
[Federal Register Volume 82, Number 168 (Thursday, August 31, 2017)]
[Notices]
[Pages 41446-41451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-18447]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81484; File No. SR-IEX-2017-27]


Self-Regulatory Organizations: Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Related to 
Transaction Fees Pursuant to Rule 15.110

August 25, 2017.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on August 11, 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.
---------------------------------------------------------------------------

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

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

    Pursuant to the provisions of Section 19(b)(1) under the Securities 
Exchange Act of 1934 (``Act''),\4\ and Rule 19b-4 thereunder,\5\ 
Investors Exchange LLC (``IEX'' or ``Exchange'') is filing with the 
Commission a proposed rule change to increase the fees assessed under 
specified circumstances for execution of orders that take liquidity 
during periods when the IEX System has determined that a ``crumbling 
quote'' exists with respect to the Protected National Best Bid 
(``NBB'') or Protected National Best Offer (``NBO'') for such 
security.\6\
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CRF 240.19b-4.
    \6\ See, Rule 600(b)(42) under Regulation NMS.
---------------------------------------------------------------------------

    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 statement may be examined at

[[Page 41447]]

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

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

1. Purpose
    The Exchange proposes to amend its fee schedule, pursuant to IEX 
Rule 15.110(a) and (c), to increase the fees assessed under specified 
circumstances for execution of orders that take liquidity during 
periods when the IEX System has determined that a ``crumbling quote'' 
exists with respect to the Protected NBB or Protected NBO for such 
security.
    Pursuant to IEX Rule 11.190(g), in determining whether quote 
instability or a crumbling quote exists, the Exchange utilizes real 
time relative quoting activity of certain Protected Quotations \7\ and 
a proprietary mathematical calculation (the ``quote instability 
calculation'') to assess the probability of an imminent change to the 
current Protected NBB to a lower price or Protected NBO to a higher 
price for a particular security (``quote instability factor''). When 
the quoting activity meets predefined criteria and the quote 
instability factor calculated is greater than the Exchange's defined 
quote instability threshold, the System treats the quote as unstable 
and the crumbling quote indicator (``CQI'') is on. During all other 
times, the quote is considered stable, and the CQI is off. The System 
independently assesses the stability of the Protected NBB and Protected 
NBO for each security. When the System determines that a quote, either 
the Protected NBB or the Protected NBO, is unstable, the determination 
remains in effect at that price level for two milliseconds. The 
Exchange proposes to increase fees assessed for execution of buy (sell) 
orders that take liquidity at prices at or below (above) the NBO (NBB) 
during the two milliseconds when the CQI is on. Therefore, buy orders 
taking liquidity up to the Protected NBO and sell orders taking 
liquidity down to the Protected NBB when the CQI is on will be subject 
to the increased fee.
---------------------------------------------------------------------------

    \7\ Pursuant to Rule 11.190(g), the Protected Quotations of the 
New York Stock Exchange, Nasdaq Stock Market, NYSE Arca, Nasdaq BX, 
Bats BZX Exchange, Bats BYX Exchange, Bats EDGX Exchange, and Bats 
EDGA Exchange.
---------------------------------------------------------------------------

    When CQI is on, Discretionary Peg orders \8\ and primary peg orders 
\9\ do not exercise price discretion to meet the limit price of an 
active (i.e., taking) order. Specifically, as set forth in Rule 
11.190(b)(10), a Discretionary Peg order pegs to the less aggressive of 
the primary quote (i.e., NBB for buy orders and NBO for sell orders) or 
the order's limit price, if any, but, will exercise price discretion in 
order to meet the limit price of an active order up to the less 
aggressive of the Midpoint Price or the order's limit price, if any. 
However, a Discretionary Peg order will not exercise such price 
discretion when the CQI is on. Similarly, as set forth in Rule 
11.190(b)(8), a primary peg order pegs to a price that is the less 
aggressive of one (1) minimum price variant (``MPV'') less aggressive 
than the primary quote (i.e., one MPV below (above) the NBB (NBO) for 
buy (sell) orders) or the order's limit price, if any, but will 
exercise price discretion in order to meet the limit price of an active 
order up to the NBB (for buy orders) or down to the NBO (for sell 
orders), except when the CQI is on or if the order is resting at its 
limit price, if any.
---------------------------------------------------------------------------

