[Federal Register Volume 86, Number 135 (Monday, July 19, 2021)]
[Notices]
[Pages 38166-38171]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15199]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92398; File No. SR-IEX-2021-06]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To Revise the 
Definitions of Retail Orders and Retail Liquidity Provider Orders and 
Disseminate a Retail Liquidity Identifier Under the IEX Retail Price 
Improvement Program

July 13, 2021.

I. Introduction

    On April 1, 2021, the Investors Exchange LLC (``IEX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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 enhance its Retail Price 
Improvement Program for the benefit of retail investors. The proposed 
rule change was published for comment in the Federal Register on April 
15, 2021.\3\ On May 26, 2021, pursuant to Section 19(b)(2) of the 
Act,\4\

[[Page 38167]]

the Commission designated a longer period within which to either 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\
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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. 91523 (April 9, 
2021), 86 FR 19912 (April 15, 2021) (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 92029 (May 26, 
2021), 86 FR 29608 (June 2, 2021).
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    The Commission received two comment letters regarding the proposed 
rule change, and one response to comments from the Exchange.\6\ On July 
2, 2021, the Exchange filed Amendment No. 1 to the proposed rule 
change.\7\ The Commission is publishing this notice to solicit comments 
on Amendment No. 1 from interested persons, and issuing this order 
approving the proposed rule change, as modified by Amendment No. 1, on 
an accelerated basis.
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    \6\ Comments received on the proposal are available on the 
Commission's website at: https://www.sec.gov/comments/sr-iex-2021-06/sriex202106.htm.
    \7\ In Amendment No. 1, the Exchange proposes to modify the 
proposal to rank RLP orders (as defined below) in time priority with 
non-displayed orders priced to execute at the Midpoint Price (as 
defined below), rather than ahead of such orders as originally 
proposed. The full text of Amendment No. 1 is available on the 
Commission's website at: https://www.sec.gov/comments/sr-iex-2021-06/sriex202106-9041946-246227.pdf.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    The Exchange proposes several changes to its Retail Price 
Improvement Program (the ``Program'').\8\ Under the Program, IEX 
members that qualify as Retail Member Organizations (``RMOs'') are 
eligible to submit certain agency or riskless principal orders that 
reflect the trading interest of a natural person with a ``Retail 
order'' modifier. Retail orders are only eligible to execute at the 
midpoint price of the national best bid and national best offer 
(``Midpoint Price'') or better. Any IEX member is able to provide price 
improvement to Retail orders by submitting contra-side orders priced to 
execute at the Midpoint Price or better, including Retail Liquidity 
Provider (``RLP'') orders that are only eligible to execute against a 
Retail order at the Midpoint Price.
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    \8\ See Securities Exchange Act Release No. 86619 (August 9, 
2019), 84 FR 41769 (August 15, 2019) (SR-IEX-2019-05) (order 
approving the IEX Retail Price Improvement Program).
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Retail Order Definition

    First, the Exchange proposes to revise the definition of ``Retail 
order'' in IEX Rule 11.190(b)(15) such that Retail orders may only be 
submitted on behalf of a retail customer that does not place more than 
390 equity orders per day on average during a calendar month for its 
own beneficial account(s) (the ``390-Order Limit'').\9\ Currently, 
``Retail orders'' under the Exchange's Program must reflect the trading 
interest of a natural person and meet other requirements, but they are 
not classified based on a per-day order threshold. The Exchange's 
proposal also specifies the counting methodology \10\ and supervisory 
requirements \11\ to determine whether a retail customer has reached 
the 390-Order Limit.
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    \9\ See also proposed IEX Rule 11.190(b)(15), Supplementary 
Material .01 (further defining ``Retail order'').
    \10\ Under the proposal, certain ``parent'' orders that are 
broken into multiple ``child'' orders will count as one order even 
if the ``child'' orders are routed across multiple exchanges; with 
certain exceptions, any order that cancels and replaces an existing 
order will count as a separate order. See proposed IEX Rule 
11.190(b)(15), Supplementary Material .01.
    \11\ Under the proposal, RMOs (as defined in IEX Rule 11.232) 
would be required to have reasonable policies and procedures in 
place to ensure that Retail orders are appropriately represented on 
the Exchange. Such policies and procedures would need to provide for 
a review of retail customers' activity on at least a quarterly 
basis. Orders from any retail customer that exceeded an average of 
390 equity orders per day during any month of a calendar quarter may 
not be entered as ``Retail orders'' for the next calendar quarter. 
RMOs would be required to conduct a quarterly review and make any 
appropriate changes to the way in which they are representing orders 
within five business days after the end of each calendar quarter. 
While RMOs would only be required to review their accounts on a 
quarterly basis, if during a quarter the Exchange identifies a 
retail customer for which orders are being represented as Retail 
orders but that has averaged more than 390 equity orders per day 
during a month, the Exchange will notify the RMO, and the RMO will 
be required to change the manner in which it is representing the 
retail customer's orders within five business days. See proposed IEX 
Rule 11.190(b)(15), Supplementary Material .02.
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Retail Liquidity Identifier

