[Federal Register Volume 83, Number 88 (Monday, May 7, 2018)]
[Notices]
[Pages 20118-20123]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-09577]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83147; File No. SR-IEX-2018-09]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Modify 
its Fee Schedule To Charge a More Deterministic Fee of $0.0003 Per 
Share for Executions at or Above $1.00 That Result From Removing 
Liquidity With an Order That is Executable at the Far Side of the NBBO

May 1, 2018.
    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 April 20, 2018, 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 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 
Securities and Exchange Commission (``Commission'') a proposed rule 
change to modify its Fee Schedule, pursuant to IEX Rule 15.110(a) and 
(c), to charge a more deterministic fee of $0.0003 per share for 
executions at or above $1.00 that result from removing liquidity with 
an order that is executable at the far side of the NBBO \6\ (the 
``Spread-Crossing Remove Fee''). Consistent with the Exchange's 
existing Fee Schedule, executions below $1.00 will be 0.30% of the 
total dollar value of the transaction. Changes to the Fee Schedule 
pursuant to this proposal are effective upon filing and will be 
operative on May 1, 2018.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
    \6\ As defined by Regulation NMS Rule 600(b)(42). 17 CFR 
242.600.
---------------------------------------------------------------------------

    The text of the proposed rule change is available at the Exchange's 
website at www.iextrading.com, at the principal office of the Exchange, 
and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these 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.

[[Page 20119]]

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

1. Purpose
    The Exchange proposes to modify its Fee Schedule, pursuant to IEX 
Rule 15.110(a) and (c), to charge a more deterministic fee of $0.0003 
per share for executions at or above $1.00 that result from removing 
liquidity with an order that is executable at the far side of the NBBO 
(i.e., a buy order that is executable at the NBO or higher, or a sell 
order that is executable at the NBB or lower). In an effort to 
incentivize Members to submit displayed orders to the Exchange, the 
Exchange currently charges a fee of $0.0003 per share (or 0.30% of the 
total dollar value of the transaction for securities priced below 
$1.00) to Members for executions on IEX that provide or take resting 
interest with displayed priority (i.e., an order or portion of a 
reserve order that is booked and ranked with display priority on the 
Order Book).\7\ Furthermore, the Exchange currently charges $0.0009 per 
share (or 0.30% of the total dollar value of the transaction for 
securities priced below $1.00) to Members for executions on IEX that 
provide or take resting interest with non-displayed priority (i.e., an 
order or portion of a reserve order that is booked and ranked with non-
displayed priority on the Order Book).\8\ The Exchange does not charge 
any fee to Members for executions on IEX when the adding and removing 
order originated from the same Exchange Member.\9\
---------------------------------------------------------------------------

    \7\ This pricing is referred to by the Exchange as ``Displayed 
Match Fee'' with a Fee Code of `L' provided by the Exchange on 
execution reports. See the Investors Exchange Fee Schedule, 
available on the Exchange public website.
    \8\ This pricing is referred to by the Exchange as ``Non-
Displayed Match Fee'' with a Fee Code of `I' provided by the 
Exchange on execution reports. See the Investors Exchange Fee 
Schedule, available on the Exchange public website.
    \9\ This pricing is referred to by the Exchange as 
``Internalization Fee'' with a Fee Code of `S' provided by the 
Exchange on execution reports. Orders from different market 
participant identifiers of the same broker dealer, with the same 
Central Registration Depository registration number, are treated as 
originating from the same Exchange Member. See the Investors 
Exchange Fee Schedule, available on the Exchange public website.
---------------------------------------------------------------------------

    After informal discussions with various Members, the Exchange 
recognizes that some Members may be dissuaded from seeking to access 
IEX quotations at the NBBO due to the variability in execution fees 
when routing orders to the Exchange that are executable at the far side 
of the NBBO and intended to trade against the Exchange's displayed 
quotation, but inadvertently remove non-displayed liquidity resting at 
or within the spread. While such spread-crossing orders would receive 
price improvement equal to the delta between the execution price and 
the far side quotation (i.e., the difference between the trade price 
and the NBO (NBB) for buy (sell) orders),\10\ the potential for 
interacting with non-displayed liquidity resting within the spread, and 
therefore being assessed the Non-Displayed Match Fee of $0.0009 versus 
the Displayed Match Fee of $0.0003, makes it difficult for Members to 
estimate access fees on a pre-trade basis, which the Exchange believes 
thereby presents difficulties for some Members when determining which 
venues to route marketable orders to.\11\
---------------------------------------------------------------------------

