[Federal Register Volume 82, Number 240 (Friday, December 15, 2017)]
[Notices]
[Pages 59933-59936]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27019]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82259; File No. SR-IEX-2017-16]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing of Amendment No. 2 to the Proposed Rule Change To Amend the 
Schedule of Fees and Assessments To Adopt a Fee Schedule To Establish 
Fees for Industry Members Related to the National Market System Plan 
Governing the Consolidated Audit Trail

December 11, 2017.
    On May 9, 2017, Investors Exchange LLC (``IEX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
adopt a fee schedule to establish the fees for Industry Members related 
to the National Market System Plan Governing the Consolidated Audit 
Trail (``CAT NMS Plan''). The proposed rule change was published in the 
Federal Register for comment on May 22, 2017.\3\ The Commission 
received seven comment letters on the proposed

[[Page 59934]]

rule change,\4\ and a response to comments from the CAT NMS Plan 
Participants.\5\ On June 30, 2017, the Commission temporarily suspended 
and initiated proceedings to determine whether to approve or disapprove 
the proposed rule change.\6\ The Commission thereafter received seven 
comment letters,\7\ and a response to comments from the 
Participants.\8\ On October 31, 2017, the Exchange filed Amendment No. 
1 to the proposed rule change.\9\ On November 9, 2017, the Commission 
extended the time period within which to approve the proposed rule 
change or disapprove the proposed rule change to January 14, 2018.\10\ 
On December 4, 2017, the Exchange filed Amendment No. 2 to the proposed 
rule change, as described in Items I and II below, which Items have 
been prepared by the Exchange. The Commission is publishing this notice 
to solicit comments from interested persons on Amendment No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 80692 (May 16, 
2017), 82 FR 23325 (May 22, 2017) (``Original Proposal'').
    \4\ Since the CAT NMS Plan Participants' proposed rule changes 
to adopt fees to be charged to Industry Members to fund the 
consolidated audit trail are substantively identical, the Commission 
is considering all comments received on the proposed rule changes 
regardless of the comment file to which they were submitted. See 
text accompanying note infra, for a list of the CAT NMS Plan 
Participants. See Letter from Theodore R. Lazo, Managing Director 
and Associate General Counsel, Securities Industry and Financial 
Markets Association, to Brent J. Fields, Secretary, Commission 
(dated June 6, 2017), available at: https://www.sec.gov/comments/sr-batsbzx-2017-38/batsbzx201738-1788188-153228.pdf; Letter from 
Patricia L. Cerny and Steven O'Malley, Compliance Consultants, to 
Brent J. Fields, Secretary, Commission (dated June 12, 2017), 
available at: https://www.sec.gov/comments/sr-cboe-2017-040/cboe2017040-1799253-153675.pdf; Letter from Daniel Zinn, General 
Counsel, OTC Markets Group Inc., to Eduardo A. Aleman, Assistant 
Secretary, Commission (dated June 13, 2017), available at: https://www.sec.gov/comments/sr-finra-2017-011/finra2017011-1801717-153703.pdf; Letter from Joanna Mallers, Secretary, FIA Principal 
Traders Group, to Brent J. Fields, Secretary, Commission (dated June 
22, 2017), available at: https://www.sec.gov/comments/sr-cboe-2017-040/cboe2017040-1819670-154195.pdf; Letter from Stuart J. Kaswell, 
Executive Vice President and Managing Director, General Counsel, 
Managed Funds Association, to Brent J. Fields, Secretary, Commission 
(dated June 23, 2017), available at: https://www.sec.gov/comments/sr-finra-2017-011/finra2017011-1822454-154283.pdf; and Letter from 
Suzanne H. Shatto, Investor, to Commission (dated June 27, 2017), 
available at: https://www.sec.gov/comments/sr-batsedgx-2017-22/batsedgx201722-154443.pdf. The Commission also received a comment 
letter which is not pertinent to these proposed rule changes. See 
