[Federal Register Volume 86, Number 181 (Wednesday, September 22, 2021)]
[Notices]
[Pages 52713-52719]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-20453]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93027; File No. SR-IEX-2021-11]


Self-Regulatory Organizations; Investors Exchange LLC; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Provide 
That a Reserve Order May Have (i) an Odd Lot Sized Display Quantity and 
(ii) an Optional Random Initial and Replenishment Display Quantity

September 16, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 14, 2021, 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 and 
II 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\ 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 Act,\3\ 
and Rule 19b-4 thereunder,\4\ IEX is filing with the Commission a 
proposed rule change to provide that a reserve order may have (i) an 
odd lot sized display quantity and (ii) an optional random initial and 
replenishment display quantity. The Exchange has designated this rule 
change as ``non-controversial'' under Section 19(b)(3)(A) of the Act 
\5\ and provided the Commission with the notice required by Rule 19b-
4(f)(6) thereunder.\6\
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    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4.
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    The text of the proposed rule change is available at the Exchange's 
website at www.iextrading.com, at the principal office of the Exchange, 
and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The purpose of the proposed rule filing is to amend IEX Rule 
11.190(b)(2) to provide that a reserve order \7\ may have (i) an odd 
lot \8\ size display quantity and (ii) an optional random initial and 
replenishment display quantity. Specifically, as proposed, a reserve 
order may have an odd lot as well as a round or mixed lot initial and 
replenishment display quantity. In addition, as proposed, a Member \9\ 
may attach an optional random replenishment instruction to any reserve 
order pursuant to which the reserve order's display quantity (both upon 
initial posting to the Order Book \10\ and upon any subsequent 
replenishments) would be randomly determined by the System \11\ within 
a replenishment range specified by the Member. In addition, IEX 
proposes to make conforming edits to IEX Rules 11.190(b)(2) and 
11.220(a)(1)(C) reflecting the proposed changes to reserve order 
functionality.
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    \7\ See IEX Rule 11.190(b)(2).
    \8\ An odd lot order is generally any order of less than 100 
shares (the size of a round lot order). See IEX Rule 11.180(a).
    \9\ See IEX Rule 1.160(s).
    \10\ See IEX Rule 1.160(p).
    \11\ See IEX Rule 1.160(nn).
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    The proposed changes are designed to increase displayed liquidity 
on the Exchange (potentially at prices better than the NBBO),\12\ to 
the benefit of all market participants, by providing additional 
optionality to Members in the use of odd lot size reserve order 
displayed quantities, as well as helping to protect Members using 
reserve orders with random replenishment from potential information 
leakage.
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    \12\ See IEX Rule 1.160(u).
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Background
    IEX, like other equities exchanges,\13\ offers Members a 
``reserve'' order type, which allows Members to submit a partially 
displayed limit order,\14\ so that a portion of the order is displayed 
(``display quantity'') and a portion of the order is non-displayed 
(``reserve quantity'').\15\ As set forth in IEX Rule 11.190(b)(2), when 
Users \16\ submit a reserve order, they must specify the display 
quantity (which must be a round or mixed lot). Upon entry, the System 
attempts to execute a reserve order as a single order of its full, 
unexecuted size. If an incoming reserve order is not fully executed, it 
posts to the Order Book where it is effectively

[[Page 52714]]