    Next, the Exchange proposes to disseminate a ``Retail Liquidity 
Identifier'' to inform RMOs of the presence of RLP trading interest on 
the Exchange in order to incentivize RMOs to send Retail orders to the 
Exchange.\12\ Specifically, the Exchange proposes new IEX Rule 
11.232(f) to disseminate a Retail Liquidity Identifier through the 
Exchange's proprietary market data feeds and the appropriate securities 
information processor (``SIP'') when resting available RLP order 
interest aggregates to form at least one round lot for a particular 
security,\13\ provided that the RLP order interest is resting at the 
Midpoint Price \14\ and is priced at least $0.001 better \15\ than the 
national best bid or national best offer. The Retail Liquidity 
Identifier will reflect the symbol and the side (buy or sell) of the 
RLP order interest, but will not include the price or size.\16\
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    \12\ See Notice, supra note 3, at 19914.
    \13\ The Exchange believes the one round lot requirement is 
appropriate in order to limit dissemination to when there is a 
material amount of RLP order interest available. See id. at 19915.
    \14\ The Exchange notes that an RLP order could have a limit 
price less aggressive than the Midpoint Price, in which case it 
would not be eligible to trade with an incoming Retail order. Such 
RLP orders would not be included in the Retail Liquidity Identifier 
dissemination. See id.
    \15\ The Exchange notes that, because the RLP orders will be 
resting at the Midpoint Price, IEX's Retail Liquidity Identifier 
will reflect at least $0.005 of price improvement for any orders 
priced at or above $1.00 per share, unless the national best bid or 
offer is locked or crossed. See id.
    \16\ The Exchange notes that, while an explicit price will not 
be disseminated, because RLP orders are only eligible to trade at 
the Midpoint Price, dissemination will thus reflect the availability 
of price improvement at the Midpoint Price. See id. at 19914-15.
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RLP Order Definition

    In conjunction with the proposed Retail Liquidity Identifier, the 
Exchange proposes to revise the definition of ``RLP order'' in IEX Rule 
11.190(b)(14) so that such orders can only be midpoint peg orders (as 
defined in IEX Rule 11.190(b)(9)) and cannot include a minimum quantity 
restriction. Currently, an RLP order is a discretionary peg order (as 
defined in IEX Rule 11.190(b)(10)). The Exchange believes that 
continuing to have RLP orders be discretionary peg orders would 
unnecessarily complicate the Retail Liquidity Identifier because, under 
the Exchange's rules, discretionary peg orders do not explicitly post 
to the Exchange's order book (``Order Book'') at the Midpoint 
Price.\17\ The Exchange further notes that permitting an RLP order to 
include a minimum quantity restriction would reduce the determinism of 
the order's availability to trade at the Midpoint Price; the Exchange 
believes that prohibiting quantity restrictions will increase execution 
rates for Retail orders.\18\
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    \17\ See id. at 19915.
    \18\ See id.
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RLP Order Priority

    As originally proposed, the revised RLP orders would have been 
given Order Book priority over non-displayed orders priced to execute 
at the Midpoint Price.\19\ However, in Amendment No. 1, the Exchange 
revised its proposal so that the Exchange's regular priority rules 
(i.e., price/time) would apply equally to RLP orders and non-RLP orders 
at the midpoint, thus eliminating the originally proposed Order Book 
priority for RLP orders. Accordingly, under the revised proposal set 
forth in Amendment No. 1, RLP orders resting at the Midpoint Price will 
be ranked against resting non-displayed orders priced to execute at the 
Midpoint Price