    \10\ The Exchange notes that when handling client orders as 
agent, IEX Members must ensure they are satisfying their duty of 
best execution, which requires that in any transaction for or with a 
customer or a customer of another broker-dealer, a member and 
persons associated with a member shall use reasonable diligence to 
ascertain the best market for the subject security and buy or sell 
in such market so that the resultant price to the customer is as 
favorable as possible under prevailing market conditions. Members 
must also conduct regular and rigorous reviews of execution quality 
in order to determine which market center to route customer orders, 
and should explicitly consider the extent to which an order may 
obtain price improvement at other venues. See FINRA Rule 5310, 
including Supplementary Material .09 thereto.
    \11\ The Exchange notes that FINRA has released guidance 
clarifying that firms should not allow access fees charged by venues 
to inappropriately affect their routing decisions, and, in general, 
a firm's routing decisions should not be unduly influenced by a 
particular venue's fee or rebate structure. See FINRA Regulatory 
Notice 15-46 (November 2015) at 6.
---------------------------------------------------------------------------

    In order to reduce the variability in fees to access liquidity on 
the Exchange and thereby incentivize Members to route more orders to 
the Exchange that are executable at the far side of the NBBO, the 
Exchange is proposing to offer a more deterministic Spread-Crossing 
Remove Fee of $0.0003 per share to all executions at or above $1.00 
that result from removing liquidity with a buy (sell) order that is 
executable at the NBO (NBB). Consistent with the Exchange's existing 
Fee Schedule, executions below $1.00 will be 0.30% of the total dollar 
value of the transaction. Members will receive a Fee Code of ``N'' on 
execution reports provided by the Exchange for transactions that 
receive the Spread-Crossing Remove Fee.\12\
---------------------------------------------------------------------------

    \12\ Pursuant to the Exchange's existing Fee Schedule, a Fee 
Code of ``N'' applies to executions that are part of an IPO Auction. 
Accordingly, the Exchange is proposing to replace the Fee Code for 
executions in an IPO Auction with a Fee Code of ``P''.
---------------------------------------------------------------------------

    The Exchange believes that incentivizing additional spread-crossing 
interest by offering the proposed Spread-Crossing Remove Fee will 
enhance public price discovery and overall execution quality on the 
Exchange in several ways. First, as described above, to the extent 
spread-crossing interest removes non-displayed liquidity within the 
spread, the spread-crossing orders will receive price improvement equal 
to the delta between the execution price and the far side quotation, 
while the non-displayed resting interest will have received the benefit 
of trading passively and also capturing the spread in part. Similarly, 
to the extent spread-crossing interest removes displayed liquidity 
resting at the NBBO, such resting displayed liquidity will have 
increased opportunities to capture the full spread. If market makers 
and other Members are more frequently capturing the spread when resting 
displayed orders on the Exchange, such Members may be incentivized to 
enter additional aggressively priced displayed orders on the Exchange, 
thereby contributing to public price discovery, consistent with the 
overall goal of enhancing market quality.
    Pursuant to Rules 11.190(a)(1)-(3), the Exchange offers three 
general order types--market orders, limit orders, and pegged orders--
each of which have distinct functional behaviors, and are further 
controlled by various User-defined order parameters that dictate 
additional functional behaviors of the order within the Exchange's 
System.\13\ Orders entered on the Exchange are eligible to remove 
liquidity on entry pursuant to the distinct behavior of the User-
selected order type and order parameters. In addition, non-displayed 
orders that are resting on the Order Book and eligible to trade at 
least as aggressively as the Midpoint Price are eligible to remove 
liquidity on Order Execution Recheck, or ``Book Recheck'', pursuant to 
Rule 11.230(a)(4)(d). Book Recheck is a process within the IEX System 
that detects new trading opportunities for resting orders upon a change 
to the Order Book, the NBBO, or as part of processing inbound messages, 
resulting in an invitation for non-displayed orders to attempt to 
remove liquidity from the contra side.\14\
---------------------------------------------------------------------------

    \13\ See Rule 11.190(b) (Order Parameters) for a full 
description of the available order parameters.
    \14\ See Rule 11.230(a)(4)(d), which provides a complete 
description of Book Recheck.
---------------------------------------------------------------------------

    Pursuant the Exchange's Rules, in addition to the terms of each 
order type and order parameter, every order is subject to various legal 
and technical constraints that are designed to optimize order 
interactions within the System, and to comply with the Act and the 
rules and regulations thereunder. Rule

[[Page 20120]]