treated as two discrete orders: The User instructed display quantity 
posts to the Order Book as a displayed order (``displayed portion'') 
and the reserve quantity posts to the Order Book as a non-displayed 
order (``non-displayed portion''). For the purposes of pricing reserve 
orders on the Order Book, displayed portions are treated as displayed 
orders and non-displayed portions are treated as non-displayed orders. 
As described in IEX Rule 11.190(h), it is possible for the non-
displayed portion to rest at a different price than the displayed 
portion, because the displayed portion is subject to display-price 
sliding \17\ while the non-displayed portion is subject to the Midpoint 
Price Constraint.\18\ If the displayed portion of the reserve order is 
decremented such that less than one round lot would be displayed, the 
displayed portion of the reserve order shall be refreshed for either 
(i) the original displayed quantity, or (ii) the entire reserve 
quantity, if the total number of unexecuted shares in the order is 
smaller than the original Member instructed displayed quantity. Each 
time the displayed portion of the order is refreshed from the reserve 
quantity, that portion is prioritized behind other existing displayed 
orders; the priority of the non-displayed portion, however, is 
unchanged by the refresh process.
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    \13\ See, e.g., Cboe BZX Exchange, Inc. (``BZX'') Rule 
11.9(c)(1); MEMX, LLC (``MEMX'') Rule 11.8(b)(4); The Nasdaq Stock 
Market LLC (``Nasdaq'') Rule 4703(h); and New York Stock Exchange 
LLC Rule 7.31(d)(1).
    \14\ See IEX Rule 11.190(a)(1).
    \15\ See IEX Rule 11.190(b)(2).
    \16\ See IEX Rule 1.160(qq). The text of IEX Rule 11.190(b)(2) 
uses the term ``User'', so any direct references to the text of the 
rule will use the term ``User.'' Otherwise, for purposes of this 
rule filing, the term ``Member'' will be used synonymously with the 
term ``User.''
    \17\ See IEX Rule 11.190(h)(1).
    \18\ See IEX Rule 11.190(h)(2).
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    IEX recently implemented a rule change that provides for the option 
to display odd lot size orders, including allowing them to aggregate to 
form a protected quotation.\19\ In connection with the implementation 
of displayed odd lot size orders, IEX modified its reserve order 
functionality to provide that if the display quantity of a reserve 
order decrements to less than a round lot (and there are not enough 
shares remaining in the reserve quantity to refresh the display 
quantity to more than a round lot), the display quantity retains its 
displayed status and its execution priority.\20\
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    \19\ See Securities Exchange Act Release No. 90933 (January 15, 
2021), 86 FR 6687 (January 22, 2021) (SR-IEX-2021-01).
    \20\ See supra note 19.
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Proposal
    IEX proposes to amend IEX Rule 11.190(b)(2) to: (i) Allow reserve 
orders to be submitted with an odd lot sized display portion; and (ii) 
allow Members to elect that the initial and replenishment display 
quantity for the reserve order will be randomly determined by the 
System within a range specified by the Member. As described below, IEX 
believes this proposal, which combines order types and functionality 
previously considered by the Commission, will encourage the posting of 
more displayed liquidity on the Exchange in a manner that benefits all 
market participants.
1. Odd Lot Display Quantity Reserve Orders
    IEX proposes to modify its reserve order type to allow Members to 
submit a reserve order with an odd lot size display quantity, in 
addition to the current functionality which allows Members to submit a 
reserve order with either a round or mixed lot size display quantity.
    As proposed, odd lot size display quantity reserve orders 
(``Displayed Odd Lot Reserve orders'') would function much like a round 
or mixed lot size display quantity reserve order, except that the 
display quantity would only replenish from the reserve quantity when 
the displayed portion of the order is decremented to zero shares, as 