[[Page 38168]]

based on time priority since all such prices will be at the Midpoint 
Price.\20\
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    \19\ See id. at 19914.
    \20\ See supra note 7.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\21\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\22\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest, and not be designed to permit unfair discrimination 
between customers, issuers, brokers or dealers; and with Section 
6(b)(8) of the Act,\23\ which requires that the rules of a national 
securities exchange not impose any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act.
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    \21\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \22\ 15 U.S.C. 78f(b)(5).
    \23\ 15 U.S.C. 78f(b)(8).
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Retail Order Definition

    First, the Exchange proposes to amend the definition of Retail 
order by adopting the 390-Order Limit and setting forth criteria to 
determine when this limit is reached and how it is enforced. The 
Exchange notes that one other equities exchange, Cboe EDGX Exchange, 
Inc. (``EDGX''), uses the same 390 orders-per-day average in its retail 
liquidity program to delineate EDGX Retail Priority Orders, and applies 
a counting methodology and supervisory requirements that are 
substantially similar to those being proposed by IEX.\24\ The Exchange 
believes that the 390-Order Limit is reasonable and not overly 
restrictive because it contemplates active trading, while not reaching 
a level to indicate one is a professional trader.\25\ The Exchange 
further believes that limiting the types of investors on whose behalf 
Retail orders can be submitted to those who are less likely to be 
professional market participants, will expand the pool of market 
participants willing to provide contra-side liquidity because of the 
Retail orders' non-professional characteristics, thereby increasing 
price improvement opportunities for Retail orders at midpoint 
prices.\26\
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    \24\ See Notice, supra note 3, at 19914.
    \25\ See id.
    \26\ See id.
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    The Commission received two letters from one commenter, both of 
which focus on the 390-Order Limit,\27\ and the Exchange submitted a 
single response to both letters.\28\ The commenter expresses concern 
with the 390-Order Limit based on his experience with the use of 
``professional'' customer rules in the options market. Specifically, 
the commenter states that, in the present-day options market, there is 
low likelihood that customer origin code orders enjoy a meaningful 
priority advantage over market makers, and the 390-order threshold 
effectively limits competition between non-professional liquidity 
providers and market makers.\29\ The commenter suggests that the 
``professional'' customer designation in the options market has over 
time created a ``two-tiered'' market that benefits market makers and 
limits how many orders a ``secondary'' liquidity provider will be 
willing to display (before they trip the ``professional'' customer 
threshold), and thus detracts from the incentive for market makers to 
display their best price, which leads to wider bid/ask spreads for 
options.\30\ In addition, the commenter believes that the 
``professional'' customer designation in options limits the probability 
of customer-to-customer trades, especially when accounting for the 
likelihood of make vs. take orders posting on different exchanges 
because of differing fee and rebate incentives.\31\ The commenter 
further states that applying a 390-order threshold to equities, as IEX 
proposes to do for its Program, would cater to preferred members by 
giving them a more attractive pool of order flow to trade against, and 
will provide a ``short lived'' benefit of better prices to retail 
customers.\32\ The commenter is critical of payment for order flow and 
the small amount of price improvement it often provides to customers, 
and recommends that the quality of an execution should be based on all 
liquidity in the market (including hidden liquidity) and not just 
displayed liquidity that can be negatively impacted by competitive 
dynamics.\33\ Further, the commenter is critical of the ambiguity 
inherent in the application of the 390-order threshold across broker-
dealers in the options market, and believes similar interpretive 
questions could be present in the equities context.\34\
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    \27\ See letters to Vanessa Countryman, Secretary, Commission, 
from Mike Ianni, dated May 5, 2021 (``Ianni Letter 1'') and May 30, 
2021 (``Ianni Letter 2'').
    \28\ See letter to Vanessa Countryman, Secretary, Commission, 
from Claudia Crowley, Chief Regulatory Officer, IEX, dated June 29, 
2021 (``IEX Response'').
    \29\ See Ianni Letter 1, supra note 27, at 2-3; and Ianni Letter 
2, supra note 27, at 2.
    \30\ See Ianni Letter 1, supra note 27, at 4; and Ianni Letter 
2, supra note 27, at 4 and 7-8.
    \31\ See Ianni Letter 2, supra note 27, at 2.
    \32\ See Ianni Letter 1, supra note 27, at 3.
    \33\ See id.
    \34\ See Ianni Letter 2, supra note 27, at 6.
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    In its response letter, IEX states its belief that the commenter's 
concerns about options market practices ``cannot be reasonably 
extrapolated to the use of retail liquidity provider programs for 
equity exchanges, or to IEX's Retail Program in particular.'' \35\ IEX 
points out that the commenter focuses on the impact of the 390-order 
threshold on options orders seeking to provide liquidity, but IEX 
explains that the 390-Order Limit only applies to Retail orders under 
the Program, which are never displayed and can only take resting 
liquidity.\36\ Accordingly, Retail orders will never post to the Order 
Book, will never be flagged as Retail orders in any market data, and do 
not directly contribute to or impact IEX's bid/ask spread.\37\ Thus, 
IEX argues that the commenter's concerns with the 390-Order Limit ``are 
not at issue in our proposal.'' \38\
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    \35\ See IEX Response, supra note 28, at 3.
    \36\ See id. at 4.
    \37\ See id. at 4-5.
    \38\ See id. at 4.
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    Further in response to the commenter's concerns about how the 390-
order threshold in options can harm non-professionals who limit their 
trading to avoid crossing the threshold, the Exchange argues that the 
market for retail order flow is already ``two-tiered'' in that the 
preponderance of retail orders are executed on non-exchange venues, and 
that this proposal seeks to enhance IEX's ability to compete for retail 
order flow while providing meaningful price improvement to retail 
customers.\39\
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    \39\ See id. at 5-6. The Exchange also points to existing 
precedent for applying the 390-Order Limit to an equity exchange. 
See id. at 5 (citing Securities Exchange Act Release No. 87200 
(October 2, 2019), 84 FR 53788 (October 8, 2019) (SR-CboeEDGX-2019-
012)).
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    The Commission believes that the commenter raises concerns that 
merit further consideration about the application of a 390-order 
threshold for ``professional'' customer status in the options market, 
particularly as that market has continued to evolve since those 
designations were first introduced. In the options market,