Letter from Christina Crouch, Smart Ltd., to Brent J. Fields, 
Secretary, Commission (dated June 5, 2017), available at: https://www.sec.gov/comments/sr-batsbzx-2017-38/batsbzx201738-1785545-153152.htm.
    \5\ See Letter from CAT NMS Plan Participants to Brent J. 
Fields, Secretary, Commission (dated June 29, 2017), available at: 
https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-1832632-154584.pdf.
    \6\ See Securities Exchange Act Release No. 81067 (June 30, 
2017), 82 FR 31656 (July 7, 2017).
    \7\ See Letter from W. Hardy Callcott, Partner, Sidley Austin 
LLP, to Brent J. Fields, Secretary, Commission (dated July 27, 
2017), available at: https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2148338-157737.pdf; Letter from Kevin Coleman, 
General Counsel and Chief Compliance Officer, Belvedere Trading LLC, 
to Brent J. Fields, Secretary, Commission (dated July 28, 2017), 
available at: https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2148360-157740.pdf; Letter from Joanna Mallers, 
Secretary, FIA Principal Traders Group, to Brent J. Fields, 
Secretary, Commission (dated July 28, 2017), available at: https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2151228-157745.pdf; Letter from Theodore R. Lazo, Managing Director and 
Associate General Counsel, SIFMA, to Brent J. Fields, Secretary, 
Commission (dated July 28, 2017), available at: https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2150977-157744.pdf; Letter 
from Stuart J. Kaswell, Executive Vice President and Managing 
Director, General Counsel, Managed Funds Association, to Brent J. 
Fields, Secretary, Commission (dated July 28, 2017), available at: 
https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2150818-157743.pdf; Letter from John Kinahan, Chief Executive 
Officer, Group One Trading, L.P., to Brent J. Fields, Secretary, 
Commission (dated August 10, 2017), available at: https://
www.sec.gov/comments/sr-finra-2017-011/finra2017011-2214568-160619.pdf; Letter from Joseph Molluso, Executive Vice President and 
CFO, Virtu Financial, to Brent J. Fields, Commission (dated August 
18, 2017), available at: https://www.sec.gov/comments/sr-finra-2017-011/finra2017011-2238648-160830.pdf.
    \8\ See Letter from Michael Simon, Chair, CAT NMS Plan Operating 
Committee, to Brent J. Fields, Commission, Secretary (dated November 
2, 2017), available at https://www.sec.gov/comments/sr-batsbyx-2017-11/batsbyx201711-2674608-161412.pdf.
    \9\ Amendment No. 1 to the proposed rule change replaced and 
superseded the Original Proposal in its entirety. See Securities 
Exchange Act Release No. 82258 (December 11, 2017).
    \10\ See Securities Exchange Act Release No. 82049 (November 9, 
2017), 82 FR 53549 (November 16, 2017).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    On May 9, 2017, Investors Exchange LLC (``IEX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') proposed rule change SR-IEX-2017-16 (the 
``Original Proposal''), pursuant to which IEX proposed to adopt a fee 
schedule to establish the fees for Industry Members related to the 
National Market System Plan Governing the Consolidated Audit Trail (the 
``CAT NMS Plan'' or ``Plan'').\11\ On October 31, 2017, IEX filed an 
amendment to the Original Proposal (``First Amendment'') to amend the 
Original Proposal. IEX files this proposed rule change (the ``Second 
Amendment'') to amend the Original Proposal as amended by the First 
Amendment.
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    \11\ Unless otherwise specified, capitalized terms used in this 
fee filing are defined as set forth herein, the CAT Compliance Rule 
Series, in the CAT NMS Plan, or the Original Proposal.
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    The text of the proposed rule change is available at the Exchange's 
website at www.iextrading.com, at the principal office of the Exchange, 
and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statement may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