opposed to round and mixed lot size display quantity reserve orders, 
which would continue to replenish the display quantity whenever they 
decrement to less than a round lot. IEX believes that replenishing a 
Displayed Odd Lot Reserve order only when the display quantity has been 
fully exhausted is the most reasonable and workable approach. As a 
threshold matter, the display quantity of a Displayed Odd Lot Reserve 
order by definition will always be less than a round lot and will vary 
based on the Member instructed displayed quantity and can be as low as 
one share. Therefore, the trigger for replenishment cannot be a 
quantity that is the same for all orders unless it is when the 
displayed quantity decrements to zero.
    IEX notes that it also considered having Displayed Odd Lot Reserve 
orders replenish anytime one or more share of the displayed portion was 
executed, but decided against it for the following reasons. First, as a 
practical matter, Displayed Odd Lot Reserve orders will be far less 
useful to Members if any partial executions of the display portion 
trigger a replenishment, resulting in the display portion receiving a 
new time stamp and being prioritized behind all other existing 
displayed orders at that price. Second, as discussed below, a Displayed 
Odd Lot Reserve order would be eligible for optional random 
replenishment, which means the next time the display quantity of the 
order replenishes, it could be randomly set at a value lower than the 
prior display quantity, and IEX seeks to avoid this confusing and 
illogical outcome. Third, IEX believes that having a Displayed Odd Lot 
Reserve Order replenish any time there is a partial execution of the 
displayed portion of the order could increase the likelihood of adverse 
selection through information leakage of the presence of a larger non-
displayed reserve portion of the order. IEX notes that the Commission 
made the same determination when it approved a 2018 rule filing by the 
New York Stock Exchange LLC (``NYSE'') that changed NYSE's reserve 
order replenishment trigger from replenishing after any execution of a 
portion of the displayed quantity to only replenishing when the display 
quantity decrements to less than a round lot.\21\ Based on informal 
discussions with Members, IEX believes that the proposed approach would 
lead to increased use of Displayed Odd Lot Reserve orders compared to 
other approaches, as discussed above. IEX also notes that this proposed 
approach to Displayed Odd Lot Reserve order replenishment mirrors the 
functionality of options exchanges with reserve order types that 
display in odd lot quantities that replenish their display quantity 
only when it is fully exhausted.\22\
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    \21\ See Securities Exchange Act Release No. 83768 (August 3, 
2018), 83 FR 39488 (August 9, 2018). The fact that, until 2018, NYSE 
triggered replenishment with any partial execution of the display 
portion of a reserve order shows that only replenishing a reserve 
order when it decrements to less than a round lot is not the only 
Commission-approved replenishment trigger.
    \22\ See BZX Rule 21.1(d)(1); Cboe EDGX Exchange, Inc. 
(``EDGX'') Rule 21.1(d)(1).
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    IEX believes that providing for Displayed Odd Lot Reserve orders 
will incentivize the posting of more displayed liquidity on IEX, and 
the corresponding opportunity for market participants to interact with 
displayed liquidity. In this regard, IEX believes that the increasing 
prevalence of high-priced securities (including many securities that 
trade for more than $1,000 per share) \23\ makes quoting in round lot 
multiples inaccessible to some market participants. As the Commission 
recently noted, ``a significant proportion of quotation and trading 
activity occurs in odd-lots, particularly for frequently traded, high 
priced stocks.'' \24\ The Commission also noted that ``frequently 
traded, high priced securities were more likely to have executions 
occur in odd-lot sizes (about 34% of the share volume of the 50 
securities with the highest