    \8\ See Rule 11.190(b)(10).
    \9\ See Rule 11.190(b)(8).
---------------------------------------------------------------------------

    By not permitting resting Discretionary Peg orders and primary peg 
orders to exercise price discretion during periods of quote 
instability, the Exchange is designed to protect such orders from 
unfavorable executions when its probabilistic model identifies that the 
market appears to be moving adversely to them. As noted above, when the 
IEX System determines that a quote (either the Protected NBB or the 
Protected NBO) is unstable, the determination, and corresponding 
limitation on Discretionary Peg and primary peg orders exercising price 
discretion, remains in effect at that price level for only two 
milliseconds. This limitation is designed to appropriately balance the 
protective benefits to Discretionary Peg and primary peg orders with 
the interest of avoiding potentially undue trading restrictions.
    Based on market data analysis during June 2017, the Exchange 
identified that there are significant differences in short term 
markouts \10\ (and pro forma profit and loss \11\) for resting and 
taking orders between executions when the CQI is on and off, regardless 
of whether the NBB (NBO) moves lower (higher) within two milliseconds 
of the Exchange's determination of quote instability. Specifically, 
when the CQI is on, liquidity removing orders that execute on IEX 
(trading with a liquidity providing order resting on the order book, 
including but not limited to Discretionary Peg and primary peg orders) 
experience positive price markouts one second after the trade on a 
share basis 75.6% of the time, compared to 23.9% of the time when the 
CQI is off. Correspondingly, resting liquidity providing orders that 
trade when the CQI is on experience negative price markouts one second 
after the trade 75.6% of the time, compared to 23.9% of the time when 
CQI is off. Similarly, 72.1% of all orders received when the CQI is on 
(whether or not executed on IEX) arrive immediately prior to a 
favorable price move (based on one second markouts), compared to 18.2% 
of orders received when the CQI is off.
---------------------------------------------------------------------------

    \10\ The term markouts refers to changes in the midpoint of the 
NBBO measured from the perspective of either the liquidity providing 
resting order or liquidity removing taking order over a specified 
period of time following the time of execution.
    \11\ For purposes of this analysis, a pro forma profit or loss 
is calculated as the difference between the midpoint of the NBBO at 
the time of the execution compared to one second after.
---------------------------------------------------------------------------

    Moreover, the breakdown of orders entered and shares removed when 
the CQI is on or off evidences that certain trading strategies appear 
to involve entering liquidity taking orders targeting resting orders at 
prices that are likely to move adversely from the perspective of the 
resting order. Across all approximately 8,000 symbols available for 
trading on IEX, the CQI is on only 1.24 seconds per symbol per day on 
average (0.005% of the time during regular market hours),\12\ but 30.4% 
of marketable orders \13\ are received during those time periods, which 
indicates that certain types of trading strategies are seeking to 
aggressively target liquidity providers during periods of quote 
instability.
---------------------------------------------------------------------------

    \12\ On a volume weighted basis, the CQI is on for 6.50 seconds 
per day per symbol, 0.03% of the time during regular market hours.
    \13\ An order is considered marketable for this analysis if it 
was a market order or its limit price is at or more aggressive than 
the far touch quotation.
---------------------------------------------------------------------------

    The Exchange believes that this data is particularly significant 
and evidences that Members entering liquidity taking orders when the 
CQI is on appear to be able to engage in a form of latency arbitrage by 
leveraging fast proprietary market data feeds and connectivity along 
with predictive strategies to chase short-term price momentum and 
successfully target resting orders at unstable prices. IEX believes 
that these types of trading strategies, with concentrated and 
aggressive tactics during moments of quote instability, are detrimental 
to the experience of other IEX participants. IEX further believes

