[Federal Register Volume 83, Number 1 (Tuesday, January 2, 2018)]
[Notices]
[Pages 194-197]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-28311]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82409; File No. SR-IEX-2017-43]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Related to 
the Displayed Match Fee

December 27, 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 December 14, 2017, the Investors Exchange LLC (``IEX'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``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''),\4\ and Rule 19b-4 thereunder,\5\ 
Investors Exchange LLC (``IEX'' or ``Exchange'') is filing with the 
Commission a proposed rule change to modify its Fee Schedule, pursuant 
to IEX Rule 15.110(a) and (c), to: (i) To increase the fee for orders 
that provide or take resting interest with displayed priority (i.e., 
displayed liquidity) during continuous trading, (ii) eliminate the 
exception to the Non-Displayed Match Fee for taking non-displayed 
liquidity with a displayable order for Members that predominantly 
provide displayed liquidity (iii) increase the fee for orders displayed 
on the Continuous Book that execute as part of the Opening Process for 
Non-IEX-Listed Securities (the ``Opening Process'') while continuing to 
provide such orders free execution in the Opening and Closing Auction 
when IEX begins to list securities as a primary listing exchange, and 
(iv) make two nonsubstantive clarifying changes to its Fee Schedule. 
Changes to the Fee Schedule pursuant to this proposal are effective 
upon filing, and will be operative on January 1, 2018.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.
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
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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 
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 modify its Fee Schedule, pursuant to IEX 
Rule 15.110(a) and (c), to (i) to increase the fee for orders that 
provide or take displayed liquidity during continuous trading, (ii) 
eliminate the exception to the Non-Displayed Match Fee for taking non-
displayed liquidity with a displayable order for Members that 
predominantly provide displayed liquidity, (iii) increase the fee for 
orders displayed on the Continuous Book that execute as part of the 
Opening Process while continuing to provide such orders free execution 
in the Opening and Closing Auction when IEX begins to list securities 
as a primary listing exchange, and (iv) make two nonsubstantive 
clarifying changes to its Fee Schedule.
Displayed Match Fee
    Pursuant to the existing Fee Schedule, the Exchange currently does 
not charge any fee to Members for executions on IEX that provide or 
take displayed liquidity (i.e., an order or portion of a reserve order 
that is booked and ranked with display priority on the Order Book \6\ 
either as the IEX best bid or best offer (``BBO''), or at a less 
aggressive price). This pricing is referred to by the Exchange as the 
``Displayed Match Fee'', resulting in a Fee Code of `L' provided by the 
Exchange on execution reports to Members.\7\ The Exchange proposes to 
update its Fee Schedule, pursuant to IEX Rule 15.110(a) and (c), to (i) 
increase the Displayed Match Fee from $0 to $0.0003 for securities with 
an execution price at or above $1.00, or 0.30% of the total dollar 
value of the transaction for securities with an execution price below 
$1.00, calculated as the execution price multiplied by the number of 
shares executed in the transaction.
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    \6\ See Rule 1.160(p).
    \7\ See the Investors Exchange Fee Schedule, available on the 
Exchange's public website.
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    The current Displayed Match Fee of $0 was adopted in connection 
with IEX's launch as a national securities exchange in August 2016, and 
was designed to attract displayed order flow to the Exchange, without 
offering rebates, thereby contributing to price discovery and 
consistent with the overall goal of enhancing market quality. The 
Exchange periodically assesses its fee structure. Based upon a recent 
assessment, the Exchange determined that the modest proposed fee 
increase for the Displayed Match Fee would continue to attract and 
incentivize displayed order flow in a comparable manner, while also 
increasing revenue.
    The Exchange is not proposing any change to the Internalization Fee 
whereby no fee is charged for executions when the adding and removing 
order originated from the same Exchange Member. Accordingly, 
transactions that qualify for the Internalization Fee will not be 
charged the Displayed Match Fee, since the IEX Fee Schedule provides 
that to the extent a Member receives multiple Fee Codes on an 
execution, the lower fee shall apply.\8\
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    \8\ Id.
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Non-Displayed Match Fee
    The Exchange currently charges the Non-Displayed Match Fee of 
$0.0009

