Reference Price 
Range to the Protected NBB (NBO) for the purpose of determining the 
clearing price, but allow such orders to be ranked and eligible for 
execution in the Opening or Closing Auction match at the order's 
resting price, in order to avoid leaking order information regarding 
such non-displayed orders, consistent with the protection of investors 
and the public interest.\123\
---------------------------------------------------------------------------

    \123\ The Exchange notes as well that its proposed handling of 
non-displayed interest on the Continuous Book will not impact the 
accuracy or completeness of the Indicative Clearing Price because 
the methodology for calculating the Indicative Clearing Price is 
identical to the methodology used to calculate the auction match, 
and thus the Indicative Clearing Price will reflect the price at 
which the auction would occur including all Auction Eligible Orders 
(including non-displayed order on the Continuous Book) as of the 
dissemination time.
---------------------------------------------------------------------------

    Furthermore, the Exchange notes that the proposed handling of non-
displayed orders on the Continuous Book with a resting price within the 
Reference Price Range in the Opening and Closing Auctions is 
functionally substantially similar to the operation of Nasdaq Imbalance 
Only (``IO'') orders in the Nasdaq opening and closing cross. 
Specifically, because IO's are repeatedly repriced to be equal to the 
Nasdaq best bid for buy orders or the Nasdaq best offer for sell orders 
(collectively, the ``Nasdaq BBO''), such orders effectively do not 
influence the determination of the clearing price within the Nasdaq 
BBO, but remain eligible for execution in the auction solely to offset 
imbalance, and influence the clearing price of the auction when it 
moves beyond the Nasdaq BBO.\124\ In the same manner, non-displayed buy 
(sell) orders on the IEX Continuous Book with a resting price within 
the Reference Price Range are priced to the Protected NBB (NBO) for the 
purpose of determining the clearing price and thus effectively do not 
influence the determination of the clearing price within the Reference 
Price Range, but are ranked and remain eligible for execution in the 
auction at the order's resting price. In addition, non-displayed buy 
(sell) orders on the Continuous Book with a resting price within the 
Reference Price Range will influence the clearing price of the auction 
when the clearing price moves lower (higher) than the Reference Price 
Range. Accordingly, the Exchange believes that the proposed treatment 
of non-displayed orders resting within the Reference Price Range on the 
Continuous Book in the Opening and Closing Auction does not present any 
new or novel functionality that has not already been considered by the 
Commission, and is consistent with the protection of investors and 
public interest.
---------------------------------------------------------------------------

    \124\ See Nasdaq Rule 4702(b)(10), which states that if an 
imbalance only order to buy (sell) is entered with a price that is 
higher (lower) than the highest bid (lowest offer) on the Nasdaq 
Book, the price of the Imbalance Only Order will be modified 
repeatedly to equal the highest bid (lowest offer) on the Nasdaq 
Book, subject to the Users limit price.
---------------------------------------------------------------------------

    As discussed in the Purpose Section, the Exchange does not propose 
to offer an imbalance order type (i.e., an order type that by its terms 
is designed to solely offset a buy or sell order imbalance in the 
auction), which is currently offered by Nasdaq, but not by Bats.\125\ 
However, Users who wish to offset buy or sell imbalances in an auction 
may do so by entering LOO, LOC, limit orders priced less aggressive 
than the applicable auction collar, or specifically in the case of an 
Opening or Closing Auction, non-displayed interest on the Continuous 
Book is eligible to offset imbalance without influencing the 
determination of the clearing price within the Reference Price Range. 
After informal discussion with various Members, the Exchange believes 
that imbalance only order types are generally employed by Users 
deploying sophisticated auction trading strategies, and are seldom used 
by long-term or natural investors. Accordingly, the Exchange believes 
that not offering a special imbalance only order type that is unlikely 
to garner broad User adoption, while still offering investors the 
opportunity to offset imbalances using LOO, LOC, limit orders, or 
specifically in the case of an Opening or Closing Auction, non-
displayed interest on the Continuous Book with a resting price within 
the Reference Price Range will simplify the process of participating in 
auctions and attract more trading interest from a broad range of market 
participants, thereby resulting in robust price discovery for the IEX 
Auction, consistent with the protection of investors and the public 
interest.
---------------------------------------------------------------------------

