[Federal Register Volume 82, Number 81 (Friday, April 28, 2017)]
[Notices]
[Pages 19763-19770]
[FR Doc No: 2017-08575]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80514; File No. SR-IEX-2017-11]

Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing of Proposed Rule Change To Modify the Manner in Which the
Exchange Opens Trading for Non-IEX-Listed Securities

April 24, 2017.
    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 April 13, 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\ 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''), and Rule 19b-4 thereunder, Investors
Exchange LLC (``IEX'' or the ``Exchange'') is filing with the
Securities and Exchange Commission (``Commission'') proposed rule
changes to (i) amend Rule 11.231 to modify the manner in which the
Exchange opens trading for non-IEX-listed securities beginning at the
start of Regular Market Hours and retitle it ``Regular Market Session
Opening Process for Non-IEX-Listed Securities''; and (ii) amend Rules
11.190 and 11.220 to specify the order types eligible to participate in
the proposed Regular Market Session Opening Process for non-IEX listed
securities (``Opening Process'') described in proposed Rule 11.231 and
priority thereof.
    The text of the proposed rule change is available at the Exchange's
Web site at www.iextrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these 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
Background
    The purpose of the proposed rule change is to (i) amend Rule 11.231
to modify the manner in which the Exchange opens trading for non-IEX-
listed securities beginning at the start of Regular Market Hours and
retitle it ``Regular Market Session Opening Process for Non-IEX-Listed
Securities''; (ii) amend Rule 11.190(a)(2)(E) to allow market orders
with a time-in-force of DAY to be entered in the Pre-Market Session for
queuing and participation in the Regular Market Session Opening Process
for non-IEX-listed securities (``Opening Process'') described in
proposed Rule 11.231; (iii) amend Rule 11.220(a)(2) regarding the
priority of orders eligible to execute in the proposed Opening Process;
and (iv) amend Rule 11.190(b)(11) to clarify that orders with a Minimum
Quantity as defined in Rule 11.190(b)(11) (``Minimum Quantity orders'')
are not eligible to participate in the Opening Process pursuant to
proposed Rule 11.231.
    Currently, the Exchange begins accepting limit orders with a time-
in-force of IOC, FOK, SYS, and GTT \3\ for non-IEX-listed securities
for trading at the beginning of the Pre-Market Session and any such
orders received by the Exchange are immediately eligible for execution
in the Pre-Market Session. In addition, limit orders with a time-in-
force of DAY or GTX \4\ and pegged orders with a time-in-force of DAY
that are entered during the Pre-Market Session are queued in the time
sequence of their receipt by the System pursuant to Rule 11.220(a)(2),
until the start of the Regular Market Session, or until the order is
canceled by the User. Any such queued orders that are in the System at
the beginning of Regular Market Hours are released to the Order Book as
incoming orders in their relative time priority pursuant to Rule
11.220(a)(2) and are immediately eligible for trading in the Regular
Market Session, subject to the User's instructions and market
conditions. Pursuant to IEX Rule 11.190(a)(2)(E), market orders may
only be submitted in the Regular Market Session, and are rejected by
the System in the Pre-Market Session and Post-Market Session.
Furthermore, under paragraph (iii) of IEX Rule 11.190(a)(2)(E), market
orders marked DAY, by default, are rejected. When elected by the User,
market orders marked DAY submitted by that User are accepted and
eligible to trade or route during the Regular Market Session. Market
orders marked DAY are treated by the System as having a TIF of IOC.\5\
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    \3\ See Rules 11.190(c)(1), 11.190(c)(2), 11.190(c)(5), and
11.190(c)(6), defining the time-in-force of IOC, FOK, SYS, and GTT,
respectively.
    \4\ See Rules 11.190(c)(3), 11.190(c)(4), defining a time-in-
force of DAY and GTX, respectively.
    \5\ Members that would like to enter market orders with time-in-
force of DAY and have the Exchange accept such orders are required
to have authorized personnel contact IEX Market Operation
<EMAIL_ADDRESS>in writing requesting such port setting
changes, and must specifically identify the order entry sessions to
which such port setting will apply.

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Description of Proposed Rule Change
    The Exchange proposes to amend Rule 11.231 to offer an enhanced
opening process for non-IEX-listed securities. Specifically, as
proposed, the Exchange will attempt to perform the Opening Process in
each non-IEX-listed security pursuant to which all eligible interest
resting on the Order Book in the Pre-Market Session available for
continuous trading (i.e., orders on the ``Continuous Book'') or orders
queued for execution in the Regular Market Session (i.e., orders on the
``Cross Book'') will be executed at a single price. As proposed, the
Opening Process offers Users an opportunity to participate in an
electronic price discovery mechanism that efficiently matches all
eligible buy and sell orders in each non-IEX-listed security queued for
the Opening Process along with all eligible orders resting on the
Continuous Book from the Pre-Market Session at a single price. The
Opening Process is designed to efficiently maximize the number of
shares executed at a single price that is reflective of the broader
market for the security, as described more fully below.