[[Page 52715]]

share prices) than lower priced securities (about 3.4% of the 50 
securities with the lowest share prices).'' \25\
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    \23\ As of July 2021, there are 21 securities trading for $1,000 
per share or more, and an additional 38 securities trading between 
$500 and $999.99 per share.
    \24\ See Securities Exchange Act Release No. 90610 (December 9, 
2020), 86 FR 18596, 18616 n. 240 (April 9, 2021) (``Market Data 
Infrastructure Final Rule'').
    \25\ See supra note 24.
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    Furthermore, the Commission has noted that almost half of all on-
exchange trades are odd lot sized, and about 40% of those odd lot 
trades occur at prices better than the NBBO.\26\ Thus, allowing reserve 
orders to display odd lot quantities would both encourage the posting 
of more displayed liquidity on the Exchange, and offer more price 
improvement for high priced stocks that often trade in odd lot 
quantities at better prices than the NBBO.\27\
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    \26\ See supra note 24.
    \27\ Displayed odd lot orders do not update the NBBO unless 
aggregated to form a round lot size quotation, and thus can be 
priced better than the NBBO.
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    Additionally, based on informal discussions with IEX Members, the 
Exchange believes that use of reserve orders would increase in high 
priced securities if the displayed portion of the reserve order could 
be entered in an odd lot quantity.
    IEX notes that its proposal for Displayed Odd Lot Reserve orders is 
not novel, in that all four of the Cboe equities exchanges allow a 
reserve order to be submitted with a user instructed display quantity 
of less than one round lot.\28\ Additionally, BZX's and EDGX's options 
exchanges offer displayed odd lot reserve orders that replenish in the 
same manner as the current proposal--when the displayed portion of the 
odd lot reserve order is fully executed, the order is replenished from 
the reserve quantity.\29\
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    \28\ See BZX Rule 11.9(c)(1); Cboe BYX Exchange, Inc. (``BYX'') 
Rule 11.9(c)(1); Cboe EDGA Exchange, Inc. (``EDGA'') Rule 11.6(m); 
EDGX Rule 11.6(m); see also Cboe US Equities FIX Specification 
(Version 2.9.2) avail. at http://cdn.cboe.com/resources/membership/Cboe_US_Equities_FIX_Specification.pdf (setting no minimum value for 
the user instructed display quantity for reserve orders). IEX notes 
that the Cboe equity exchange rules clearly allow for the entry of 
an odd lot size display quantity, but are unclear as to how much the 
display quantity must decrement before it replenishes to its initial 
display quantity.
    \29\ See supra note 22.
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2. Random Replenishment
    IEX proposes to offer Members the option to elect that the initial 
and each replenishment display quantity for the reserve order will be 
randomly determined by the System within a range specified by the 
Member. IEX proposes to add the defined term of ``Max Floor'' to IEX 
Rule 11.190(b)(2), to specify the base display quantity for all reserve 
orders. As proposed, a Member can submit a reserve order with a Max 
Floor in an odd lot quantity, as well as in a quantity equal to or 
greater than a round lot as provided for under current rules. Further, 
IEX proposes that if the reserve order's Max Floor is either an odd lot 
or a round lot multiple, the Member may include an instruction that the 
reserve order's display quantity be randomly replenished (as discussed 
below, random replenishment would not be available to reserve orders 
with a Max Floor of either a single round lot or a mixed lot).
    As proposed, Members may attach an optional random replenishment 
instruction (the ``Display Range'') to any reserve order with a Max 
Floor of either an odd lot or a round lot multiple. If the Member 
includes a Display Range with a reserve order, the reserve order's 
display quantities (both upon initial posting and upon any subsequent 
replenishments) would be randomly determined by the System within a 
replenishment range specified by the Member. Specifically, the Member 
would specify a Display Range and a Max Floor. The System would then 
randomly select the number of shares it will use to replenish the 