    \125\ See Nasdaq Rule 4702(b)(10) and (13).
---------------------------------------------------------------------------

    The Exchange also believes that the proposed Lock-in and Lock-out 
Time is consistent with the protection of investors and the public 
interest, because in the final minutes leading into the auction match, 
the Exchange is attempting to achieve equilibrium and stability by 
avoiding the increase of imbalances or large price swings resulting 
from aggressively priced orders in the Auction Book, while still 
allowing for price discovery to occur within the applicable auction 
collars leading up to the auction match. The Exchange notes that that 
Bats implements an identical Opening Auction Lock-out time (9:28 a.m.), 
at which time LOO and MOO orders, as well as RHO orders will be 
rejected. In the context of the IEX Opening Auction, such orders are 
the equivalent of the order types on the Opening Auction Book. 
Furthermore, Bats restricts Users from canceling or modifying Eligible 
Auction Orders between the Lock-out Time and the auction match, except 
for RHO limit orders, which may be modified (but not canceled) until 
the auction match.\126\
---------------------------------------------------------------------------

    \126\ See Bats Rule 11.23(b)(1)(A)-(B).
---------------------------------------------------------------------------

    The Exchange is proposing to afford Users the ability to enter 
auction specific interest (within the applicable auction collar) beyond 
the typical cutoff times employed by other exchanges, while locking-in 
such interest and beginning the dissemination of IEX Auction 
Information using a time-line that will be familiar to Users. 
Specifically, the proposed approach is

[[Page 21666]]

similar to Bats and Nasdaq,\127\ in applying a 9:28 a.m. Lock-out [sic] 
\128\ Time for the Opening Auction, where LOO and MOO interest is no 
longer accepted [sic] \129\ and may no longer be modified; however, 
after informal discussion with various Members that have expressed 
demand for a later cut off time, the Exchange is proposing that LOO 
orders and limit orders with a time-in-force of DAY or GTX will 
continue to be accepted until the Opening Auction Lock-out Time (i.e., 
9:29:50 a.m., ten (10) seconds prior to the Opening Auction match) so 
long as they are not Hyper-aggressive Auction Orders, which will allows 
Users to continue to express interest, and offset imbalances via orders 
designated for the Auction Book in the minutes leading up to the 
auction match. Similarly, for the Closing Auction, the Exchange is 
proposing to apply a 3:50 p.m. Lock-out [sic] \130\ Time, where MOC 
interest is no longer accepted and Auction Eligible Orders on the 
Auction Book may no longer be modified or canceled, unless a user 
requests cancelation of an order to correct a legitimate error in the 
order prior to 3:55 p.m. Moreover, the Exchange is proposing that LOC 
orders will continue to be accepted until the Closing Auction Lock-out 
Time (i.e., 3:59:50 p.m., ten (10) seconds prior to the Closing Auction 
match) so long as they are not Hyper-aggressive Auction Orders, which 
will allows Users to continue to express interest, and offset 
imbalances via orders designated for the Auction Book in the minutes 
leading up to the auction match.\131\
---------------------------------------------------------------------------