11.190(f)(1)(Order Collars) describes the IEX Order Collar, which 
prevents any incoming order or order resting on the Order Book, 
including those marked ISO, from executing at a price outside of the 
Order Collar price range (i.e., prevents buy orders from trading at 
prices above the collar and prevents sell orders from trading at prices 
below the collar).\15\ Furthermore, Rule 11.190(h)(Price Sliding) 
describes the Exchange's price sliding processes that are designed to 
ensure compliance with Regulation NMS (including the Plan to Address 
Extraordinary Market Volatility pursuant to Rule 608 thereunder (the 
``LULD Plan''),\16\ as well as Rule 201 of Regulation SHO.\17\
---------------------------------------------------------------------------

    \15\ The Order Collar price range is calculated by applying the 
numerical guidelines for clearly erroneous executions to the ``Order 
Collar Reference Price'', which is defined as the most current of 
(i) the last sale price disseminated during the Regular Market 
Session on the current trade date; (ii) last trade price 
disseminated outside of the Regular Market Session (Form T, as 
communicated by the relevant SIP) on trade date which other than for 
the Form T designation would have been considered a valid last sale 
price; or (iii) if neither of the prices above are available, the 
prior days Official Closing Price from the listing exchange, 
adjusted to account for corporate actions, news events, etc. In the 
event there is no valid Order Collar Reference Price or Router 
Constraint Reference Price, the Exchange generally rejects orders 
for the security.
    \16\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012). Note, unless otherwise specified, 
capitalized terms used in reference to the LULD Plan have the same 
meaning as set forth in the LULD Plan or in Exchange rules. See also 
Rule 11.280(e)(Limit Up-Limit Down Mechanism), which sets forth the 
Exchange's methodology for re-pricing and canceling interest 
pursuant to the LULD Plan.
    \17\ 17 CFR 242.201. See also Rule 11.190(h)(4)(Short Sale Price 
Sliding).
---------------------------------------------------------------------------

    If an order--based on market conditions, User instructions, 
applicable IEX Rules and/or the Act and the rules and regulations 
thereunder--is not executable at the far side of the NBBO, such order 
will not be eligible for the Spread-Crossing Remove Fee. Specifically, 
for a buy (sell) order to be deemed ``executable'' at the NBO (NBB), in 
the case of a market order, the applicable IEX Order Collar and the 
price of the Upper (Lower) LULD Price Band, as well as the result of 
any other price sliding necessary pursuant to Rule 11.190(h), must be 
marketable to the NBO (NBB) upon entry, because market orders, despite 
not having a maximum (minimum) price at which the User is willing to 
buy (sell), remain constrained by the least aggressive of the IEX Order 
Collar and the LULD Price Band, as well as the result of any other 
price sliding necessary pursuant to Rule 11.190(h). For example, in a 
Tier 1 security, if the NBBO is $10.10 by $10.20, the IEX Order Collar 
is $9.13 by $11.16, and the LULD Price Band is $9.64 by $10.65, a 
market order to buy (sell) that removes liquidity from the Order Book 
(against either displayed or non-displayed liquidity on the Order Book) 
will receive the Spread-Crossing Remove Fee, because the Upper (Lower) 
LULD Price Band of $10.65 ($9.64) (which is less aggressive than the 
IEX Order Collar, and therefore controlling), is marketable to the NBO 
(NBB) of $10.20 ($10.10).
    In the case of a limit order, the User-defined and System-adjusted 
limit price (i.e., the price at which the order is eligible to execute 
after accounting for the User-defined limit price, the IEX Order 
Collar, and the LULD Price Band, as well as the result of any other 
price sliding necessary pursuant to Rule 11.190(h)) must be executable 
at the NBO (NBB) upon entry, or on Book Recheck. For example, in a Tier 
1 security, if the NBBO is $10.10 by $10.20, the IEX Order Collar is 
$9.13 by $11.16, and the LULD Price Band is $9.64 by $10.65, a limit 
order to buy with a limit price of $10.20 that removes liquidity from 
the Order Book (against either displayed or non-displayed liquidity on 
the Order Book) will receive the Spread-Crossing Remove Fee, because 
the User-defined limit price is marketable to the NBO, and less 
aggressive than the IEX Order Collar and the LULD Price Band, and does 
not otherwise necessitate additional price sliding pursuant to Rule 
11.190(h)(4).
    As a general matter, pegged orders do not qualify for the Spread-
Crossing Remove Fee, because such orders, by their terms, are 
explicitly designed to capture the spread in full or in part by 
executing at prices that are equal to or more passive than the Midpoint 
Price. However, pursuant to Rule 11.190(h)(3)(C)(i), in the event the 
market becomes locked (i.e., the price of the NBB is equal to the price 
of NBO), the Exchange considers the Midpoint Price to be equal to the 
locking price. Therefore, in a locked market, Midpoint Peg \18\ and 
Discretionary Peg \19\ orders that remove liquidity at the locking 
price on entry or on Book Recheck will receive the Spread-Crossing 
Remove Fee. For example, if the NBBO is locked at $10.10 by $10.10, a 
Midpoint Peg order to buy (sell) that removes liquidity at $10.10 will 
receive the Spread-Crossing Remove Fee. In contrast, Primary Peg orders 
are never eligible to remove liquidity, and therefore will never 
receive the Spread-Crossing Remove Fee.\20\
---------------------------------------------------------------------------