[[Page 41448]]

that such trading strategies create disparate burdens on resting 
orders, particularly those that are displayed and therefore ineligible 
to benefit from the CQI.
    Accordingly, to incentivize additional resting liquidity, including 
displayed liquidity, on IEX, the Exchange proposes to increase the fees 
applicable to orders that remove resting liquidity when the CQI is on 
if such orders constitute at least 5% of the Member's volume executed 
on IEX and at least 1,000,000 shares, on a monthly basis, measured on a 
per market participant identifier (``MPID'') basis. As proposed, such 
orders that exceed the 5% and 1,000,000 share thresholds would be 
assessed a fee of $0.0030 per each incremental share executed (or 0.3% 
of the total dollar value of the transaction for securities priced 
below $1.00) that exceeds the threshold. For example, assume Member XYZ 
executed 100,000,000 shares through its MPID 1234 during a particular 
month, and 6,000,000 of such shares removed liquidity while the CQI was 
on. The 6,000,000 shares executed when the CQI was on exceed the 
threshold since such shares are more than 5% of MPID 1234's monthly 
volume (i.e., 5,000,000) and at least 1,000,000 shares. Member XYZ 
would therefore be charged the fee on 1,000,000 shares which is the 
incremental number of shares above 5% of the 100,000,000 shares 
executed by MPID 1234 during the month.
    Setting the fee threshold at 5% and 1,000,000 shares is a narrowly 
tailored approach, designed to only charge the increased fee in 
circumstances where the Member executes a meaningful portion of its 
volume via liquidity removing orders when the CQI is on, and not charge 
the fee for executions of this type that are more likely to be 
incidental to broader trading activity by the Member and not part of a 
specific trading strategy that targets resting liquidity during periods 
of quote instability. The Exchange proposes to refer to this pricing as 
the ``Crumbling Quote Remove Fee'' on the Fee Schedule with a Fee Code 
Indicator of ``Q'' to be provided by the Exchange on execution reports 
to Members removing liquidity when the CQI is on.
    As proposed, to provide transparency about potential fees, the 
Exchange will begin providing Fee Code Indicator Q on execution reports 
at least one month prior to implementation of the Crumbling Quote 
Remove Fee so that Members can assess the impact of the new fee and 
make any corresponding adjustments to their trading strategies. IEX 
will announce the availability of new Fee Code Indicator Q 
approximately 30 days after effectiveness of this rule filing. IEX will 
provide at least ten business days' notice of implementation of the 
proposed fee within 90 days of effectiveness of this rule filing.
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6(b) \14\ of the Act in general, and furthers the 
objectives of Sections 6(b)(4) \15\ of the Act, in particular, in that 
it is designed to provide for the equitable allocation of reasonable 
dues, fees and other charges among its Members and other persons using 
its facilities. Additionally, IEX believes that the proposed fee is 
consistent with the investor protection objectives of Section 6(b)(5) 
\16\ of the Act in particular in that it is designed to promote just 
and equitable principles of trade, to remove impediments to a free and 
open market and national market system, and in general to protect 
investors and the public interest.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4).
    \16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The proposed new Crumbling Quote Remove Fee is designed to enhance 
the Exchange's market quality by encouraging Members and other market 
participants to add more liquidity to the Exchange order book, which 
benefits all investors by deepening the Exchange's liquidity pool. 
Specifically, the Exchange believes that trading strategies that target 
resting liquidity during periods of quote instability seek to trade at 
prices that are about to become stale, and thus discourage other market 
participants from entering liquidity providing orders on the Exchange. 
Thus, the Exchange believes that the proposal is reasonable because it 
would create an added incentive for Members and other market 
participants to provide liquidity on IEX since the increased fee may 
result in fewer orders seeking to remove liquidity when the CQI is on, 
and concomitant overall better execution quality.
    Other exchanges offer incentives in the form of rebates and/or 
reduced fees that are designed to encourage market participants to send 
increased levels of order flow to such exchanges. These typically take 
the form of lower fees and higher rebates for meeting specified volume 
tiers.\17\ These fee and rebate structures are typically justified by 
other exchanges on the basis that increased liquidity benefits all 
investors by deepening the exchange's liquidity pool, which provides 
price discovery and investor protection benefits.\18\ The Exchange also 
notes that other exchanges charge different fees (or provide rebates) 
to the buyer and seller to an execution, which are generally referred 
to as either maker-taker or taker-maker pricing schemes. Typically, the 
exchange offering such pricing is seeking to incentivize orders that 
provide or remove liquidity, based on which type of orders receive a 
rebate. While these pricing schemes discriminate against the Member 
party to the trade that is charged a fee (in favor of the Member party 
to the trade that is paid a rebate) the Commission has not found these 
fees to be unfairly discriminatory in violation of the Act.\19\
---------------------------------------------------------------------------