    \127\ See Nasdaq Rule 4702(b)(8)-(9) and (11)-(12).
    \128\ The Commission notes that, for opening auctions, IEX is 
proposing a Lock-in (not Lock-out) time of 9:28 a.m. See proposed 
Rule 11.350(a)(22) (defining ``Lock-in Time'').
    \129\ The Commission notes that, for opening auctions, IEX is 
proposing to: (1) Accept LOO orders until the Lock-out time as long 
as they are not Hyper-aggressive Auction Orders, and (2) not accept 
MOO orders after the Lock-in Time.
    \130\ The Commission notes that, for closing auctions, IEX is 
proposing a Lock-in (not Lock-out) time of 3:50 p.m. See proposed 
Rule 11.350(a)(22) (defining ``Lock-in Time'').
    \131\ The Exchange notes that as explained by a recent study on 
NYSE auctions conducted by Greenwich Associates, NYSE d-Quotes 
(which can be entered by broker that have relationships with NYSE 
floor brokers, or trading algorithms that are able to enter orders 
directly via FIX) contribute a meaningful portion of closing auction 
volume, as evidenced by the significant increase and fluctuations of 
indicative volume taken as a percentage of realized volume in the 
closing auction. Specifically, NYSE's auction data feed shows a 
material spike in indicative volume at 3:55 p.m., when d-Quotes are 
first included in the NYSE auction data feed, followed by 
fluctuations in indicative volume as a percent of realized volume. 
The Exchange further notes that the proposed handling of LOO, LOC, 
and limit orders submitted after the Lock-in Time that are not 
priced beyond the Opening/Closing Auction Collars is distinguishable 
from NYSE d-Quotes in that d-Quotes can be entered at any price, and 
can be canceled. As proposed, LOO, LOC, and limit orders submitted 
after the Lock-in Time that are not priced beyond the Opening/
Closing Auction Collars cannot be canceled. The proposed order 
handling and IEX Auction information dissemination is designed to 
reflect ``locked-in'' interest on the Auction Book, which is 
intended to stimulate price discovery, and reduce fluctuations 
indicative volume taken as a percentage of realized volume that are 
caused by Users canceling orders on the Auction Book. See Trading 
the Auctions, Greenwich Associates, 2017, Doc ID 16-2068 (https://www.greenwich.com/equities/trading-auctions).
---------------------------------------------------------------------------

    Furthermore, for both the Opening and Closing Auctions, Hyper-
aggressive Auction Orders will be rejected after the Lock-in Time, 
which is designed to minimize the increase of imbalances or large price 
swings resulting from aggressively priced orders in the Auction Book 
during the last minutes leading into the auction. Instead, the Exchange 
is proposing to allow for price discovery to occur on the Auction Book 
within the applicable auction collars and on the Continuous Book 
leading up to the auction match, allowing for a convergence of the 
Auction Book with the Continuous Book to establish equilibrium. The 
Exchange believes that allowing Users to offset imbalances on the 
Auction Book after the Lock-in Time is designed to promote price 
discovery and stability, and establish equilibrium leading into the 
auction match because such orders are not able to be canceled or 
modified after entry (i.e., they are locked-in), which is in direct 
contrast with offsetting orders on the Continuous Book that may be 
fleeting, because they are eligible for cancellation, modification, or 
execution until the auction match.
    Furthermore, as described above, the Exchange believes that 
allowing Auction Eligible Orders on the Continuous Book to continue to 
be submitted, modified, and canceled until immediately prior to 
execution is consistent with the protection of investors and the public 
interest because such orders allow Users to offset imbalances in the 
auction until the auction match occurs, which will further the 
Exchange's intended goal of achieving equilibrium and stability prior 
to the auction match. In addition, the Exchange does not propose to 
interrupt continuous trading, and therefore believes it is necessary to 
allow Continuous Book orders to remain unrestricted in the interest of 
maintain fair and orderly markets, and the protection of investors and 
the public interest. The Exchange also notes that Bats offers identical 
functionality for all orders eligible for execution in the Bats Pre-
Opening Session.\132\ Similarly, NYSE Arca allows orders to enter the 
Continuous Book after the Opening and Closing Auction Imbalance 
Freeze.\133\ The Exchange does not believe that allowing orders to 
enter the Continuous Book and be eligible for execution in the auction 
match until immediately before the auction match presents any unique 
concerns regarding manipulation of the auction match. To the contrary, 
because the Exchange generally utilizes the Protected NBBO as the 
Reference Price Range for the auction match (rather than the midpoint 
of the IEX BBO), the auction process may be less susceptible to 
attempted manipulation, because in order to influence the auction, one 
or more Users would need to sweep the entire market and impact the 
Protected NBBO, rather than simply entering aggressive interest on the 
Exchange.
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    \132\ See Bats Rule 11.23(b)(1)(C).
    \133\ See Arca Rule (c)(3)(D) and (d)(2)(C) [sic].
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    The Exchange believes that providing transparent Opening Auction 
Contingency Procedures is consistent with the protection of investors 
and the public interest in that Users will have more clarity regarding 
the status of open orders, therefore allowing for such Users to 
resubmit such interest in the Regular Market Session, or re-route such 
interest to an alternate trading center after IEX has opened the 
security for trading. In addition, the Opening Auction Contingency 
Procedures are designed to ensure the orderly and timely opening of 
IEX-listed securities, which will help to ensure a fair and orderly 
market for securities listed on the Exchange. Similarly, the Exchange 
believes that the proposed Closing Auction Contingency Procedures are 
designed to ensure the orderly and timely closing of IEX-listed 
securities, which will help to ensure a fair and orderly market for 
securities listed on the Exchange. Furthermore, the proposed Closing 
Auction Contingency Procedures are identical to those recently proposed 
by Nasdaq in conjunction with NYSE and NYSE Arca, and the SIPs as part 
of a larger industry initiative to ensure the orderly execution and 
dissemination of official closing prices. Accordingly, the Exchange 
believes that the proposed auction contingency procedures are 
consistent with the protection of investors and the public interest.
    The Exchange believes that the data elements proposed to be 
included in IEX Auction Information will provide market participants 
with a comprehensive range of data relevant to auction pricing that 
will enable market participants to make informed decisions on whether 
and at what prices to enter