    As proposed, prior to the beginning of Regular Market Hours, Users
who wish to participate in the Opening Process may enter limit, market,
and pegged orders designated with a time-in-force of DAY and limit
orders designated with a time-in-force of GTX, which shall queue in the
System and are eligible for execution in the Opening Process (orders on
the Cross Book); interest resting on the Order Book in the Pre-Market
Session available for continuous trading (i.e., orders on the
Continuous Book) are also eligible for execution in the Opening Process
(collectively, ``Cross Eligible Orders''). Minimum Quantity orders are
not eligible for execution in the Opening Process, and are therefore
not Cross Eligible Orders. Accordingly, the Exchange is proposing to
amend Rule 11.190(a)(2)(E) to extend the queuing functionality to
market orders with a time-in-force of DAY that are entered during the
Pre-Market Session and are not designated to route pursuant to Rule
11.230(c), allowing such orders to queue in the System for
participation in the Opening Process.\6\ Orders with a time-in-force of
IOC or FOK do not rest on the Order Book and are therefore ineligible
to participate in the Opening Process. In addition, the Exchange is
proposing to make a minor conforming change to the language used in
reference to LULD Price Bands in Rule 11.190(a)(1)(2) [sic] in order to
conform the reference to the language used throughout the Exchange's
rules.
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    \6\ Orders canceled before the Opening Process will not
participate in the Opening Process. Market orders with a time-in-
force of DAY that are entered during the Pre-Market Session and are
designated to route pursuant to Rule 11.230(c) will be rejected upon
entry.
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    As proposed, orders on the Continuous Book and orders on the Cross
Book (collectively, the Order Book) shall be ranked and maintained for
the Opening Process pursuant to Rule 11.220(a)(2), as follows:
     Midpoint peg orders, as defined in IEX Rule 11.190(b)(9),
on the Cross Book are ranked and eligible for execution in the Opening
Process at the less aggressive of the Midpoint Price or the order's
limit price, if any.
     Primary peg orders, as defined in IEX Rule 11.190(b)(8),
on the Cross Book are ranked and eligible for execution in the Opening
Process at the less aggressive of one (1) MPV below (above) the NBB
(NBO) for buy (sell) orders or the order's limit price, if any, but may
exercise price discretion up (down) to the Opening Match Price, subject
to the less aggressive of the NBB (NBO) or the order's limit price, if
any, except during periods of quote instability, as defined in IEX Rule
11.190(g). When exercising price discretion, primary peg orders are
ranked behind any non-displayed interest at the Opening Match Price for
the duration of the Opening Process. If multiple primary peg orders are
exercising price discretion during the Opening Process, they maintain
their relative time priority at the Opening Match Price.
     Discretionary Peg orders, as defined in IEX Rule
11.190(b)(10), on the Cross Book are ranked and eligible for execution
in the Opening Process at the less aggressive of the NBB (NBO) for buy
(sell) orders or the order's limit price, if any, but may exercise
price discretion up (down) to the Opening Match Price, subject to the
less aggressive of the Midpoint Price or the order's limit price, if
any, except during periods of quote instability, as defined in IEX Rule
11.190(g). When exercising price discretion, Discretionary Peg orders
are ranked behind any non-displayed interest at the Opening Match Price
for the duration of the Opening Process. If multiple Discretionary Peg
orders are exercising price discretion during the Opening Process, they
maintain their relative time priority at the Opening Match Price.
     Limit orders on the Cross Book are ranked and eligible for
execution in the Opening Process at their limit price.
     Non-displayed limit orders and non-displayed portions of
reserve orders on the Continuous Book are ranked and eligible for
execution in the Opening Process at the less aggressive of the Midpoint
Price or the order's limit price.
     Displayed limit orders on the Continuous Book are ranked
and eligible for execution in the Opening Process at their resting
price.
    As noted above, orders shall be ranked and prioritized for the
Opening Process in price--display--time priority pursuant to proposed
Rule 11.220(a)(2). Specifically, the best priced Cross Eligible Order
(the highest priced resting order to buy or the lowest priced resting
order to sell) has priority over all other orders to buy (or orders to
sell) in all cases. Market orders have precedence over limit orders.
Cross Eligible Orders resting on the Continuous Book are ranked by the
price at which they are resting on the Continuous Book and Cross
Eligible Orders resting on the Cross Book are ranked by the limit price
defined by the User, if any, except in the case of pegged orders, which
are ranked by their current book price (in each case, the order's
``resting price''). Equally priced Cross Eligible Orders are ranked by
display priority, i.e., displayed orders and displayed portions of
Cross Eligible Orders will have precedence over non-displayed orders
and non-displayed portions of Cross Eligible Orders at a given price.