[[Page 195]]

per share (or 0.30% of the total dollar value of the transaction for 
securities with an execution price below $1.00) to Members for 
executions on IEX that provide or take non-displayed liquidity (i.e., 
an order or portion of a reserve order that is booked and ranked with 
non-display priority on the Order Book either at the NBBO midpoint or 
at a less aggressive price on the Order Book),\9\ with the exception of 
(i) executions on the Exchange where the adding and removing order 
originated from the same Exchange Member and (ii) executions on IEX 
that involve taking resting interest with non-displayed priority where 
(a) the liquidity removing order was displayable (i.e., the order would 
have booked and displayed if posted to the Order Book) and (b) on a 
monthly basis, at least 90% of the liquidity removing Member's 
aggregate executions of displayable orders added liquidity during such 
calendar month (i.e., the ``90% display exception'').\10\ The Exchange 
is proposing to eliminate the 90% display exception. As explained in 
IEX's rule change adopting the 90% display exception to the Non-
Displayed Match Fee, the flexibility was designed to address limited 
inadvertent liquidity removal by Members who are largely adding 
displayed liquidity and generally intend to add displayed liquidity on 
IEX, to further encourage aggressively priced displayed orders.\11\ 
However, the Exchange believes that the 90% display exception has had 
limited success in encouraging aggressively priced displayed orders on 
the Exchange, and has resulted in relatively small credits to Members. 
During September, October, and November of 2017, no more than 31 
Members (of 159 total Members) qualified for the 90% display exception 
through one or more MPID's during any month. The credits ranged from 
$0.03 to $9,195 with 47% (on average) of the credits under $100.
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    \9\ Id.
    \10\ However, in such transactions, the non-displayed liquidity 
adding interest is subject to the Non-Displayed Match Fee.
    \11\ See Securities Exchange Act Release No. 78550 (August 11, 
2016), 81 FR 54873 (August 17, 2016) (SR-IEX-2016-09).
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    Further the 90% display exception introduces certain technical 
complexities for IEX that are associated with processing the 90% 
display exception at the end of the month, as well as for Members with 
respect to forecasting fees due to the Exchange. Specifically, the 
Exchange's current billing processes account for the 90% display 
exception at the end of the trading month by processing each MPID's 
eligible trading activity to determine the number of shares, if any, 
that are eligible for free execution under the 90% display exception. 
The Exchange believes the computational components of the 90% display 
exception are not inherently complex; however, accounting for the 90% 
display exception along with other conditional fees that are processed 
at the end of the trading month (e.g., the Crumbling Quote Remove Fee), 
raises unnecessary technical complexities considering the fees limited 
practical utility. Moreover, the Exchange believes that removing the 
90% display exception will provide Members more clarity regarding the 
fees assessed for executions on the Exchange, because Members will not 
need to account for the 90% display exception when calculating the fees 
due to the Exchange, and will instead know with certainty that 
executions that receive Fee Code `I' in isolation will be subject to 
the Non-Displayed Match Fee. Accordingly, the Exchange proposes to 
eliminate the exception. The Exchange thus proposes to delete the 
single asterisked footnote to the Fee Schedule to delete the reference 
and description of the 90% display exception, and to adjust the 
footnote references that follow accordingly.
Auction and Opening Process Fee
    The Exchange Fee Schedule currently provides that displayed orders 
resting on the Continuous Book that execute in the Opening Auction, 
Closing Auction, or the Opening Process are not charged a fee (i.e., 
are free).\12\ IEX proposes to retain the free pricing for displayed 
orders resting on the Continuous Book that execute in the Opening or 
Closing Auction, but to increase the fee for displayed orders resting 
on the Continuous Book that execute in the Opening Process to align 
with the proposed Displayed Match Fee. The Exchange believes that the 
Opening and Closing Auctions will provide a critical price discovery 
mechanism that establishes the IEX Official Opening and Closing Prices, 
respectively, for IEX-listed securities. It is generally the data point 
most closely scrutinized by investors, securities analysts, and the 
financial media, and is used to value and assess management fees on 
mutual funds, hedge funds, and individual investor portfolios. The 
Exchange further believes that displayed liquidity is an important part 
of the Opening and Closing Auction price discovery process. Therefore, 
in order to incentivize market participants to display quotations on 
the Exchange leading into the Opening and Closing Auctions to support 
the price formation process, the Exchange is proposing to not charge a 
fee for displayed interest resting on the Continuous Book that executes 
as part of the Opening or Closing Auction. In contrast, the Opening 
Process for Non-Listed Securities is not designed to be a price 
discovery mechanism and accordingly the Exchange does not believe that 
a free pricing incentive is appropriate.
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    \12\ See supra note 7 [sic].
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Clarifying Changes
    The Exchange is proposing to make two nonsubstantive changes to its 
Fee Schedule to clarify the fees assessed on certain orders that 
receive multiple Fee Codes. First, the Exchange proposes to reorder the 
asterisked footnotes to account for the elimination of the 90% display 
exception. Secondly, the Exchange proposes to amend the triple 
asterisked footnote and add a new sentence to the quadruple asterisked 
footnote to clarify the Fee Codes provided for orders that execute in 
the Opening Process and in the Opening or Closing Auctions. As 
proposed, the triple asterisked footnote provides that, for orders that 
execute in the Opening Process, non-displayed orders will receive a Fee 
Code of X rather than I, and executions that receive a Fee Code of XL 
are assessed the Displayed Match Fee. The current quadruple asterisked 
footnote provides that, for orders that execute in the Opening Auction 
or Closing Auction, non-displayed orders will receive a Fee Code of O 
or C, respectively, rather than I, and orders that were displayed on 
the Continuous Book prior to the Opening or Closing Auction will 
receive a Fee Code of L, in addition to O or C, respectively (i.e., 
such orders will receive Fee Codes OL or CL, respectively). The 
proposed new sentence to the quadruple asterisked footnote further 
provides that executions in the Opening or Closing Auction that receive 
a Fee Code of OL or CL, respectively, are free. While the third bullet 
in the Transaction Fees section of the Fee Schedule currently specifies 
that, except for the Crumbling Quote Remove Fee Code of Q, to the 
extent a Member receives multiple Fee Codes on an execution, the lower 
fee shall apply, the Exchange believes that the proposed changes will 
provide additional clarity to Members with respect to how multiple Fee 
Codes on an execution apply.
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions

[[Page 196]]

of Section 6(b) \13\ of the Act in general, and furthers the objectives 
of Sections 6(b)(4) \14\ 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. The Exchange believes that the proposed fee change is 
reasonable, fair and equitable, and non-discriminatory. The Exchange 
operates in a highly competitive market in which market participants 
can readily direct order flow to competing venues if they deem fee 
levels at a particular venue to be excessive.
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    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(4).
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    As proposed, the modest increase to the Displayed Match Fee remains 
intended to attract displayed order flow to the Exchange by offering a 
pricing incentive to send IEX aggressively priced displayable orders, 
without offering rebates, thereby contributing to price discovery and 
consistent with the overall goal of enhancing market quality. The 
Exchange does not believe that the proposed change represents a 
significant departure from pricing currently offered by the Exchange.
    Specifically, the Displayed Match Fee will continue to be less than 
the Non-Displayed Match Fee and substantially lower than the fee to add 
displayed liquidity on an exchange with a ``taker-maker'' fee structure 
(i.e., that charges liquidity providers) and to take displayed 
liquidity on an exchange with a ``maker-taker'' fee structure (i.e., 
that charges liquidity takers).\15\ In addition, the Exchange believes 
that it continues to be reasonable, equitable and not unfairly 
discriminatory to charge the Displayed Match Fee to both the liquidity 
adder and remover because it is designed to facilitate execution of, 
and enhance trading opportunities for, displayable orders, thereby 
further incentivizing entry of displayed orders.
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    \15\ For example, the New York Stock Exchange (``NYSE'') trading 
fee schedule on its public website reflects fees to ``take'' 
liquidity ranging from $0.0024-$0.0030 depending on the type of 
market participant, order and execution. Additionally, NYSE fees to 
``add'' liquidity range from $0.0018-$0.0030 per share for shares 
executed in continuous trading. (See, https://www.nyse.com/markets/nyse/trading-info/fees). The Nasdaq Stock Market (``Nasdaq'') 
trading fee schedule on its public website reflects fees to 
``remove'' liquidity ranging from $0.0025-$0.0030 per share for 
shares executed in continuous trading at or above $1.00 or 0.30% of 
total dollar volume for shares executed below $1.00. Additionally, 
Nasdaq fees for ``adding'' liquidity range from $0.0001-$0.00305 per 
share for shares executed in continuous trading. (See, http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2). The Cboe BZX 
Exchange (``Cboe BZX) trading fee schedule on its public website 
reflects fees for ``removing'' liquidity ranging from $0.0025-
$0.0030, for shares executed in continuous trading at or above $1.00 
or 0.30% of total dollar volume for shares executed below $1.00. 
Additionally, Cboe BZX fees for ``adding'' liquidity ranging from 
$0.0020-$0.0045 per share for shares executed in continuous trading. 
(See, https://www.batstrading.com/support/fee_schedule/bzx/).
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    The Exchange also believes that it is reasonable, fair and 
equitable, and non-discriminatory to charge the increased Displayed 
Match Fee for displayed interest resting on the Continuous Book that 
executes as part of the Opening Process. As discussed in the Purpose 
Section, the Opening Process is not designed to be a price discovery 
mechanism and accordingly the Exchange believes that the same factors 
that support increasing the Displayed Match Fee also support increasing 
the fee for such orders.
    The Exchange further believes that it is reasonable, fair and 
equitable, and non-discriminatory to continue to not charge a fee for 
displayed interest resting on the Continuous Book that executes as part 
of the Opening or Closing Auction. As discussed in the Purpose section, 
the Opening and Closing Auctions provide a critical price discovery 
mechanism that establishes the IEX Official Opening and Closing Prices, 
respectively, for IEX-listed securities, and displayed liquidity is an 
important part of the Opening and Closing Auction price discovery 
process. Therefore, the Exchange believes that a fee incentive is 