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

1. Purpose
    BOX Options Exchange LLC, Cboe BYX Exchange, Inc., Cboe BZX 
Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., 
Cboe C2 Exchange, Inc., Cboe Exchange, Inc., Chicago Stock Exchange, 
Inc., Financial Industry Regulatory Authority, Inc. (``FINRA''), 
Investors' Exchange LLC, Miami International Securities Exchange, LLC, 
MIAX PEARL, LLC, NASDAQ BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, 
Nasdaq MRX, LLC, NASDAQ PHLX LLC, The NASDAQ Stock Market LLC, New York 
Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc. and NYSE 
National, Inc.\12\ (collectively, the ``Participants'') filed with the 
Commission, pursuant to Section 11A of the Exchange Act \13\ and Rule 
608 of Regulation NMS thereunder,\14\ the CAT NMS Plan.\15\ The 
Participants filed the Plan to comply with Rule 613 of Regulation NMS 
under the Exchange Act. The Plan was

[[Page 59935]]

published for comment in the Federal Register on May 17, 2016,\16\ and 
approved by the Commission, as modified, on November 15, 2016.\17\ The 
Plan is designed to create, implement and maintain a consolidated audit 
trail (``CAT'') that would capture customer and order event information 
for orders in NMS Securities and OTC Equity Securities, across all 
markets, from the time of order inception through routing, 
cancellation, modification, or execution in a single consolidated data 
source. The Plan accomplishes this by creating CAT NMS, LLC (the 
``Company''), of which each Participant is a member, to operate the 
CAT.\18\ Under the CAT NMS Plan, the Operating Committee of the Company 
(``Operating Committee'') has discretion to establish funding for the 
Company to operate the CAT, including establishing fees that the 
Participants will pay, and establishing fees for Industry Members that 
will be implemented by the Participants (``CAT Fees'').\19\ The 
Participants are required to file with the SEC under Section 19(b) of 
the Exchange Act any such CAT Fees applicable to Industry Members that 
the Operating Committee approves.\20\ Accordingly, IEX submitted the 
Original Proposal to propose the Consolidated Audit Trail Funding Fees, 
which would require Industry Members that are Exchange members to pay 
the CAT Fees determined by the Operating Committee.
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    \12\ Note that Bats BYX Exchange, Inc., Bats BZX Exchange, Inc., 
Bats EDGA Exchange, Inc., Bats EDGX Exchange, Inc., LLC, C2 Options 
Exchange, Incorporated, and Chicago Board Options Exchange, 
Incorporated, have been renamed Cboe BYX Exchange, Inc., Cboe BZX 
Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., 
Cboe C2 Exchange, Inc., Cboe Exchange, Inc., respectively.
    \13\ 15 U.S.C. 78k-1.
    \14\ 17 CFR 242.608.
    \15\ See Letter from the Participants to Brent J. Fields, 
Secretary, Commission, dated September 30, 2014; and Letter from 
Participants to Brent J. Fields, Secretary, Commission, dated 
February 27, 2015. On December 24, 2015, the Participants submitted 
an amendment to the CAT NMS Plan. See Letter from Participants to 
Brent J. Fields, Secretary, Commission, dated December 23, 2015.
    \16\ Securities Exchange Act Rel. No. 77724 (Apr. 27, 2016), 81 
FR 30614 (May 17, 2016).
    \17\ Securities Exchange Act Rel. No. 79318 (Nov. 15, 2016), 81 
FR 84696 (Nov. 23, 2016) (``Approval Order'').
    \18\ The Plan also serves as the limited liability company 
agreement for the Company.
    \19\ Section 11.1(b) of the CAT NMS Plan.
    \20\ Id.
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    The Commission published the Original Proposal for public comment 
in the Federal Register on May 16, 2017,\21\ and received comments in 
response to the Original Proposal or similar fee filings by other 
Participants.\22\ On June 30, 2017, the Commission suspended, and 
instituted proceedings to determine whether to approve or disapprove, 
the Original Proposal.\23\ The Commission received seven comment 
letters in response to those proceedings.\24\