[[Page 38169]]

particularly those that offer to the ``customer'' origin code the 
highest priority (including over market makers) and often low or no 
fees, there can potentially be a meaningful difference between being 
classified as a ``customer'' or a ``professional'' customer, as the 
latter is typically subject to the same priority and fee levels as 
other broker-dealers, including those with the most sophisticated and 
costly trading resources. Thus, in the options market, crossing the 
390-order threshold and being labeled as a ``professional'' customer 
can potentially matter to some frequent traders.
    However, IEX is not proposing to use the 390-Order Limit to 
classify order origin codes into ``customer'' and ``professional'' 
customer for general trading purposes. IEX is not creating a new class 
of ``professional'' customer for the equities market. Rather, the 390-
Order Limit will only be used to classify certain orders seeking to 
take liquidity in the exclusive context of IEX's Program. IEX's 
proposal provides a bright-line test that broker-dealers can use to 
ascertain whether orders they route to IEX under IEX's Program are 
individual retail investor orders or are orders from market 
participants that IEX believes trade with a frequency that is 
uncharacteristic of a typical individual retail investor trading for 
her personal investment account. Moreover, whether a retail investor 
exceeds the 390-Order Limit or not, IEX's proposal will not change the 
priority status or fees of any customer order outside of the Program. 
Instead, the new threshold only further restricts what types of 
incoming take orders can interact with a resting RLP order.\40\
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    \40\ While RLP orders will only execute with incoming Retail 
orders, an incoming Retail order can interact with any order (i.e., 
not just RLP orders) priced to execute at the Midpoint Price or 
better.
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    While the commenter acknowledges the potential for price 
improvement for retail investors under IEX's proposal, the commenter 
believes that any such benefits will be ``short lived,'' and that this 
proposal opens up the possibilities for similar rules by other equity 
exchanges that could have negative consequences to liquidity in the 
equity market over the longer term, such as higher fees for 
``professional'' customers.\41\ The Commission does not believe that 
the proposal's benefits of providing midpoint prices (or better) to 
retail investors under the Program will be short-lived because midpoint 
prices can provide meaningful price improvement under different market 
conditions.\42\ Further, because IEX's proposal is limited to 
classifying incoming retail orders that remove liquidity for the narrow 
purpose of its Program, it is not comparable to a broader 
``professional'' customer rule as currently exists in the options 
market.
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    \41\ See Ianni Letter 1, supra note 27, at 3-4.
    \42\ With respect to the commenter's statement that the quality 
of a fill should be based on all liquidity available in the market 
(including hidden liquidity) (see Ianni Letter 1, supra note 27, at 
3), the Commission recently adopted rules to require that certain 
displayable odd-lot orders be included in core consolidated market 
data and thus reflected in the best bid and ask prices. See 
Securities Exchange Act Release No. 90610 (December 9, 2020), 86 FR 
18596 (April 9, 2021) (S7-03-20) at 18611-14.
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    The commenter also points to what the commenter believes to be 
competitive harm that the options market versions of a 390-order 
threshold have caused. The commenter believes that some retail traders 
in the options market may stop trading as they approach the 390-order 
threshold, often after being warned by their retail broker that they 
are approaching the threshold, so as to avoid losing ``regular'' 
customer status should they exceed that limit.\43\ The commenter also 
cautions that a desire to limit trading to stay under the 390-order 
threshold in the options market can limit the ability of traders to use 
small orders to seek out the best hidden prices \44\ and can 
potentially result in wider options spreads if secondary liquidity 