appropriate in order to incentivize market participants to display 
quotations on the Exchange leading into the Opening and Closing 
Auctions. The Exchange notes that Cboe BZX Exchange, Inc. (``BZX'') 
does not charge a fee for continuous book orders that execute in an 
opening or closing auction in a BZX-listed security, notwithstanding 
that it charges various fees for other orders that execute in such 
auctions.\16\
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    \16\ See Cboe BZX U.S. Equities Exchange Fee Schedule available 
at: http://markets.cboe.com/us/equities/membership/fee_schedule/bzx/.
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    Additionally, the Exchange believes that it is reasonable, fair and 
equitable, and non-discriminatory to continue to charge the 
Internalization Fee rather than the Displayed Match Fee for executions 
on IEX that provide or take resting interest with displayed priority 
when the adding and removing order originated from the same Exchange 
Member. IEX believes that the same factors that support not charging 
fees for such transactions, as described in its rule filing adopting 
this fee structure, continue to be relevant.\17\ Specifically, not 
charging a fee is designed to incentivize Members (and their customers) 
to send orders to IEX that may otherwise be internalized off exchange, 
with the goal of increasing order interaction on IEX. Internalization 
on IEX is not guaranteed, and the additional order flow that does not 
internalize is available to trade by all Members.
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    \17\ See supra note 11 [sic].
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    The Exchange also believes that it is reasonable, fair and 
equitable, and non-discriminatory to eliminate the 90% display 
exception, based on its limited practical utility and the technical 
complexities that are associated with processing the exception, as 
described in the Purpose section. Moreover, the Exchange believes that 
removing the 90% display exception is reasonable because it will 
provide Members more clarity regarding the fees assessed for executions 
on the Exchange, because Members will not need to account for the 90% 
display exception when calculating the fees due to the Exchange, and 
will instead know with certainty that executions that receive Fee Code 
`I' in isolation will be subject to the Non-Displayed Match Fee.
    Additionally, the Exchange believes that the proposed 
nonsubstantive clarifying changes to the Fee Schedule are reasonable, 
fair and equitable, and non-discriminatory because they will provide 
additional clarity to Members with respect to how multiple Fee Codes on 
an execution apply, thereby eliminating any potential confusion.
    Finally, the Exchange believes that the proposed fees are 
nondiscriminatory because they will apply uniformly to all Members.

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. 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 between Members or 
competing venues in a manner that is not necessary or appropriate in 
furtherance of the purposes of the Act. Moreover, as noted in the 
Statutory

[[Page 197]]

Basis section, the Exchange does not believe that the proposed changes 
represent a significant departure from its current fee structure.
    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 because, while 
different fees are assessed in some circumstances, these different fees 
are not based on the type of Member entering the orders that match but 
on the type of order entered and all Members can submit any type of 
order. Further, the proposed fee changes continue to be intended to 
encourage market participants to bring increased order flow 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) \18\ of the Act.
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    \18\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    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) \19\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \19\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-IEX-2017-43 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-2017-43. 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-2017-43 
and should be submitted on or before January 23, 2018.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Brent J. Fields,
Secretary.
[FR Doc. 2017-28311 Filed 12-29-17; 8:45 am]
BILLING CODE 8011-01-P