display quantity in the following ways (depending upon the Max Floor of 
the Order):
     If the reserve order's Max Floor equals a round lot 
multiple, the Member would select a Display Range in a round lot or 
multiple thereof that is less than the Max Floor. The System would then 
use the Max Floor and Display Range to determine the initial and 
replenishment displayed quantity each time the order is subject to 
replenishment by randomly selecting a round lot number of shares that 
is between the Max Floor minus the Display Range and the Max Floor plus 
the Display Range.
     If the reserve order's Max Floor is less than one round 
lot, the Member would select a Display Range of one or more shares that 
is less than the Max Floor. The System would then use the Max Floor and 
Display Range to determine the initial and replenishment displayed 
quantity each time the order is subject to replenishment by randomly 
selecting a number of shares that is between the Max Floor minus the 
Display Range and the Max Floor plus the Display Range (provided that 
if the Max Floor plus the Display Range equals a round lot or greater, 
the high end of the Display Range will be one share less than a round 
lot).\30\
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    \30\ Because random replenishment would not be available for 
mixed lot display quantity reserve orders, the maximum value for the 
random replenishment range of a Displayed Odd Lot Reserve order must 
be one share less than a round lot. Therefore, if a Member submitted 
a Displayed Odd Lot Reserve order with a Max Floor of 95 and a 
Display Range of 10, the System would randomly select a 
replenishment value between 85 and 99.
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    As proposed, Members could still elect to have their reserve orders 
employ the current, fixed replenishment, functionality. In order to use 
fixed replenishment, a Member would submit a reserve order with a Max 
Floor, but without a Display Range. With fixed replenishment, the 
display quantity will be equal to the Max Floor both when the order 
first posts to the Order Book and any time the display quantity is 
replenished from the reserve (i.e., when the display quantity is 
decremented to zero shares if the Max Floor is less than one round lot, 
or any time the display quantity decrements to less than one round lot 
if the Max Floor is greater than or equal to a round lot).
    Random replenishment for reserve orders is an optional additional 
tool to assist Members in achieving the general goal of reserve orders, 
which is to display less than the full size of the order to avoid 
leaking information regarding the presence of a large resting reserve 
order.\31\ Because random replenishment results in the display quantity 
of a Reserve order varying with each replenishment, this functionality 
will further reduce the ability of other market participants to detect 
that such order is in fact a reserve order with a potentially large 
non-displayed reserve portion.
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    \31\ Identification of a large resting non-displayed order on an 
exchange can provide information regarding buy or sell interest 
resulting in market moving trading adverse to the resting order.
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    IEX is not proposing to offer random replenishment for reserve 
orders with a Max Floor of a single round lot because the random 
replenishment functionality would not work with a Max Floor of one 
round lot. Specifically, as noted above, when a Member selects random 
replenishment for a reserve order, the Member must submit the order 
with a Display Range that is less than the Max Floor. Thus, if a 
reserve order's Max Floor is one round lot, the Display Range must be 
zero, so the reserve order will always replenish using only the Max 
Floor, rendering random replenishment inoperable. Therefore, reserve 
orders with a Max Floor equal to one round lot will only be able to use 
the current fixed replenishment functionality.
    Additionally, IEX is not proposing to offer random replenishment 
for reserve orders with a Max Floor that is a mixed lot because 
implementation would involve technical complexity. From informal 
discussions with Members, IEX determined there was little interest in 
having the option of random replenishment for a displayed mixed lot