providers do not compete to provide liquidity in order to limit their 
trading to stay under the threshold.\45\ The Commission agrees with the 
Exchange that it is difficult to definitely ascribe, without more 
evidence, a causal link between the adoption of professional customer 
status in the options markets with wider spreads.\46\ Nevertheless, the 
proposal's 390-Order Limit should not constrain the ability or 
willingness of liquidity providers to provide liquidity. First, any 
liquidity-providing market participant can submit RLP orders and 
exceeding 390 orders per day would have no effect on the participant's 
ability to do so. Second, RLP orders are non-displayed orders that 
yield priority to displayed orders, including displayable odd lot 
orders at executable prices, and thus should not directly impact IEX's 
bid/ask spreads.\47\ While a program that segments retail order flow 
away from displayed exchange quotes could theoretically impact spreads 
if it impacts the willingness of liquidity providers to display tighter 
quotes, IEX correctly notes that much of the retail volume today 
executes away from exchanges, and thus, IEX's proposal is appropriately 
regarded as a way to compete to bring that flow back onto an exchange. 
Third, while the proposed threshold could impact liquidity takers 
(i.e., retail traders that exceed the 390-Order Limit) because they 
would lose the ability to interact with resting RLP orders on IEX, 
liquidity takers' orders could still be submitted to IEX or other 
exchanges for potential midpoint executions (e.g., against midpoint peg 
orders).
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    \43\ See Ianni Letter 2, supra note 27, at 4. In both letters, 
the commenter also provides analysis of problems within the options 
market structure as it applies to giving retail customers priority. 
See, e.g., Ianni Letter 1, supra note 27, at 1 (stating that ``there 
is NO real customer `priority' advantage gained by retail options 
customers because of the following: (1) More strikes and volatile 
markets (2) Payment for order flow accounting for a majority of 
customer orders (3) Market fragmentation (4) Price Improvement 
rules''). The Commission appreciates the commenter taking time to 
provide such an analysis. However, any such issues related to the 
options market structure are outside the scope of this approval 
order, and thus, cannot be addressed by the Commission herein.
    \44\ See Ianni Letter 1, supra note 27, at 4 (``I will knowingly 
pay a `likely' higher price for an option just to save on the number 
of orders I send. I would argue that there is no such thing as `best 
execution' for retail customers in the equity options market today 
because of the 390-order rule. You are asking all investors to 
sacrifice `best execution' over customer status.'')
    \45\ See Ianni Letter 2, supra note 27, at 7.
    \46\ See IEX Response, supra note 28, at 3-4.
    \47\ Retail orders cannot affect the IEX bid-ask spread because 
those orders neither display nor rest on the Order Book.
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    Finally, citing to his experience in the options market, the 
commenter believes that interpretation and enforcement of the 390-Order 
Limit could be difficult because, for example, he has observed 
ambiguity and inconsistency among broker-dealers in the options market 
with respect to how orders should be counted towards the 390 
threshold.\48\ IEX has represented that its regulatory program will be 
enhanced for this proposal.\49\ The Commission believes that the 
proposed threshold is clear and applies to an investor that places 
``more than 390 equity orders per day on average during a calendar 
month for its own beneficial account(s)''.\50\ To the extent that 
market participants have interpretive questions, the Exchange should 
address them and, if necessary, amend its rule to provide additional 
clarity.
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    \48\ See Ianni Letter 2, supra note 27, at 5.
    \49\ See Notice, supra note 3, at 19916.
    \50\ See proposed IEX Rule 11.190(b)(15) and Supplementary 
Material .01 thereto.
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    Accordingly, and based on the foregoing, the Commission finds that 
the proposed changes to the Exchange's definition of Retail order, 
including the proposed new 390-Order Limit, are consistent with the 
Act.