[[Page 21667]]

orders for potential participation in an IEX Auction.\134\ The Exchange 
also notes that the methodology for calculating the Indicative Clearing 
Price is identical to the methodology used to calculate the clearing 
price of the auction match, and thus the Indicative Clearing Price will 
reflect the price at which the auction would occur as of the 
dissemination time. Moreover, these data elements are substantially 
similar to those currently provided by Nasdaq, as well as collar 
information proposed by Nasdaq, Arca, and Bats.\135\ However, as 
proposed, the Exchange will disseminate IEX Auction Information data 
every one second between the Lock-in Time and the auction match for the 
Opening and Closing Auctions, and during the Display Only Period for 
IPO, Halt, and Volatility Auctions. In contrast, NYSE, Nasdaq and Bats 
disseminate their auction data every five seconds. IEX believes that 
disseminating auction data every second will contribute to increased 
transparency regarding relevant auction information, thus leading to 
more robust pricing, consistent with the protection of investors and 
the public interest. Moreover, IEX Auction Information will be provided 
to Members and other recipients of Exchange data on terms that are 
reasonable and not unfairly discriminatory in that it will be provided 
free of charge. IEX Auction Information will also be made available 
free of charge on the Exchange's public Web site via the IEX Data 
Platform.
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    \134\ As noted in the Purpose section, IEX intends to 
disseminate substantially the same information through the 
Consolidated Quotation System operated by the Consolidated Tape 
Association (``CTA'') SIP, pending approval by the Operating 
Committee of the CTA. Following such approval, IEX will amend Rule 
11.330 to reflect this additional means of dissemination.
    \135\ See SR-NASDAQ-2016-131, SR-BatsBZX-2016-61, and NYSEArca-
2016-130.
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    The fields proposed for dissemination in IEX Auction Information 
are strategically tailored to the IEX Auction model, and were developed 
after informal discussion with various Members, as well as reference to 
existing fields offered in auction data provided by other exchanges, 
including the Nasdaq NOII, and the Bats Auction Feed. Specifically, the 
Indicative Clearing Price and Auction Book Clearing Price are 
substantially similar to the Nasdaq ``Near Clearing Price'' and ``Far 
Clearing Price'' as well as the Bats ``Indicative Price'' and ``Auction 
Only Price'', and should therefore be familiar to Members that trade in 
the Nasdaq and Bats auctions.\136\ Similarly, the proposed Reference 
Price field is substantially similar to the Reference Price utilized by 
Bats.\137\
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    \136\ See the Bats US Equities Auction Process specification at 
8, as well as the Nasdaq Net Order Imbalance Indicator User Guide at 
4-5.
    \137\ See the Bats US Equities Auction Process specification at 
7, and 5, which define the Reference Price as the price within the 
Reference Price Range that maximizes the number of shares to be 
executed, minimizes the imbalance, and minimizes the distance to the 
Volume Based Tie Breaker.
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    Moreover, as proposed, the Exchange will utilize orders on the 
Auction Book to calculate the Paired Shares, Imbalance Shares, and 
Imbalance Side fields included in IEX Auction Information (i.e., both 
displayed and non-displayed orders on the Continuous Book are not 
accounted for when determining the number of shares that can be matched 
or remain unexecuted at the current Reference Price). The proposed 
Paired Shares, Imbalance Shares, and Imbalance Side fields are designed 
to enhance the reliability of the fields disseminated in IEX Auction 