[[Page 52716]]

reserve order. Thus, IEX believes that offering only fixed 
replenishment for displayed mixed lot reserve orders strikes the right 
balance of offering enhanced reserve order functionality to Members 
without introducing unnecessary technical complexity to its reserve 
order functionality.
    IEX notes that the proposed random replenishment functionality for 
reserve orders with a Max Floor that is a round lot multiple is 
substantially similar to that of several other equity exchanges that 
offer random replenishment for reserve orders.\32\ And as described 
above, the proposed new random replenishment functionality for reserve 
orders with a Max Floor that is less than a round lot is substantially 
similar to the functionality used by options exchanges that offer 
displayed odd lot reserve orders with random replenishment.\33\
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    \32\ See BZX Rule 11.9(c)(1); EDGX Rule 11.6(m); MIAX PEARL LLC 
Rule 2614(c)(8)(A); MEMX Rule 11.6(k)(1)(A); Nasdaq Rule 4703(h).
    \33\ See supra note 22; see also Cboe US Options FIX 
Specification (Version 2.7.37) avail. at https://cdn.cboe.com/resources/membership/US_Options_FIX_Specification.pdf (random 
replenishment of an option reserve order requires a Display Range of 
one or more shares, which is the same functionality IEX is proposing 
for random replenishment of a Displayed Odd Lot Reserve order).
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    The following examples demonstrate the proposed odd lot fixed and 
random replenishment functionality:
Example 1: Displayed Odd Lot Reserve Order With Fixed Replenishment
     Member submits a reserve order to buy 200 shares of XYZ 
with a Max Floor of 20 and no Display Range.
     The order does not execute upon entry and posts to the 
Order Book with a display quantity of 20 shares and a reserve quantity 
of 180 shares.
     An inbound order to sell 10 shares of XYZ is entered into 
the System and executes against 10 shares of the displayed quantity. 
The reserve order has a displayed portion of 10 shares and a reserve 
quantity of 180 shares. Because the displayed portion did not decrement 
to zero shares, it does not get replenished.
     A second inbound market order to sell 10 shares of XYX is 
entered into the System and executes against the remaining displayed 
quantity, decrementing it zero shares.
     The System replenishes the display quantity to 20 shares 
(the Max Floor), leaving a reserve quantity of 160 shares.
Example 2: Displayed Round Lot Multiple Reserve Order With Random 
Replenishment
     Member submits a reserve order to buy 2000 shares of XYZ 
with a Max Floor of 400 and a Display Range of 200.
     The order does not execute on entry, and the System uses 
the Max Floor and the Display Range to generate a replenishment range 
of either 200, 300, 400, 500, or 600 shares from which the System will 
randomly select the initial replenishment quantity. The System randomly 
selects 300 as the initial replenishment quantity, meaning the reserve 
order's initial display quantity will be 300 shares, with a reserve 
quantity of 1,700 shares.
     An incoming order to sell 250 shares matches with the 
resting reserve order's display quantity, leaving 50 shares in the 
display quantity (and 1,700 in the reserve quantity).
     Because the Max Floor is at least one round lot, the 
reserve order replenishes when the display quantity decrements to less 
than one round lot, so the System again randomly selects a 
replenishment quantity from the replenishment range of either 200, 300, 
400, 500, or 600 shares. The System randomly selects 600 as the next 
replenishment quantity, meaning the display quantity will be 
replenished to 600 shares, with 550 shares decremented from the reserve 
quantity, which will now be 1,150 shares.
Example 3: Displayed Odd Lot Reserve Order With Random Replenishment
     Member submits a reserve order to buy 200 shares with a 
Max Floor of 50 and a Display Range of 3.
     The order does not execute on entry, and the System 
generates a replenishment range of either 47, 48, 49, 50, 51, 52, or 53 
from which the System will randomly select the replenishment quantity. 
The System randomly selects 48 as the initial replenishment quantity, 
meaning the displayed quantity will be 48 shares, with the remaining 
152 shares in the reserve quantity.
     An incoming order to sell 48 shares matches with the 
resting reserve order's displayed portion, leaving 0 shares in the 
display quantity (and 152 shares in the reserve quantity).
     Because the Max Floor is an odd lot, and the display 
quantity decremented to zero shares, the reserve order replenishes the 
display quantity, so the System again randomly selects a replenishment 
quantity from the replenishment range of either 47, 48, 49, 50, 51, 52, 
or 53 shares. The System randomly selects 53 as the next replenishment 
quantity, meaning the display quantity will be replenished to 53 
shares, with 53 shares decremented from the reserve quantity, which 
will now be 99 shares.
    IEX is also proposing to make the following conforming changes to 
IEX Rule 11.190(b)(2). First, IEX proposes to delete current 
subparagraph (H), which describes how a displayed portion of a reserve 
order retains its displayed status and priority if it decrements to an 
odd lot, because it is rendered redundant by the introduction of 
displayed quantity odd lot reserve orders. Second, IEX proposes to 
renumber current subparagraphs (A) to (G) of the rule as subparagraphs 
(B) to (H) to incorporate the addition of new introductory subparagraph 
(A).\34\ Third, IEX proposes to modify Supplementary Material .01 
(``Reserve Orders'') to clarify that displayed portions would be 
replenished based on the replenishment options in new IEX Rule 
11.190(b)(2)(A). Finally, IEX proposes to modify IEX Rule 
11.220(a)(C)(v) to change the term ``refreshed'' to ``replenished'' and 
to clarify that not all reserve orders replenish when the display 
portion decrements to less than one round lot, but rather pursuant to 
the conditions set forth in the proposed changes to IEX Rule 
11.190(b)(2).
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    \34\ Because IEX is proposing to delete subparagraph (H) of the 
rule, while adding a new subparagraph (A), subparagraph (I) will not 
need to be renumbered.
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    The following is a list of the specific proposed changes to IEX 
Rule 11.190(b)(2):
     Modify any references in the rule to a ``refresh'' of the 
display quantity to the more technically accurate term ``replenish,'' 
which reflects the manner in which the System replenishes the displayed 
portion of a reserve order with shares taken from the non-displayed 
portion.
     Modify the second sentence of IEX Rule 11.190(b)(2) to add 
language stating that the display quantity ``may be a fixed or random 
number of shares; and an odd, mixed, or round lot quantity,'' and 
delete the language stating that User provided display quantity ``must 
be equal to or greater than a round lot; the System will reject a 
reserve order with a User instructed display quantity less than a round 
lot.''
     Modify the fourth sentence of IEX Rule 11.190(b)(2) to add 
language specifying that the User instructed display quantity may be 
determined by ``fixed or random replenishment.''
     Add a new seventh sentence of IEX Rule 11.190(b)(2) 
stating that to enter a reserve order, a User must specify a base 
display quantity (``Max Floor'') and may enter a replenishment value as 
described in subparagraph (A) of IEX Rule 11.190(b).
     Modify the eighth sentence of IEX Rule 11.190(b)(2) 
(formerly the seventh sentence) to add language clarifying that a 
reserve order with a Max Floor of a