    \17\ See, e.g., New York Stock Exchange Price List 2017, 
available at https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf. See also, Nasdaq Rule 7018.
    \18\ See, e.g., Securities Exchange Act Release No. 80034 
(February 14, 2017), 82 FR 11275 (February 21, 2017) (File No. SR-
BatsEDGX-2017-09).
    \19\ See note 15 supra.
---------------------------------------------------------------------------

    Similarly, the proposal seeks to promote increased liquidity and 
price discovery on the Exchange by providing a fee designed to 
incentivize liquidity providing orders that can improve the quality of 
the market. The Exchange believes that, to the extent the fee is 
successful in reducing targeted and aggressive liquidity removing 
orders, it would contribute to investors' confidence in the fairness of 
transactions and the market generally, thereby benefiting multiple 
classes of market participants and supporting the public interest and 
investor protection purposes of the Act.
    The Exchange believes that maker-taker and taker-maker pricing 
schemes in general create needless complexity in market structure in 
various ways and result in conflicts of interest between brokers and 
their customers. Accordingly, IEX has made a decision not to adopt 
rebate provisions in favor of a more transparent pricing structure that 
generally charges equal fees (or in some cases, no fee) for a 
particular trade to both the ``maker'' and ``taker'' of liquidity. 
Given this decision, IEX must use other means to incentivize orders to 
rest on its order book. IEX's execution quality is one important 
incentive, but this incentive can be undercut by trading strategies 
that target resting orders during periods of quote instability. 
Accordingly, IEX believes that the proposed Crumbling Quote Remove Fee 
is one reasonable way to compete with other exchanges for order flow, 
consistent with its alternative exchange model and without relying on 
rebates.
    As discussed in the Purpose section, the increased fee would only 
be charged

[[Page 41449]]

on incremental orders above the 5% and 1,000,000 share monthly 
thresholds that remove resting liquidity when the CQI is on. The 
Exchange believes that limiting the fee to such circumstances is 
reasonable and equitable because it would not apply when executions 
taking liquidity while the CQI is on are likely to be incidental and 
not part of a deliberate trading strategy that targets resting 
liquidity during periods of quote instability. Consequently, the 
Exchange believes that the proposed fee structure is not unfairly 
discriminatory because it is narrowly tailored to charge a fee only on 
trading activity that is indicative of a trading strategy that may 
adversely affect execution quality on IEX and is reasonably related to 
the purpose of encouraging liquidity providing orders on IEX without 
the use of rebates.
    The Exchange also believes that it is appropriate, and consistent 
with the Act, to not charge a fee to Members that do not exceed the 5% 
and 1,000,000 share thresholds during the month in question. This 
flexibility is designed to address limited inadvertent liquidity 
removal when the CQI is on for Members whose order flow during such 
times is incidental. In addition, the Exchange believes it is 
appropriate, and consistent with the Act, to not charge a fee to 
Members for the execution of buy (sell) orders that take liquidity at 
prices above (below) the Protected NBO (NBB) during the two 
milliseconds when the CQI is on because such executions are not 
indicative of a trading strategy that targets resting orders at soon to 
be stale prices during periods of quote instability.
    Further, the Exchange believes that the data from June 2017 
supports the position that the proposed threshold is narrowly tailored 
to only charge the fee based on objective criteria indicating that 
execution of the orders in question reasonably appear to be part of a 
deliberate trading strategy that targets resting liquidity during 
periods of quote instability. Based on data from June 2017, the 
Exchange estimates that only 13 Members each using one unique MPID (out 
of 125 total Members trading through 158 MPIDS that traded on IEX 
during the month) would have been subject to the proposed fee, five of 
which would have paid less than $1,500 in such fees.\20\ The Members 
that were above the threshold also present a significantly different 
order entry profile than Members below the threshold with respect to 
orders entered when the CQI was on. For the 13 Member MPIDs above the 
threshold, 63.1% of such orders were marketable to the midpoint of the 
NBBO (64.3% for the eight Member MPIDs that would have paid more than 
$1,500), while for Member MPIDs below this number was only 13.4%. The 
Exchange believes that this difference evidences that Members above the 
threshold were more likely to be engaging in a deliberate strategy to 
target resting orders at soon to be stale prices.\21\
---------------------------------------------------------------------------