[[Page 38170]]

Retail Liquidity Identifier and Revisions to RLP Orders

    Next, the Exchange proposes to disseminate a Retail Liquidity 
Identifier when RLP orders resting on the Order Book aggregate to form 
at least one round lot, provided that the RLP order interest is resting 
at the Midpoint Price and is priced at least $0.001 better than the 
national best bid or national best offer. According to the Exchange, 
the purpose of the Retail Liquidity Identifier is to provide relevant 
market information to RMOs that there is some RLP trading interest at 
the Midpoint Price on the Exchange, thereby incentivizing RMOs to send 
Retail orders to IEX.\51\ In conjunction with its proposal to 
disseminate the Retail Liquidity Identifier, the Exchange proposes to 
amend the definition of RLP orders so such orders can only be midpoint 
peg orders without a minimum quantity restriction. The Exchange 
believes that disseminating a Retail Liquidity Identifier to indicate 
RLP orders resting at the Midpoint Price would be unnecessarily 
complicated if RLP orders were to continue to be discretionary peg 
orders, because discretionary peg orders do not explicitly post to the 
Order Book at the Midpoint Price.\52\ Likewise, the Exchange believes 
that attaching a minimum quantity to an RLP order would hinder a market 
participant's ability to determine the availability of trading interest 
at the Midpoint Price, given that the interest would only be available 
to counterparties able to meet the minimum quantities.\53\
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    \51\ See Notice, supra note 3, at 19914.
    \52\ See id. at 19915.
    \53\ See id.
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    As noted by the Exchange, similar retail liquidity identifiers are 
currently disseminated by other exchanges that offer retail programs, 
though other exchange programs typically allow the equivalent to RLP 
orders to rest undisplayed at prices that improve the displayed quote 
by subpenny increments.\54\ The Commission believes that IEX's Retail 
Liquidity Identifier will serve a similar purpose as the identifiers 
currently disseminated by other exchanges, as it will inform market 
participants that have or control retail order flow about the 
availability of price improvement opportunities for Retail orders. In 
turn, market participants that have or control retail order flow would 
normally be expected to use that information as they assess the best 
prices available for the customer. Given the potential benefits to 
individual investors and any increased likelihood that they may be able 
to obtain midpoint executions, the Commission believes that the Retail 
Liquidity Identifier is appropriately designed to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system.\55\
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    \54\ See id.
    \55\ In connection with this proposal, the Exchange states that 
it plans to submit a letter requesting that the staff of the 
Division of Trading and Markets not recommend any enforcement action 
under Rule 602 of Regulation NMS (``Quote Rule'') based on the 
Exchange's and its members' participation in the Program. See id. at 
19914 n.39. In its filing, the Exchange asserts that the information 
proposed to be contained in the Retail Liquidity Identifier does not 
constitute a ``quote'' within the meaning of Regulation NMS because 
it would not include a specific price or size of the interest. See 
id. at 19914.
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    Furthermore, the Commission finds that limiting RLP orders to be 
midpoint peg orders without a minimum quantity option is an appropriate 
compliment to the proposed Retail Liquidity Identifier. As explained 
above, the Retail Liquidity Identifier is meant to notify RMOs that 
there is Midpoint-Priced liquidity available on the Exchange. As such, 
the Commission believes that requiring RLP orders to be midpoint peg 
orders without the option to designate a minimum quantity condition 
provides an increased chance of execution to incoming Retail orders and 
makes the Retail Liquidity Identifier a more reliable indicator of 
available midpoint liquidity.
    Finally, as originally proposed, the revised RLP orders would have 
been given Order Book priority over non-displayed orders priced to 
execute at the Midpoint Price.\56\ However, in Amendment No. 1, the 
Exchange revised its proposal so that the Exchange's regular priority 
rules (i.e., price/time) would apply equally to RLP orders and such 
non-displayed orders, thus eliminating the originally proposed Order 
Book priority for RLP orders. IEX cites to precedent from at least one 
other exchange's retail program providing that when a retail liquidity 
providing order is at the same price as a non-displayed order, the 
orders will be ranked together with time priority.\57\ The Commission 
finds that IEX's revised proposal to not provide a priority advantage 
to RLP orders over other non-displayed orders priced to execute at the 
Midpoint Price is not unfairly discriminatory as it does not provide an 
advantage to an order that will only interact with incoming Retail 
orders (i.e., RLP orders) over orders that are not so restricted (e.g., 
midpoint peg orders). Treating both in time priority and allowing 
incoming Retail orders to interact with either is designed to promote 
just and equitable principles of trade and not impose an inappropriate 
burden on competition.
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    \56\ See Notice, supra note 3, at 19914.
    \57\ See Amendment No. 1, supra note 7, at 8 (citing NYSE Arca 
Rule 7.44-E(l)).
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    For the foregoing reasons, the Commission believes that IEX's 
proposed changes to its Program are consistent with the Act in that 
they are reasonably designed to promote just and equitable principles 
of trade, to remove impediments to and perfect the mechanism of a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest, and are not designed to 
permit unfair discrimination between customers, issuers, brokers or 
dealers.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-IEX-2021-06 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-2021-06. 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 this filing will also be available for inspection 
and copying at the principal