    \18\ Pursuant to Rule 11.190(b)(9), upon entry and on Book 
Recheck, Midpoint Peg orders attempt to remove all available 
liquidity at the less aggressive of the Midpoint Price or the orders 
limit price, if any.
    \19\ Pursuant to Rule 11.190(b)(10), upon entry and on Book 
Recheck, Discretionary Peg orders attempt to remove all available 
liquidity at the less aggressive of the Midpoint Price or the orders 
limit price, if any.
    \20\ Pursuant to Rule 11.190(b)(8), upon entry, Primary Peg 
orders attempt to remove liquidity at the less aggressive of one (1) 
MPV less aggressive than the NBB (NBO) for buy (sell) orders or the 
orders limit price, if any. Therefore, because the System will not 
generate an internally locked or crossed book (as a result of 
execution and price sliding logic, including the Exchange's price 
sliding processes for non-displayed orders (the ``Midpoint Price 
Constraint''), which restricts non-displayed orders from resting on 
the Order Book at a price more aggressive than the midpoint of the 
NBBO, Primary Peg orders Primary Peg orders are never eligible to 
remove liquidity. Accordingly, Primary Peg orders are not eligible 
for Book Recheck.
---------------------------------------------------------------------------

    Similarly, when a short sale price test restriction \21\ is in 
effect, short sale orders not marked short exempt that are priced at or 
more aggressive than the NBB are subject to the short sale price 
sliding process pursuant to Rule 11.190(h)(4) and are therefore never 
executable at or below the NBB. Accordingly, when a short sale price 
test restriction is in effect, short sale orders not marked short 
exempt that are priced to execute at or below the NBB will not receive 
the Spread-Crossing Remove Fee. For example, for a security subject to 
the short sale price test restriction, if the NBBO is $10.10 by $10.20, 
and IEX receives a non-displayed short sale limit order not marked 
short exempt with a limit price of $10.10, such order is ineligible for 
execution at its limit price pursuant to Rule 11.190(h)(4)(B), would 
only be executable above the current NBB upon entry or on Book Recheck, 
and would otherwise be repriced and ranked by the System on the Order 
Book non-displayed pursuant to the Midpoint Price Constraint at the 
current Midpoint Price.\22\ Accordingly, such order is never executable 
at the NBB, and therefore would not receive the Spread-Crossing Remove 
Fee.
---------------------------------------------------------------------------

    \21\ Generally, if the current NBB for a covered security 
decreased by 10% or more from the security's closing price as 
determined by the listing market, Rule 201 of Regulation SHO 
prohibits the execution or display of a short sale order not marked 
short exempt at a price that is less than or equal to the NBB. See 
17 CFR 242.201.
    \22\ To continue to this example, if the Exchange has non-
displayed liquidity to buy resting on the Order Book at $10.11, a 
short sale order not marked short exempt would be eligible to remove 
such interest upon entry (or, if such interest was entered after the 
short sale order, on Book Recheck), but would not receive the 
Spread-Crossing Remove Fee, because such order is not executable at 
the NBB.
---------------------------------------------------------------------------

    Finally, in the case of a crossed market (i.e., when the price of 
the NBB is higher than the NBO), all removers of liquidity will receive 
the Spread-Crossing Remove Fee. For example, if the NBBO is crossed at 
$10.13 by

[[Page 20121]]

