[Federal Register Volume 83, Number 1 (Tuesday, January 2, 2018)]
[Notices]
[Pages 194-197]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-28311]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82409; File No. SR-IEX-2017-43]
Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Related to
the Displayed Match Fee
December 27, 2017.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on December 14, 2017, the Investors Exchange LLC (``IEX'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of Section 19(b)(1) under the Securities
Exchange Act of 1934 (``Act''),\4\ and Rule 19b-4 thereunder,\5\
Investors Exchange LLC (``IEX'' or ``Exchange'') is filing with the
Commission a proposed rule change to modify its Fee Schedule, pursuant
to IEX Rule 15.110(a) and (c), to: (i) To increase the fee for orders
that provide or take resting interest with displayed priority (i.e.,
displayed liquidity) during continuous trading, (ii) eliminate the
exception to the Non-Displayed Match Fee for taking non-displayed
liquidity with a displayable order for Members that predominantly
provide displayed liquidity (iii) increase the fee for orders displayed
on the Continuous Book that execute as part of the Opening Process for
Non-IEX-Listed Securities (the ``Opening Process'') while continuing to
provide such orders free execution in the Opening and Closing Auction
when IEX begins to list securities as a primary listing exchange, and
(iv) make two nonsubstantive clarifying changes to its Fee Schedule.
Changes to the Fee Schedule pursuant to this proposal are effective
upon filing, and will be operative on January 1, 2018.The text of the
proposed rule change is available at the Exchange's website at
www.iextrading.com, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
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\4\ 15 U.S.C. 78s(b)(1).
\5\ 17 CFR 240.19b-4.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statement may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to modify its Fee Schedule, pursuant to IEX
Rule 15.110(a) and (c), to (i) to increase the fee for orders that
provide or take displayed liquidity during continuous trading, (ii)
eliminate the exception to the Non-Displayed Match Fee for taking non-
displayed liquidity with a displayable order for Members that
predominantly provide displayed liquidity, (iii) increase the fee for
orders displayed on the Continuous Book that execute as part of the
Opening Process while continuing to provide such orders free execution
in the Opening and Closing Auction when IEX begins to list securities
as a primary listing exchange, and (iv) make two nonsubstantive
clarifying changes to its Fee Schedule.
Displayed Match Fee
Pursuant to the existing Fee Schedule, the Exchange currently does
not charge any fee to Members for executions on IEX that provide or
take displayed liquidity (i.e., an order or portion of a reserve order
that is booked and ranked with display priority on the Order Book \6\
either as the IEX best bid or best offer (``BBO''), or at a less
aggressive price). This pricing is referred to by the Exchange as the
``Displayed Match Fee'', resulting in a Fee Code of `L' provided by the
Exchange on execution reports to Members.\7\ The Exchange proposes to
update its Fee Schedule, pursuant to IEX Rule 15.110(a) and (c), to (i)
increase the Displayed Match Fee from $0 to $0.0003 for securities with
an execution price at or above $1.00, or 0.30% of the total dollar
value of the transaction for securities with an execution price below
$1.00, calculated as the execution price multiplied by the number of
shares executed in the transaction.
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\6\ See Rule 1.160(p).
\7\ See the Investors Exchange Fee Schedule, available on the
Exchange's public website.
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The current Displayed Match Fee of $0 was adopted in connection
with IEX's launch as a national securities exchange in August 2016, and
was designed to attract displayed order flow to the Exchange, without
offering rebates, thereby contributing to price discovery and
consistent with the overall goal of enhancing market quality. The
Exchange periodically assesses its fee structure. Based upon a recent
assessment, the Exchange determined that the modest proposed fee
increase for the Displayed Match Fee would continue to attract and
incentivize displayed order flow in a comparable manner, while also
increasing revenue.
The Exchange is not proposing any change to the Internalization Fee
whereby no fee is charged for executions when the adding and removing
order originated from the same Exchange Member. Accordingly,
transactions that qualify for the Internalization Fee will not be
charged the Displayed Match Fee, since the IEX Fee Schedule provides
that to the extent a Member receives multiple Fee Codes on an
execution, the lower fee shall apply.\8\
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\8\ Id.