[[Page 52717]]

round lot or greater will continue to replenish its displayed portion 
when the displayed portion decrements to less than one round lot. Also 
modify the language about how a reserve order with a Max Floor 
replenishes by removing the language about how it always replenishes to 
the original displayed quantity and adding language stating that the 
reserve order will replenish its displayed portion pursuant to one of 
the replenishment processes set forth in the newly added subparagraph 
(A) of the rule.
     Add a new ninth sentence of IEX Rule 11.190(b)(2) stating 
that a reserve order with a Max Floor of less than one round lot (an 
odd lot), will replenish its displayed portion when the displayed 
portion is decremented to zero shares, and add language stating that 
the reserve order will replenish its displayed portion pursuant to one 
of the replenishment processes set forth in the newly added 
subparagraph (A) of the rule.
     Add to the end of the eleventh sentence of IEX Rule 
11.190(b)(2) (formerly the ninth sentence) the language that a reserve 
order ``has the following attributes:'' set forth in the subsequent 
subparagraphs.
     Add new subsection (A) to IEX Rule 11.190(b)(2) 
(``Replenishment Options'') that reads: ``The following replenishment 
options determine the size of the displayed quantity for any reserve 
order that does not fully execute on entry.
     Add new subsection (A)(i) to IEX Rule 11.190(b)(2) 
(``Random Replenishment'') that sets forth new the random replenishment 
functionality, as detailed in this filing.
     Add new subsection (A)(i)(a) to IEX Rule 11.190(b)(2) 
(``Random Replenishment'') that sets forth new the random replenishment 
functionality for reserve orders with a Max Floor equal to a round lot 
multiple, which is detailed in this filing.
     Add new subsection (A)(i)(b) to IEX Rule 11.190(b)(2) 
(``Random Replenishment'') that sets forth new the random replenishment 
functionality for reserve orders with a Max Floor equal to less than 
one round lot, which is detailed in this filing.
     Add new subsection (A)(ii) to IEX Rule 11.190(b)(2) 
(``Fixed Replenishment'') that sets forth retention of the current 
replenishment functionality for all orders for which random 
replenishment has not been selected, as detailed in this filing.
     Renumber current subparagraphs (A) to (G) of current IEX 
Rule 11.190(b)(2) to subparagraphs (B) to (H).
     Remove current subparagraph (H) of current IEX Rule 
11.190(b)(2).
     Modify Supplementary Material .01 (``Reserve Orders'') as 
follows: (i) In the first sentence, add ``on entry'' after the words 
``if a reserve order is not fully executed'' for clarity; (ii) in the 
same sentence, remove the words ``for the User instructed'' that 
describe the display quantity and replace them with the words ``based 
on the replenishment options sets forth in paragraph (b)(2)(A) of this 
IEX Rule;'' (iii) in the same sentence, add the word ``quantity'' after 
the words ``non-displayed'' for clarity and consistency (matching the 
earlier phrase ``displayed quantity'').
     Modify IEX Rule 11.220(a)(C)(v) to change the term 
``refreshed'' to ``replenished'' and to remove the words ``after 
receiving an execution that decrements the displayed portion of a 
reserve order below one round lot pursuant to'' and replace them with 
the words ``as set forth in [IEX Rule 11.190(b)(2)]'' to reflect that 
not all reserve orders replenish when the display portion decrements to 
less than one round lot, but rather pursuant to the conditions set 
forth in the proposed changes to IEX Rule 11.190(b)(2).
Implementation
    The Exchange will implement the proposed rule change within 90 days 
of filing, subject to the 30-day operative delay, and provide at least 
ten (10) days' notice to Members and market participants of the 
implementation timeline.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\35\ in general, and furthers the 
objectives of Section 6(b)(5),\36\ in particular, in that it is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, and 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. Specifically, the Exchange 
believes that the proposed rule change is consistent with the 
protection of investors and the public interest because it is designed 
to provide more flexibility and opportunities for Members to add 
displayed liquidity to the Exchange. As noted in the Purpose section, 
the proposed rule change is responsive to informal feedback from 
Members indicating that they prefer the optionality to use Displayed 
Odd Lot Reserve orders to post displayed liquidity, particularly for 
high-priced securities. Thus, IEX believes that the proposed rule 
change will attract additional displayed liquidity to the Exchange and, 
to the extent it is successful in doing so, will benefit all market 
participants, thereby supporting the purposes of the Act 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. The Exchange also believes that, as discussed in the 
Purpose section, enabling the use of Displayed Odd Lot Reserve orders 
will enhance opportunities for price discovery and increase the overall 
displayed liquidity profile on the Exchange to the benefit of all 
market participants.
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    \35\ 15 U.S.C. 78f(b).
    \36\ 15 U.S.C. 78f(b)(5).
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    Additionally, IEX believes that having a Displayed Odd Lot Reserve 
order replenish its displayed portion when it decrements to zero shares 
is consistent with the Act, because, as discussed in the Purpose 
section, it is the most workable reasonable approach to protecting 
investors from information leakage and potential adverse selection in a 
manner responsive to Members' feedback. Accordingly, IEX believes that 
this approach could incentivize the use of more reserve orders thereby 
increasing the availability of displayed liquidity over fully non-
displayed orders. For all these reasons, IEX believes that replenishing 
Displayed Odd Lot Reserve orders when the displayed portion decrements 
to zero supports investor protection and the public interest.
    Further, IEX believes that the addition of the random replenishment 
option for reserve orders is consistent with the Act as it is designed 
to help to achieve the general goal of reserve orders, which is to 
display less than the full size of the order to avoid leaking 
information about the presence of a large resting reserve order which 
can result in market movement adverse to the reserve order. Because 
random replenishment results in the display quantity of a reserve order 
varying with each replenishment, this functionality will further reduce 
the ability of other market participants to detect that such order is 
in fact a reserve order.
    Furthermore, IEX believes it is consistent with the Act to offer 
only fixed replenishment for reserve orders with a Max Floor of a 
single round lot or a mixed lot for the reasons discussed