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    \21\ Securities Exchange Act Release No. 80692 (May 16, 2017), 
82 FR 23325 (May 22, 2017) (SR-IEX-2017-16).
    \22\ For a summary of comments, see generally Securities 
Exchange Act Rel. No. 81067 (June 30, 2017), 82 FR 31656 (July 7, 
2017) (``Suspension Order'').
    \23\ Suspension Order.
    \24\ See Letter from Stuart J. Kaswell, Executive Vice 
President, Managing Director and General Counsel, Managed Funds 
Association, to Brent J. Fields, Secretary, SEC (July 28, 2017); 
Letter from Theodore R. Lazo, Managing Director and Associate 
General Counsel, SIFMA, to Brent J. Fields, Secretary, SEC (July 28, 
2017); Joanna Mallers, Secretary, FIA Principal Traders Group, to 
Brent J. Fields, Secretary, SEC (July 28, 2017); Letter from Kevin 
Coleman, General Counsel & Chief Compliance Officer, Belvedere 
Trading LLC, to Brent J. Fields, Secretary, SEC (July 28, 2017); 
Letter from W. Hardy Callcott, Sidley Austin LLP, to Brent J. 
Fields, Secretary, SEC (July 27, 2017); Letter from John Kinahan, 
Chief Executive Officer, Group One Trading, L.P., to Brent J. 
Fields, Secretary, SEC (Aug. 10, 2017); and Letter from Joseph 
Molluso, Executive Vice President, Virtu Financial, to Brent J. 
Fields, Secretary, SEC (Aug. 18, 2017).
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    In response to the comments on the Original Proposal, the Operating 
Committee determined to make the following changes to the funding 
model: (1) Adds two additional CAT Fee tiers for Equity Execution 
Venues; (2) discounts the market share of Execution Venue ATSs 
exclusively trading OTC Equity Securities as well as the market share 
of the FINRA over-the-counter reporting facility (``ORF'') by the 
average shares per trade ratio between NMS Stocks and OTC Equity 
Securities (calculated as 0.17% based on available data from the second 
quarter of 2017) when calculating the market share of Execution Venue 
ATS exclusively trading OTC Equity Securities and FINRA; (3) discounts 
the Options Market Maker quotes by the trade to quote ratio for options 
(calculated as 0.01% based on available data for June 2016 through June 
2017) when calculating message traffic for Options Market Makers; (4) 
discounts equity market maker quotes by the trade to quote ratio for 
equities (calculated as 5.43% based on available data for June 2016 
through June 2017) when calculating message traffic for equity market 
makers; (5) decreases the number of tiers for Industry Members (other 
than the Execution Venue ATSs) from nine to seven; (6) changes the 
allocation of CAT costs between Equity Execution Venues and Options 
Execution Venues from 75%/25% to 67%/33%; (7) adjusts tier percentages 
and recovery allocations for Equity Execution Venues, Options Execution 
Venues and Industry Members (other than Execution Venue ATSs); (8) 
focuses the comparability of CAT Fees on the individual entity level, 
rather than primarily on the comparability of affiliated entities; (9) 
commences invoicing of CAT Reporters as promptly as possible following 
the latest of the operative date of the Consolidated Audit Trail 
Funding Fees for each of the Participants and the operative date of the 
CAT NMS Plan amendment adopting CAT Fees for Participants; and (10) 
requires the proposed fees to automatically expire two years from the 
operative date of the CAT NMS Plan amendment adopting CAT Fees for 
Participants. On October 31, 2017, IEX filed the First Amendment and 
proposed to amend the Original Proposal to reflect these changes.
    IEX submits this Second Amendment to the revise the proposal as set 
forth in the First Amendment to discount the OTC Equity Securities 
market share of all Execution Venue ATSs trading OTC Equity Securities, 
rather than applying the discount solely to those Execution Venue ATSs 
that exclusively trade OTC Equity Securities, when calculating the 
market share of Execution Venue ATS trading OTC Equity Securities. As 
discussed in the First Amendment:

    The Operating Committee determined to discount the market share 
of Execution Venue ATSs exclusively trading OTC Equity Securities as 
well as the market share of the FINRA ORF in recognition of the 
different trading characteristics of the OTC Equity Securities 
market as compared to the market in NMS Stocks. Many OTC Equity 
Securities are priced at less than one dollar--and a significant 
number at less than one penny--per share and low-priced shares tend 
to trade in larger quantities. Accordingly, a disproportionately 
large number of shares are involved in transactions involving OTC 
Equity Securities versus NMS Stocks. Because the proposed fee tiers 
are based on market share calculated by share volume, Execution 
Venue ATSs exclusively trading OTC Equity Securities and FINRA would 
likely be subject to higher tiers than their operations may 
warrant.\25\
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    \25\ See SR-IEX-2017-16, Amendment 2, Section 3(a), at page 23.

    The Operating Committee believes that this argument applies equally 
to both Execution Venue ATSs exclusively trading OTC Equity Securities 
and to Execution Venue ATSs that trade OTC Equity Securities as well as 
other securities. Accordingly, IEX proposes to amend paragraph (b)(2) 
of the Consolidated Audit Trail Funding Fees to apply the discount to 
all Execution Venue ATSs trading OTC Equity Securities. Specifically, 
IEX proposes to change the parenthetical regarding the OTC Equity 
Securities discount in paragraph (b)(2) of the proposed fee schedule 
from ``with a discount for Equity ATSs exclusively trading OTC Equity 
Securities based on the average shares per trade ratio between NMS 
Stocks and OTC Equity Securities'' to ``with a discount for OTC Equity 
Securities market share of Equity ATSs trading OTC Equity Securities 
based on the average shares per trade ratio between NMS Stocks and OTC 
Equity Securities.''
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions

[[Page 59936]]

of Section 6(b)(5) of the Act,\26\ which require, among other things, 
that the Exchange's rules must be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest, and not designed to permit unfair discrimination 
between customers, issuers, brokers and dealer, and Section 6(b)(4) of 
the Act, \27\ which requires that the Exchange's rules provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
members and issuers and other persons using its facilities. IEX 
believes that the proposed change is consistent with the Act, and that 
the proposed fees are reasonable, equitably allocated and not unfairly 
discriminatory. In particular, IEX believes that the proposed change 
would treat all Equity ATSs trading OTC Equity Securities in a 
comparable manner when calculating applicable fees. In addition, the 
fee structure takes into consideration distinctions in securities 
trading operations of CAT Reporters, including all ATSs trading OTC 
Equity Securities.
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    \26\ 15 U.S.C. 78f(b)(5).
    \27\ 15 U.S.C. 78f(b)(4).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Section 6(b)(8) of the Act \28\ require that the Exchange's rules 
not impose any burden on competition that is not necessary or 
appropriate. 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. As previously 
described, IEX believes that the proposed rule change fairly and 
equitably allocates costs among CAT Reporters. In particular, the 
proposed fee schedule is structured to impose comparable fees on 
similarly situated CAT Reporters. IEX believes that the proposed change 
would treat all Equity ATSs trading OTC Equity Securities in a 
comparable manner when calculating applicable fees. In addition, the 
fee structure takes into consideration distinctions in securities 
trading operations of CAT Reporters, including all ATSs trading OTC 
Equity Securities. Moreover, the Operating Committee believes that the 
proposed changes address certain competitive concerns raised by 
commenters related to ATSs trading OTC Equity Securities.
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    \28\ 15 U.S.C. 78f(b)(8).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    IEX set forth responses to comments received regarding the Original 
Proposal in the First Amendment. In addition, the proposed changes set 
forth in this Second Amendment further respond to comments made 
regarding ATSs trading OTC Equity Securities.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal, as 
amended by Amendment No. 1 and Amendment No. 2, is consistent with the 
Act. Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-IEX-2017-16 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-IEX-2017-16. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-IEX-2017-16, and should be submitted on 
or before January 5, 2018.
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    \29\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-27019 Filed 12-14-17; 8:45 am]
 BILLING CODE 8011-01-P