$10.10, and IEX has a displayed offer at $10.10, a limit order to buy 
with a limit price of $10.10 or higher that removes liquidity will 
receive the Spread-Crossing Remove Fee. While the Exchange believes the 
arbitrage opportunity provides a natural incentive for market 
participants to resolve the crossing quotation, the Exchange intends to 
further incentivize such market improving behavior by charging such 
removers the proposed Spread-Crossing Remove Fee.
    The Exchange notes that executions subject to the Crumbling Quote 
Remove Fee are not eligible for the Spread-Crossing Remove Fee.\23\ 
Accordingly, transactions that are subject to the Crumbling Quote 
Remove Fee that remove liquidity with an order executable at the far 
side of the NBBO will be charged the Crumbling Quote Remove Fee, rather 
than the Spread-Crossing Remove Fee. Furthermore, 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. Thus, transactions that qualify for the 
Internalization Fee and the proposed Spread-Crossing Remove Fee will be 
charged the Internalization Fee rather than the Spread-Crossing Remove 
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.\24\
---------------------------------------------------------------------------

    \23\ See Fee Code Q (Crumbling Quote Remove Fee Indicator), 
along with the footnote appurtenant thereto in the Investors 
Exchange Fee Schedule, available on the Exchange public website, 
which together describe the applicable fee for executions that take 
liquidity during periods of quote instability as defined in Rule 
11.190(g) that exceed the CQRF Threshold, which is equal to is equal 
to 5% of the sum of a Member's total monthly executions on IEX if at 
least 1,000,000 shares during the calendar month, measured on an 
MPID basis. See also Securities and Exchange Act Release No. 81484 
(August 25, 2017) 82 FR 41446 (August 31, 2017) (SR-IEX-2017-27). 
See also footnote three under Transaction Fees in the Investors 
Exchange Fee Schedule, which 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.
    \24\ See footnote three under Transaction Fees in the Investors 
Exchange Fee Schedule, which 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.
---------------------------------------------------------------------------

2. Statutory Basis
    IEX believes that the proposed rule change is consistent with the 
provisions of Section 6(b) \25\ of the Act in general, and furthers the 
objectives of Sections 6(b)(4) \26\ 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.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78f.
    \26\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    As proposed, the Spread-Crossing Remove Fee is designed to reduce 
the variability in fees to access liquidity on the Exchange, therefore 
making the Exchange's Fee Schedule more clear and predictable to the 
benefit of all market participants. Furthermore, as discussed in the 
Purpose section, the Exchange believes that to the extent the proposed 
Spread-Crossing Remove Fee incentivizes additional spread-crossing 
orders on the Exchange, resting displayed interest will have enhanced 
opportunities to capture the spread, which may result in additional 
aggressively priced orders being entered on the Exchange, thereby 
contributing to public price discovery, 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. 
As described in the Purpose section, the proposed Spread-Crossing 
Remove Fee is equal to the Displayed Match Fee, and less than the Non-
Displayed Match Fee, thus falling within the range of transaction fees 
currently charged by the Exchange. Furthermore, the proposed Spread-
Crossing Remove Fee is substantially lower than the fee for removing 
liquidity on competing exchanges with a ``maker-taker'' fee structure 
(i.e., that provide a rebate to liquidity adders and charge liquidity 
removers).\27\
---------------------------------------------------------------------------

    \27\ See, e.g., 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; 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; 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.
---------------------------------------------------------------------------

    As proposed, Members that remove non-displayed liquidity on the 
Exchange will be charged disparate fees depending on whether or not the 
removing order was executable at the far side of the NBBO. For example, 
a limit order with a User-defined and system-adjusted limit price that 
is marketable to the Midpoint Price that removes non-displayed 
liquidity at the Midpoint Price will be charged the Non-Displayed Match 
Fee, whereas a limit order with a User-defined and system-adjusted 
limit price that is executable at the far side of the NBBO that removes 
non-displayed liquidity at the Midpoint Price will be charged the 
Spread-Crossing Remove Fee. The Exchange believes it is reasonable, 
equitable and not unfairly discriminatory to charge disparate fees for 
removing liquidity on the Exchange depending on whether or not the 
removing order was executable at the far side of the NBBO, because 
spread-crossing orders are willing to interact with the Exchange's 
resting displayed orders, thereby potentially incentivizing Members to 
enter more aggressively priced displayed orders by enhancing 
opportunities for such orders to capture the full spread.
    The Exchange believes incentivizing market makers and other Members 
to enter more aggressively priced displayed orders on the Exchange by 
enhancing trading opportunities at the NBBO significantly contributes 
to public price discovery, consistent with the overall goal of 
enhancing market quality. Furthermore, removers of non-displayed 
liquidity that are not willing to cross the spread are receiving the 
benefit of trading more passively and receiving price improvement, 
which the Exchange believes is a substantial incentive and benefit in 
and of itself.\28\ Similarly, non-displayed orders resting on the 
Exchange are receiving the benefit of resting passively on the Order 
Book and capturing the spread in whole or in part. Therefore, the 
Exchange believes it is reasonable, equitable and not unfairly 
discriminatory to charge Members that add non-displayed liquidity a 
different fee then Members that remove non-displayed liquidity with an 
order that is executable at the far side of the NBBO.\29\
---------------------------------------------------------------------------