[[Page 52718]]

in the Purpose section. IEX believes that the proposed approach 
provides a reasonable approach with appropriate optionality.
    IEX also notes that, as discussed in the Purpose section, the 
proposed random replenishment functionality is consistent with the 
rules of several other equities \37\ and options \38\ exchanges and 
thus the Exchange does not believe that this aspect of the proposed 
rule change raises any new or novel issues not already considered by 
the Commission.
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    \37\ See supra note 32.
    \38\ See supra note 22.
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    Finally, the Exchange believes that the proposed non-substantive 
conforming changes to IEX Rule 11.190(b)(2) (including the 
supplementary material) and IEX Rule 11.220(a)(1)(C) are consistent 
with the protection of investors and the public interest because they 
will have no impact on the functionality of reserve orders, but rather 
simply provide consistency and clarity to how reserve orders function, 
thereby reducing the potential for confusion of any market 
participants.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. To the contrary, 
the proposal is designed to enhance IEX's competitiveness with other 
markets by enabling IEX to offer reserve order functionality 
substantially similar to that offered by several other equity 
exchanges. As discussed in the Purpose section, the proposal is 
designed to incentivize the entry of additional liquidity providing 
orders on IEX by offering Members the flexibility of using an odd lot 
display quantity as well as random replenishment of the displayed 
quantity of a reserve order as described in the Purpose and Statutory 
Basis sections. Thus, IEX believes that the proposed rule change will 
enhance its ability to compete with other exchanges that already offer 
this functionality and thereby attract more reserve orders to the 
Exchange, to the benefit of all market participants. Moreover, other 
exchanges may adopt similar functionality subject to the Commission 
rule filing process.
    The Exchange also 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. All Members 
would be eligible to use a Displayed Odd Lot Reserve order, and all 
Members would be eligible to use random or fixed replenishment for 
their reserve orders in the same manner. Moreover, the proposal would 
provide potential benefits to all Members to the extent that there is 
more liquidity available on IEX as a result of increased use of reserve 
orders.
    Further, the proposed conforming edits to IEX Rule 11.190(b)(2) 
(including the supplementary material) and Rule 11.220(a)(1)(C) are not 
designed to address any competitive issue, but rather to provide 
additional clarity in IEX's rulebook.

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 Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \39\ and Rule 19b-4(f)(6) thereunder.\40\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \41\ and Rule 19b-
4(f)(6)(iii) thereunder.\42\
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    \39\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \40\ 17 CFR 240.19b-4(f)(6).
    \41\ 15 U.S.C. 78s(b)(3)(A).
    \42\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of this 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 will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-IEX-2021-11 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-2021-11. 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 will also be available for inspection 
and copying at the IEX's principal office and on its internet website 
at www.iextrading.com. All comments received will be posted without 
change. 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

[[Page 52719]]

information that you wish to make available publicly. All submissions 
should refer to File Number SR-IEX-2021-11, and should be submitted on 
or before October 13, 2021.
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    \43\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-20453 Filed 9-21-21; 8:45 am]
BILLING CODE 8011-01-P