    \20\ The overall range would have been $426.49 to $123,897.20.
    \21\ Analysis of trading on IEX during April, May and July is 
consistent with the June data analysis.
---------------------------------------------------------------------------

    The Exchange also believes that it is consistent with the Act and 
an equitable allocation of reasonable dues, fees and other charges 
among its members and other persons using its facilities to measure 
whether the threshold is reached on an MPID basis. As discussed above, 
the threshold is designed to narrowly focus on executions that appear 
to be part of a deliberate trading strategy that targets resting 
liquidity during periods of quote instability. The Exchange believes 
that Members that utilize multiple MPIDs generally use different MPIDs 
for different trading strategies or customers. Therefore, the Exchange 
believes that measuring by MPID is a more precise manner of assessing 
whether a Member's trading strategy (or that of a customer) is part of 
a deliberate trading strategy that targets resting liquidity during 
periods of quote instability.
    Accordingly, the Exchange submits that the proposed threshold is 
narrowly tailored to address particular trading strategies (rather than 
particular classes of Members) that may operate to disincentivize the 
entry of resting orders by other market participants. Specifically, and 
as discussed above, to the extent the proposed fee is successful in 
reducing such trading strategies on IEX, it may result in market 
quality improvements which could benefit multiple classes of market 
participants.
    The Exchange further believes that charging the Crumbling Quote 
Remove Fee only to the liquidity remover is equitable and not unfairly 
discriminatory because it is designed to incentivize order flow that 
enhances the quality of trading on the Exchange and disincentivize 
trading that does not. As discussed above, IEX believes that there are 
precedents for exchanges to charge different fees based upon meeting 
(or not meeting) particular criteria, as well as maker-taker and taker-
maker pricing structures whereby the liquidity adder and remover to a 
trade are subject to differing fees and rebates, to incentivize certain 
types of trading activity. Fees and rebates based on maker-taker and 
taker-maker pricing as well as on volume-based tiers have been widely 
adopted by equities exchanges. And in some cases, maker-taker or taker-
maker pricing has been combined with volume-based tiers that result in 
differential fees and rebates for different exchange members. These fee 
structures have been permitted by the Commission. For example, Bats 
EDGA Exchange, Inc. (``EDGA'') previously offered a rebate contingent 
upon adding specified amounts of liquidity to EDGA.\22\ Notwithstanding 
that certain classes of members (e.g., exchange routing brokers) do not 
typically add liquidity on competing exchanges, this fee structure was 
justified by EDGA on the basis that, generally, it encourages growth in 
liquidity on EDGA and applies equally to all members.\23\ Similarly, 
while the proposed IEX fee structure will result in the Crumbling Quote 
Remove Fee being imposed only on members using specific trading 
strategies, it is also designed to attract liquidity to IEX and applies 
equally to all Members.
---------------------------------------------------------------------------

    \22\ See Securities Exchange Act Release No. 80976 (June 20, 
2017), 82 FR 28920 (June 26, 2017) (SR-BatsEDGA-2017-18).
    \23\ See, e.g., Securities Exchange Act Release No. 69066 (March 
7, 2013), 78 FR 16023 (March 13, 2013) (SR-EDGA-2013-10).
---------------------------------------------------------------------------