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Non-Displayed Match Fee
The Exchange currently charges the Non-Displayed Match Fee of
$0.0009
[[Page 195]]
per share (or 0.30% of the total dollar value of the transaction for
securities with an execution price below $1.00) to Members for
executions on IEX that provide or take non-displayed liquidity (i.e.,
an order or portion of a reserve order that is booked and ranked with
non-display priority on the Order Book either at the NBBO midpoint or
at a less aggressive price on the Order Book),\9\ with the exception of
(i) executions on the Exchange where the adding and removing order
originated from the same Exchange Member and (ii) executions on IEX
that involve taking resting interest with non-displayed priority where
(a) the liquidity removing order was displayable (i.e., the order would
have booked and displayed if posted to the Order Book) and (b) on a
monthly basis, at least 90% of the liquidity removing Member's
aggregate executions of displayable orders added liquidity during such
calendar month (i.e., the ``90% display exception'').\10\ The Exchange
is proposing to eliminate the 90% display exception. As explained in
IEX's rule change adopting the 90% display exception to the Non-
Displayed Match Fee, the flexibility was designed to address limited
inadvertent liquidity removal by Members who are largely adding
displayed liquidity and generally intend to add displayed liquidity on
IEX, to further encourage aggressively priced displayed orders.\11\
However, the Exchange believes that the 90% display exception has had
limited success in encouraging aggressively priced displayed orders on
the Exchange, and has resulted in relatively small credits to Members.
During September, October, and November of 2017, no more than 31
Members (of 159 total Members) qualified for the 90% display exception
through one or more MPID's during any month. The credits ranged from
$0.03 to $9,195 with 47% (on average) of the credits under $100.
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\9\ Id.
\10\ However, in such transactions, the non-displayed liquidity
adding interest is subject to the Non-Displayed Match Fee.
\11\ See Securities Exchange Act Release No. 78550 (August 11,
2016), 81 FR 54873 (August 17, 2016) (SR-IEX-2016-09).
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Further the 90% display exception introduces certain technical
complexities for IEX that are associated with processing the 90%
display exception at the end of the month, as well as for Members with
respect to forecasting fees due to the Exchange. Specifically, the
Exchange's current billing processes account for the 90% display
exception at the end of the trading month by processing each MPID's
eligible trading activity to determine the number of shares, if any,
that are eligible for free execution under the 90% display exception.
The Exchange believes the computational components of the 90% display
exception are not inherently complex; however, accounting for the 90%
display exception along with other conditional fees that are processed
at the end of the trading month (e.g., the Crumbling Quote Remove Fee),
raises unnecessary technical complexities considering the fees limited
practical utility. Moreover, the Exchange believes that removing the
90% display exception will provide Members more clarity regarding the
fees assessed for executions on the Exchange, because Members will not
need to account for the 90% display exception when calculating the fees
due to the Exchange, and will instead know with certainty that
executions that receive Fee Code `I' in isolation will be subject to
the Non-Displayed Match Fee. Accordingly, the Exchange proposes to
eliminate the exception. The Exchange thus proposes to delete the
single asterisked footnote to the Fee Schedule to delete the reference
and description of the 90% display exception, and to adjust the
footnote references that follow accordingly.
Auction and Opening Process Fee
The Exchange Fee Schedule currently provides that displayed orders
resting on the Continuous Book that execute in the Opening Auction,
Closing Auction, or the Opening Process are not charged a fee (i.e.,
are free).\12\ IEX proposes to retain the free pricing for displayed
orders resting on the Continuous Book that execute in the Opening or
Closing Auction, but to increase the fee for displayed orders resting
on the Continuous Book that execute in the Opening Process to align
with the proposed Displayed Match Fee. The Exchange believes that the
Opening and Closing Auctions will provide a critical price discovery
mechanism that establishes the IEX Official Opening and Closing Prices,
respectively, for IEX-listed securities. It is generally the data point
most closely scrutinized by investors, securities analysts, and the
financial media, and is used to value and assess management fees on
mutual funds, hedge funds, and individual investor portfolios. The
Exchange further believes that displayed liquidity is an important part
of the Opening and Closing Auction price discovery process. Therefore,
in order to incentivize market participants to display quotations on
the Exchange leading into the Opening and Closing Auctions to support
the price formation process, the Exchange is proposing to not charge a
fee for displayed interest resting on the Continuous Book that executes
as part of the Opening or Closing Auction. In contrast, the Opening
Process for Non-Listed Securities is not designed to be a price
discovery mechanism and accordingly the Exchange does not believe that
a free pricing incentive is appropriate.
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\12\ See supra note 7 [sic].