Information, and mitigate potential gaming scenarios that could 
negatively impact Users trading in IEX Auctions.
    Specifically, the fields as proposed are designed to avoid 
disseminating Paired Shares and Imbalance Shares based on orders on the 
Continuous Book that may be fleeting. Orders on the Continuous Book are 
not subject to lock-in or lock-out restrictions, and may therefore be 
canceled at any time before the auction match. Including potentially 
fleeting orders in the Paired Shares and Imbalance Shares fields could 
have negative implications for price discovery leading up to the 
auction match by discouraging Users from offsetting Imbalance Shares, 
leaving unmatched shares on the Auction Book at the time of the match 
when Continuous Book orders that were ostensibly offsetting the 
Imbalance Shares (and contributing to Paired Shares) are canceled prior 
to the auction. Accordingly, the proposed fields are consistent with 
the protection of investors and the public interest, in that they are 
designed to increase the reliability of the fields disseminated in IEX 
Auction Information, and mitigate potential gaming scenarios that could 
negatively impact Users trading in IEX Auctions.
    Furthermore, as proposed, the Paired Shares field is designed to 
allow Users to determine the likelihood of their Eligible Auction 
Orders being executed in the auction. Specifically, because Paired 
Shares only reflect orders that are locked in to the auction (and 
therefore will be eligible for execution in the auction), Users can 
assess their chances of receiving an execution in the auction match 
based on the marketability of their order against the Indicative 
Clearing Price, and the number of Paired Shares against their order 
size. For example, if the final Indicative Clearing Price is $10.00, 
and IEX has 100,000 shares paired, a User that has a LOC order to buy 
10,000 shares with a limit price of $10.50 has a high likelihood of 
receiving a 10,000 share execution in the Closing Auction. To continue 
the example and highlight the positive effects of the proposed 
functionality on price discovery, if the Indicative Clearing Price were 
to have moved away from the participant (to $10.50, for example), such 
User's chances of receiving an execution in the auction are diminished 
because the auction match price has moved to the order's limit price, 
and such order is ``locked-in'' (i.e., ineligible for modification or 
cancelation). Accordingly, Users are incentivized to express their full 
limit on Auction Eligible Orders in order to increase the likelihood of 
receiving an execution in the Closing Auction at a price they believe 
reflects the fundamental value of the security. This truthful 
representation of full limit prices is designed to enhance price 
discovery leading into the auction match, consistent with the 
protection of investors and the public interest.
    The Exchange further notes that as proposed, the Paired Shares, 
Imbalance Shares, and Imbalance Side fields are substantially similar 
to the ``Reference Buy Shares'' and ``Reference Sell Shares'' fields 
currently offered by Bats on the Bats Auction Feed, which provide the 
number of shares associated with buy (sell) side Eligible Auction 
Orders (which are on the Bats auction book, as defined in Bats Rule 
11.23(a)(8)) that are priced equal to or greater (less) than the 
Reference Price. However, rather than market participants deriving the 
number of Paired Shares, Imbalance Shares, and the Imbalance Side, the 
Exchange is proposing to derive and disseminate each value 
independently.\138\ Moreover, Paired Shares, Imbalance Shares, and 
Imbalance Side fields are substantially similar to the Paired Shares, 
Imbalance Shares, and Imbalance Side fields that are currently offered 
by Nasdaq in the NOII.\139\ Accordingly, IEX Auction Information, 
including the proposed Paired Shares, Imbalance Shares, and

[[Page 21668]]