    The Exchange also notes that there is precedent to charge a 
different fee (or pay a different rebate) based on the execution price 
of an order. The Bats BZX Exchange, Inc. pays a rebate of $0.0017 to a 
non-displayed order that adds liquidity, while if such an order 
receives price improvement it does not receive a rebate or pay a 
fee.\24\
---------------------------------------------------------------------------

    \24\ See Bats BZX Exchange Fee Schedule, available at: http://www.bats.com/us/equities/membership/fee_schedule/bzx/.
---------------------------------------------------------------------------

    Thus, maker-taker, taker-maker, and volume tier based fee 
structures (separately or in combination) have been adopted by other 
exchanges on the basis that they may discriminate in favor of certain 
types of members but not in an unfairly discriminatory manner in 
violation of the Act. As with such fee structures, the Exchange 
believes that the proposed fee change is equitable and not unfairly 
discriminatory because it is narrowly tailored to disincentive to all 
Members from deploying trading strategies designed to chase short-term 
price momentum during periods when the CQI is on and thus potentially 
adversely impact liquidity providing orders. IEX believes that, to the 
extent it is successful in this regard, the proposed fee structure may 
lead to increased liquidity providing orders on IEX which could benefit 
multiple classes of market participants through increased trading

[[Page 41450]]

opportunities and reduced latency arbitrage.
    Further, the Exchange notes that the Nasdaq Stock Market 
(``Nasdaq'') charges excess order fees (ranging from $0.005 to $0.01 
per excess weighted order) on certain members that have a relatively 
high ratio of orders entered away from the NBBO to orders executed in 
whole or in part, subject to a carve-outs for specified lower volume 
members and certain registered market makers.\25\ In its rule filing 
adopting the fee Nasdaq justified it as designed to achieve 
improvements in the quality of displayed liquidity to the benefit of 
all market participants.\26\ Nasdaq also asserted that the fee is 
reasonable because market participants may readily avoid the fee by 
making improvements in their order entry practices, noting that 
``[i]deally, the fee will be applied to no one because market 
participants will adjust their behavior to avoid the fee.'' \27\
---------------------------------------------------------------------------

    \25\ See Nasdaq Rule 7018(a)(3)(m).
    \26\ See, Securities Exchange Act Release No. 66951 (May 9, 
2012), 77 FR 28647 (May 15, 2012) (File No. SR-NASDAQ-2012-055).
    \27\ Id.
---------------------------------------------------------------------------

    Similarly, the proposed IEX fee is designed to incentivize the 
entry of liquidity providing orders that can enhance the quality of the 
market and disincentivize certain liquidity removing orders that can 
degrade the quality of the market. Participants can manage their fees 
by making adjustments to their order entry practices, to decrease their 
entry of orders designed to target resting liquidity during periods of 
quote instability. And, as with the Nasdaq excess order fees, ideally, 
the fee will be applied to no one, because participants will adjust 
their trading activity to account for the pricing change. Thus, the 
Exchange believes that the $0.0030 per share executed fee is reasonably 
related to the trading activity IEX is seeking to disincentivize.
    IEX also believes that it is appropriate, reasonable and consistent 
with the Act, to charge a fee of $0.0030 per share executed (or 0.3% of 
the total dollar value of the transaction for securities priced below 
$1.00) that exceed the threshold described herein because it is within 
the transaction fee range charged by other exchanges \28\ and 
consistent with Rule 610(c) of Regulation NMS.\29\ Although the amount 
of the Crumbling Quote Remove Fee may not be adequate to fully 
disincentivize Members from deploying trading strategies designed to 
chase short-term price momentum during periods when the CQI is on, the 
Exchange is hopeful that it will at least reduce such activity based on 
the economic disincentives that the fee will provide.
---------------------------------------------------------------------------

    \28\ See note 14 supra.
    \29\ 17 CFR 242.610(c)(1).
---------------------------------------------------------------------------