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Clarifying Changes
The Exchange is proposing to make two nonsubstantive changes to its
Fee Schedule to clarify the fees assessed on certain orders that
receive multiple Fee Codes. First, the Exchange proposes to reorder the
asterisked footnotes to account for the elimination of the 90% display
exception. Secondly, the Exchange proposes to amend the triple
asterisked footnote and add a new sentence to the quadruple asterisked
footnote to clarify the Fee Codes provided for orders that execute in
the Opening Process and in the Opening or Closing Auctions. As
proposed, the triple asterisked footnote provides that, for orders that
execute in the Opening Process, non-displayed orders will receive a Fee
Code of X rather than I, and executions that receive a Fee Code of XL
are assessed the Displayed Match Fee. The current quadruple asterisked
footnote provides that, for orders that execute in the Opening Auction
or Closing Auction, non-displayed orders will receive a Fee Code of O
or C, respectively, rather than I, and orders that were displayed on
the Continuous Book prior to the Opening or Closing Auction will
receive a Fee Code of L, in addition to O or C, respectively (i.e.,
such orders will receive Fee Codes OL or CL, respectively). The
proposed new sentence to the quadruple asterisked footnote further
provides that executions in the Opening or Closing Auction that receive
a Fee Code of OL or CL, respectively, are free. While the third bullet
in the Transaction Fees section of the Fee Schedule currently specifies
that, except for the Crumbling Quote Remove Fee Code of Q, to the
extent a Member receives multiple Fee Codes on an execution, the lower
fee shall apply, the Exchange believes that the proposed changes will
provide additional clarity to Members with respect to how multiple Fee
Codes on an execution apply.
2. Statutory Basis
IEX believes that the proposed rule change is consistent with the
provisions
[[Page 196]]
of Section 6(b) \13\ of the Act in general, and furthers the objectives
of Sections 6(b)(4) \14\ of the Act, in particular, in that it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its Members and other persons using its
facilities. The Exchange believes that the proposed fee change is
reasonable, fair and equitable, and non-discriminatory. The Exchange
operates in a highly competitive market in which market participants
can readily direct order flow to competing venues if they deem fee
levels at a particular venue to be excessive.
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\13\ 15 U.S.C. 78f.
\14\ 15 U.S.C. 78f(b)(4).
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As proposed, the modest increase to the Displayed Match Fee remains
intended to attract displayed order flow to the Exchange by offering a
pricing incentive to send IEX aggressively priced displayable orders,
without offering rebates, thereby contributing to price discovery and
consistent with the overall goal of enhancing market quality. The
Exchange does not believe that the proposed change represents a
significant departure from pricing currently offered by the Exchange.
Specifically, the Displayed Match Fee will continue to be less than
the Non-Displayed Match Fee and substantially lower than the fee to add
displayed liquidity on an exchange with a ``taker-maker'' fee structure
(i.e., that charges liquidity providers) and to take displayed
liquidity on an exchange with a ``maker-taker'' fee structure (i.e.,
that charges liquidity takers).\15\ In addition, the Exchange believes
that it continues to be reasonable, equitable and not unfairly
discriminatory to charge the Displayed Match Fee to both the liquidity
adder and remover because it is designed to facilitate execution of,
and enhance trading opportunities for, displayable orders, thereby
further incentivizing entry of displayed orders.
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\15\ For example, the New York Stock Exchange (``NYSE'') trading
fee schedule on its public website reflects fees to ``take''
liquidity ranging from $0.0024-$0.0030 depending on the type of
market participant, order and execution. Additionally, NYSE fees to
``add'' liquidity range from $0.0018-$0.0030 per share for shares
executed in continuous trading. (See, https://www.nyse.com/markets/nyse/trading-info/fees). The Nasdaq Stock Market (``Nasdaq'')
trading fee schedule on its public website reflects fees to
``remove'' liquidity ranging from $0.0025-$0.0030 per share for
shares executed in continuous trading at or above $1.00 or 0.30% of
total dollar volume for shares executed below $1.00. Additionally,
Nasdaq fees for ``adding'' liquidity range from $0.0001-$0.00305 per
share for shares executed in continuous trading. (See, http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2). The Cboe BZX
Exchange (``Cboe BZX) trading fee schedule on its public website
reflects fees for ``removing'' liquidity ranging from $0.0025-
$0.0030, for shares executed in continuous trading at or above $1.00
or 0.30% of total dollar volume for shares executed below $1.00.
Additionally, Cboe BZX fees for ``adding'' liquidity ranging from
$0.0020-$0.0045 per share for shares executed in continuous trading.
(See, https://www.batstrading.com/support/fee_schedule/bzx/).