Imbalance Side fields do not present any new or novel issues not 
already considered by the Commission and approved as consistent with 
the protection of investors and the public interest.
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    \138\ Note, paired shares would be equal to the lesser of 
Reference Buy Shares and Reference Sell Shares; Imbalance Shares 
would be equal to the absolute value of Reference Sell Shares minus 
Reference Buy Shares; and the side of the greater between Reference 
Buy Shares and Reference Sell Shares is the imbalance side.
    \139\ See the Nasdaq Net Order Imbalance Indicator User Guide at 
4-5.
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    The Exchange also believes that the proposed trading halt and LULD 
trading pause rule provisions are consistent with the protection of 
investors and the public interest because such provisions provide for 
the imposition of a regulatory trading halt in an IEX-listed security 
in order to prevent trading from occurring in such security when all 
market participants do not have equal access to material news or other 
information necessary to make an informed trading decision. With 
respect to operational trading halts, proposed IEX Rule 11.280(g)(3) 
provides appropriate optionality to Members and market makers in 
determining whether to continue trading when there is an order 
imbalance or influx on another market. As discussed in the Purpose 
section, the proposed trading halt and LULD trading pause rules are 
substantially similar to Nasdaq rules approved by the Commission 
(described above) and thus do not raise any new or novel issues. 
Moreover, the proposed LULD trading pause provisions are consistent 
with the LULD Plan as well as Nasdaq rules.
    Lastly, the Exchange believes that the proposed operational rules 
regarding IPO's conducted on the Exchange are consistent with the 
protection of investors and the public interest because the process is 
designed to provide underwriters with the necessary tools to ensure the 
IPO Auction as well as continuous trading following the auction operate 
in an orderly manner, consistent with the protections of investors and 
the public interest. In addition, as noted above, the proposed 
operational rules regarding IPO's are substantially similar to Nasdaq 
Rule 4120(c)(8), and therefore do not present any novel issues the 
Commission has not already considered.

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

    IEX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. To the contrary, and as 
discussed in the Statutory Basis section, the Exchange believes that 
offering auctions is essential for operation of a listing market which 
will allow the Exchange to provide companies with another listing 
option, thereby promoting intermarket competition between exchanges in 
furtherance of the principles of Section 11A(a)(1) \140\ of the Act in 
that it is designed to promote fair competition among brokers and 
dealers and among exchange markets by offering a new listing market to 
compete with the existing Nasdaq and NYSE duopoly.
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    \140\ 15 U.S.C. 78k-1(a)(1).
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    With respect to the auction design, the Exchange does not believe 
that the proposal will impose any burden on intermarket or intramarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. With respect to intermarket competition, as a new 
listing venue, IEX expects to face intense competition from existing 
exchanges. Consequently, the degree to which the IEX auction design 
could impose any burden on intermarket competition is extremely 
limited, and IEX does not believe that the auction design would impose 
any burden on competing venues that is not necessary or appropriate in 
furtherance of the purposes of the Act.
    With respect to intramarket competition, the auction design will 
apply equally to all IEX Members and market participants that send 
orders to IEX through IEX Members. Moreover, IEX believes that the 
``open access'' auction design will result in auctions that attract 
meaningful trading interest that will enable robust price discovery, 
and enhance intramarket competition. All Members are permitted to enter 
any type of Auction Eligible Order and there are no privileged 
participants who receive enhanced priority, have access to special 
order types, or receive information not available to other market 
participants. Consequently, IEX does not believe that the proposal will 
impose any burden on intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.
    The Exchange also does not think that the content and manner by 
which IEX Auction Information will be disseminated will impose any 
burden on competition, since the data will be provided to all Members 
and market participants free of charge and on terms that are not 
unreasonably discriminatory.

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

    IEX requested comments from Members and other market participants 
regarding the proposed auction design. The ``Request for Comment 
Regarding Auctions for IEX-listed Securities'' was disseminated to IEX 
Members and other market participants \141\ on November 14, 2016 (see 
Exhibit 2). No written or verbal comments were received. However, as 
discussed in the Purpose Section, in designing the proposed auctions, 
the Exchange held discussions with a variety of buy-side and sell-side 
market participants, including large banks and broker dealers that 
provide a variety of services with diverse customer bases and trading 
strategies, electronic market makers, asset managers, issuers and 
institutional investors.
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    \141\ Market participants that are not Members, but had 
previously requested to be included in IEX communications were 
included.
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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 (i) as the Commission may 
designate up to 90 days of such date 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 shall: (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 rule-comments@sec.gov. Please include 
File Number SR-IEX-2017-10 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-IEX-2017-10. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the

[[Page 21669]]

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 Web site 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 such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-IEX-2017-10, and should be 
submitted on or before May 30, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\142\
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    \142\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09310 Filed 5-8-17; 8:45 am]
BILLING CODE 8011-01-P