    Additionally, the Exchange believes that its proposed new fee code 
indicator, to be provided on execution reports, will provide 
transparency and predictability to Members as to applicable transaction 
fees. In this regard, IEX notes that Members will be able to maintain a 
tally of executions of liquidity taking orders potentially subject to 
the CQI fee on a monthly basis, and calculate whether the proportion of 
such orders is more than 5% of their total monthly volume on IEX. Using 
IEX execution reports, Members can calculate whether the sum of 
liquidity removing shares executed with Fee Code Indicator Q is more 
than 1,000,000 shares, and whether the sum of shares executed with Fee 
Code Indicator Q divided by the sum of total volume executed on IEX is 
more than 5%. In addition, IEX will provide the new feed code indicator 
to Members for at least one month prior to implementation of the 
Crumbling Quote Remove Fee so that Members can assess the potential 
impact of the new fee on their IEX order entry practices, and make any 
adjustments that the Members determines are warranted. The Exchange 
does not believe that it would be useful to publicly disseminate when 
the CQI is on in a particular security through a proprietary market 
data feed in view of the fact that the CQI is only on for two 
milliseconds at a time, given the latencies inherent in dissemination 
and receipt of proprietary market data. IEX Rule 11.190(g) describes 
with specificity when the CQI is on. And, as discussed above, the data 
suggests that Members that would be potentially impacted by the 
Crumbling Quote Remove Fee are engaging in purposeful activity and are 
thus able to determine with reasonable certainty when the CQI is on.
    Moreover, IEX believes that the fee will help to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and 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, because the fee is designed 
to reduce the entry of liquidity removing orders that can degrade the 
quality of the market and incentivize liquidity providing orders that 
can improve the quality of the market, thereby promoting greater order 
interaction and inhibiting potentially abusive trading practices.
    Finally, and as discussed in the Burden on Competition section, the 
Exchange notes that it operates in a highly competitive market in which 
Members and market participants can readily direct order flow to 
competing venues if they deem fee levels to be excessive.

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. The Exchange does not believe 
that the proposed rule change will impose any burden on intermarket 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. To the contrary, the Exchange believes that the 
proposed pricing structure may increase competition and hopefully draw 
additional volume to the Exchange by enhancing the quality of 
executions across all participants when the CQI is on. As discussed in 
the Statutory Basis section, the proposed fee structure is a narrowly 
tailored approach, designed to enhance the Exchange's market quality by 
incentivizing trading activity that the Exchange believes enhances the 
quality of its market. The Exchange believes that the proposed fee 
would contribute to, rather than burden, competition, as the fee is 
intended to incentivize Members and market participants to send 
increased liquidity providing order flow to the Exchange, which may 
increase IEX's liquidity and market quality, thereby enhancing the 
Exchange's ability to compete with other exchanges. Further, the 
proposed fee is in line with fees charged by other exchanges.
    The Exchange operates in a highly competitive market in which 
market participants can readily favor competing venues if fee schedules 
at other venues are viewed as more favorable. Consequently, the 
Exchange believes that the degree to which IEX fees could impose any 
burden on competition is extremely limited, and does not believe that 
such fees would burden competition of Members or competing venues in a 
manner that is not necessary or appropriate in furtherance of the 
purposes of the Act.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act

[[Page 41451]]

because, while the proposed fee would only be assessed in some 
circumstances, those circumstances are not based on the type of Member 
entering the liquidity removing order but on the percent and amount of 
liquidity removing volume that the Member executes when the CQI is on. 
Further, the proposed fee is intended to encourage market participants 
to bring increased volume to the Exchange, which benefits all market 
participants.

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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) \30\ of the Act.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \31\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-2017-27 on the subject line.

Paper Comments

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


All submissions should refer to File Number SR-IEX-2017-27. 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 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 the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; 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-2017-27, and should be 
submitted on or before September 21, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
---------------------------------------------------------------------------

    \32\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-18447 Filed 8-30-17; 8:45 am]
 BILLING CODE 8011-01-P