    \28\ The Exchange notes the spread-crossing removers may also 
receive such price improvement to the extent they remove non-
displayed liquidity resting within the spread. However, such price 
improvement is not guaranteed, and spread-crossing removers 
consciously choose to pay the full spread with only the possibility 
of price improvement.
    \29\ The Exchange also notes that it is common for Exchange's to 
charge Members different fees for adding and removing liquidity, and 
thus the Exchange's proposal is not novel in this regard. See, e.g., 
the New York Stock Exchange (``NYSE'') trading fee schedule on its 
public website which 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; [sic]

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

[[Page 20122]]

    The Exchange also believes that it is reasonable, fair and 
equitable, and non-discriminatory to not offer the proposed Spread-
Crossing Remove Fee to orders that are subject to the Crumbling Quote 
Remove Fee because such executions are necessarily a part of a trading 
strategy that the Exchange believes evidences a form of predatory 
latency arbitrage that leverages low latency proprietary market data 
feeds and connectivity along with predictive models to chase short-term 
price momentum and successfully target resting orders at unstable 
prices. Furthermore, if the Exchange were to apply the Spread-Crossing 
Remove Fee to executions that are subject to the Crumbling Quote Remove 
Fee, it would frustrate its fundamental purpose of disincentivizing 
predatory trading strategies to further incentivize additional resting 
liquidity, including displayed liquidity, on IEX. Thus, a Member that 
removes liquidity with spread-crossing orders that are subject to the 
Crumbling Quote Remove Fee, should not be afforded the benefit of the 
proposed Spread-Crossing Remove Fee on such executions.
    The Exchange also notes that the Crumbling Quote Remove Fee, in 
combination with the proposed Spread-Crossing Remove Fee, is designed 
to incentivize spread-crossing interest that is not part of what the 
Exchange believes is a predatory trading strategy, therefore 
potentially increasing the entry of orders executable at the far side 
of the NBBO during periods of relative market stability. If the Spread-
Crossing Remove Fee is successful in this regard, the opportunity for 
execution and the resultant execution performance for non-displayed 
resting orders within the spread, as well as displayed orders resting 
at the NBBO, would be significantly enhanced. Consequently, enhanced 
trading opportunities may incentivize the entry of non-displayed orders 
resting at or within the spread, as well as displayed order resting at 
the NBBO, thereby contributing to the post-trade and pre-trade public 
price discovery process, respectively. Accordingly, the Exchange 
believes that the Crumbling Quote Remove Fee, in combination with the 
proposed Spread-Crossing Remove Fee, is reasonable, fair and equitable, 
and non-discriminatory.
    Additionally, the Exchange believes that it is reasonable, fair and 
equitable, and non-discriminatory to continue to charge the 
Internalization Fee rather than the Spread-Crossing Remove Fee 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.\30\ 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.
---------------------------------------------------------------------------

    \30\ See Securities Exchange Act Release No. 78550 (August 11, 
2016), 81 FR 54873 (August 17, 2016) (SR-IEX-2016-09).
---------------------------------------------------------------------------

    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 Basis section, the Exchange does not believe that the 
proposed changes represent a significant departure from its current fee 
structure, and competing venues are able to adopt comparable pricing.
    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 the market conditions in which such 
order was entered. Moreover, the proposed Spread-Crossing Remove Fee 
will apply equally to all Members that remove liquidity with an order 
executable at the far side of the NBBO. The Exchange notes that all 
Members can submit any of the Exchange's approved order types and order 
parameters, including orders that are executable at the far side of the 
NBBO. 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) \31\ of the Act.
---------------------------------------------------------------------------

    \31\ 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) \32\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \32\ 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 [email protected]. Please include 
File No. SR-IEX-2018-09 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 20123]]

Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File No. SR-IEX-2018-09. 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 No. SR-IEX-2018-09, and should be submitted on or 
before May 29, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
---------------------------------------------------------------------------

    \33\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-09577 Filed 5-4-18; 8:45 am]
 BILLING CODE 8011-01-P