[[Page 38171]]

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-2021-06 
and should be submitted on or before August 9, 2021.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the 30th day after the 
date of publication of notice of Amendment No. 1 in the Federal 
Register. Amendment No. 1 revises the original proposal by amending IEX 
Rule 11.232(e)(3)(A) to provide that RLP orders now will be ranked in 
time priority with non-displayed orders priced to execute at the 
Midpoint Price, rather than ahead of such orders as was originally 
proposed. Thus, at the priority level specified in IEX Rule 
11.232(e)(3)(A)(iii), incoming Retail orders will execute against RLP 
orders and non-displayed orders priced to trade at the Midpoint Price 
in price/time priority.
    In Amendment No. 1, the Exchange states that based on additional 
analysis of the potential benefits and burdens of RLP orders and non-
displayed orders priced to trade at the Midpoint Price, it determined 
that RLP orders should be ranked in time priority with such other 
orders, consistent with the Exchange's regular price/time priority. The 
Exchange states that the proposed priority change does not raise any 
new or novel issues as it is consistent with the rules of other 
exchanges' retail liquidity programs, including NYSE Arca, as noted 
above.\58\
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    \58\ See supra note 57 and accompanying text.
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    The changes to the proposal do not raise any novel regulatory 
issues, as they are consistent with the rules of other exchange retail 
programs previously approved by the Commission. Further, the changes 
assist the Commission in evaluating the Exchange's proposal and in 
determining that it is consistent with the Act as discussed above. 
Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act,\59\ to approve the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
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    \59\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\60\ that the proposed rule change (SR-IEX-2021-06), as 
modified by Amendment No. 1, be, and hereby is, approved on an 
accelerated basis.
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    \60\ 15 U.S.C. 78s(b)(2).
    \61\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\61\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15199 Filed 7-16-21; 8:45 am]
BILLING CODE 8011-01-P