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The Exchange also believes that it is reasonable, fair and
equitable, and non-discriminatory to charge the increased Displayed
Match Fee for displayed interest resting on the Continuous Book that
executes as part of the Opening Process. As discussed in the Purpose
Section, the Opening Process is not designed to be a price discovery
mechanism and accordingly the Exchange believes that the same factors
that support increasing the Displayed Match Fee also support increasing
the fee for such orders.
The Exchange further believes that it is reasonable, fair and
equitable, and non-discriminatory to continue to not charge a fee for
displayed interest resting on the Continuous Book that executes as part
of the Opening or Closing Auction. As discussed in the Purpose section,
the Opening and Closing Auctions provide a critical price discovery
mechanism that establishes the IEX Official Opening and Closing Prices,
respectively, for IEX-listed securities, and displayed liquidity is an
important part of the Opening and Closing Auction price discovery
process. Therefore, the Exchange believes that a fee incentive is
appropriate in order to incentivize market participants to display
quotations on the Exchange leading into the Opening and Closing
Auctions. The Exchange notes that Cboe BZX Exchange, Inc. (``BZX'')
does not charge a fee for continuous book orders that execute in an
opening or closing auction in a BZX-listed security, notwithstanding
that it charges various fees for other orders that execute in such
auctions.\16\
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\16\ See Cboe BZX U.S. Equities Exchange Fee Schedule available
at: http://markets.cboe.com/us/equities/membership/fee_schedule/bzx/.
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Additionally, the Exchange believes that it is reasonable, fair and
equitable, and non-discriminatory to continue to charge the
Internalization Fee rather than the Displayed Match Fee for executions
on IEX that provide or take resting interest with displayed priority
when the adding and removing order originated from the same Exchange
Member. IEX believes that the same factors that support not charging
fees for such transactions, as described in its rule filing adopting
this fee structure, continue to be relevant.\17\ Specifically, not
charging a fee is designed to incentivize Members (and their customers)
to send orders to IEX that may otherwise be internalized off exchange,
with the goal of increasing order interaction on IEX. Internalization
on IEX is not guaranteed, and the additional order flow that does not
internalize is available to trade by all Members.
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\17\ See supra note 11 [sic].
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The Exchange also believes that it is reasonable, fair and
equitable, and non-discriminatory to eliminate the 90% display
exception, based on its limited practical utility and the technical
complexities that are associated with processing the exception, as
described in the Purpose section. Moreover, the Exchange believes that
removing the 90% display exception is reasonable because it will
provide Members more clarity regarding the fees assessed for executions
on the Exchange, because Members will not need to account for the 90%
display exception when calculating the fees due to the Exchange, and
will instead know with certainty that executions that receive Fee Code
`I' in isolation will be subject to the Non-Displayed Match Fee.
Additionally, the Exchange believes that the proposed
nonsubstantive clarifying changes to the Fee Schedule are reasonable,
fair and equitable, and non-discriminatory because they will provide
additional clarity to Members with respect to how multiple Fee Codes on
an execution apply, thereby eliminating any potential confusion.
Finally, the Exchange believes that the proposed fees are
nondiscriminatory because they will apply uniformly to all Members.
B. Self-Regulatory Organization's Statement on Burden on Competition
IEX does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange does not believe
that the proposed rule change will impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. The Exchange operates in a highly competitive
market in which market participants can readily favor competing venues
if fee schedules at other venues are viewed as more favorable.
Consequently, the Exchange believes that the degree to which IEX fees
could impose any burden on competition is extremely limited, and does
not believe that such fees would burden competition between Members or
competing venues in a manner that is not necessary or appropriate in
furtherance of the purposes of the Act. Moreover, as noted in the
Statutory
[[Page 197]]
Basis section, the Exchange does not believe that the proposed changes
represent a significant departure from its current fee structure.
The Exchange does not believe that the proposed rule change will
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because, while
different fees are assessed in some circumstances, these different fees
are not based on the type of Member entering the orders that match but
on the type of order entered and all Members can submit any type of
order. Further, the proposed fee changes continue to be intended to
encourage market participants to bring increased order flow to the
Exchange, which benefits all market participants.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) \18\ of the Act.
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\18\ 15 U.S.C. 78s(b)(3)(A)(ii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \19\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\19\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-IEX-2017-43 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-IEX-2017-43. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are cautioned that we do not redact or
edit personal identifying information from comment submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-IEX-2017-43
and should be submitted on or before January 23, 2018.
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\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
Brent J. Fields,
Secretary.
[FR Doc. 2017-28311 Filed 12-29-17; 8:45 am]
BILLING CODE 8011-01-P