Equally priced Cross Eligible Orders with the same display priority are
ranked in time priority, i.e., where Cross Eligible Orders to buy (or
sell) are ranked at the same price with the same display priority, the
oldest order at such price and display shall have precedence at that
price and display. Orders are ranked by the time at which they are
posted to the Order Book at a given price, the first to be posted at a
given price being the oldest. Cross Eligible Orders maintain their time
priority once booked until:
     In the case of an order on the Cross Book, the order is:
(i) Incremented by the User, (ii) re-priced by the User, (iii) the
Minimum Quantity instruction is removed from an order by the User, and
therefore becomes a Cross Eligible Order, or (iv) a pegged order is re-
priced by the System in response to changes in the NBBO, at which time
the order will receive a new timestamp. Pursuant to IEX Rule
11.231(a)(1)(ii) and (iii), respectively, when exercising price
discretion, primary peg and Discretionary Peg orders maintain time
priority at their resting price, however they are prioritized behind
any non-displayed interest at the Opening Match

Price for the duration of the Opening Process.
     In the case of an order on the Continuous Book, any one of
the events specified in IEX Rule 11.220(a)(1)(C) occurs to an order, at
which time the order will receive a new timestamp.
    Under proposed Rule 11.231(b), beginning at the start of Regular
Market Hours, Cross Eligible Orders that are eligible to trade at the
Opening Match Price (as described below) will be processed in
accordance with price--display--time priority pursuant to proposed Rule
11.220(a)(2). First, to the extent there is contra side interest
eligible to trade at the Opening Match Price, market orders will be
executed at the Opening Match Price in time priority. After the
execution of all market orders, the remaining Cross Eligible Orders
priced more aggressively than the Opening Match Price will be executed
in price--display--time priority at the Opening Match Price. All
remaining Cross Eligible Orders priced equal to the Opening Match Price
will execute in display--time priority at the Opening Match Price.
Executions will occur until there is no remaining volume or there is an
imbalance of orders (i.e., there are no remaining eligible shares to
buy (sell), while eligible shares to sell (buy) remain unexecuted) (the
process described above, collectively, being the ``Opening Match'').
AGID modifiers, as defined in Rule 11.190(e), will not be supported for
executions in the Opening Match, but will be enforced on all unexecuted
shares released to the Order Book following the Opening Match.
    An imbalance of Cross Eligible Orders on the buy side or sell side
may result in orders that are not executed in whole or in part.
Unexecuted Cross Eligible Orders to buy (sell) that are priced at or
above (below) the Cross Price Constraint (but remained unexecuted due
to an imbalance of Cross Eligible Orders) will price slide pursuant to
IEX Rule 11.190(h) and all remaining unexecuted Cross Eligible Orders,
along with any orders that were either ineligible to participate in the
Opening Process or too passive to be executed in the Opening Process,
will be released to the Order Book for continuous trading or canceled
in accordance with the terms of the order. Routable orders that are
released to the Order Book will be routed in accordance with IEX Rule
11.230(c)(3) (Re-Sweep Behavior), subject to the order's instructions.
    Proposed Rule 11.231(c)(1) sets forth proposed definitions
applicable to the Opening Process. As proposed:
     The term ``Away Protected NBB'' or ``Away Protected NBO''
shall mean the national best bid or offer, respectively, that is a
Protected Quotation and not a quotation of the Exchange.
     The term ``Away Protected Bid'' or ``Away Protected
Offer'' shall mean a Protected Bid or Protected Offer, respectively,
that is not a quotation of the Exchange.
     The term ``Cross Price Constraint'' shall mean,
collectively, the upper and lower threshold prices within which the
Opening Match must occur, inclusive of the boundaries. During a crossed
market, if the upper threshold price is below the lower threshold price
when performing the Opening Process, no Opening Match will occur and
orders eligible to post on the Order Book will price slide in
accordance with the price sliding process, pursuant to IEX Rule
11.190(h), and the security will open for trading on IEX in accordance
with prevailing market session rules.
    [cir] The upper threshold price of the Cross Price Constraint is
equal to the price of the Away Protected NBO, except in the event that
an Away Protected Bid is crossing an Away Protected Offer, the upper
threshold price is equal to the greater of five cents ($0.05) or one
half of a percent (0.5%) higher than the lowest Away Protected Offer.
    [cir] The lower threshold price of the Cross Price Constraint is
equal to the price of the Away Protected NBB, except in the event that
an Away Protected Bid is crossing an Away Protected Offer, the lower
threshold price is equal to the greater of five cents ($0.05) or one
half of a percent (0.5%) lower than the highest Away Protected Bid.
     The term ``Cross Tie Breaker'' shall mean the price of the
most current Order Collar Reference Price pursuant to IEX Rule
11.190(f).\7\
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    \7\ Rule 11.190(f)(1)(A) defines the Order Collar Reference
Price as the most current of: (i) The consolidated last sale price
disseminated during the Regular Market Session on the current trade
date, (ii) the last trade price disseminated outside of the Regular
Market Session by the SIP (Form T, as communicated by the relevant
SIP) on the current trade date, which but for the Form T designation
would have been considered a valid last sale price, or, (iii) if no
such trades exist, the previous official closing price. If no Pre-
Market Session trades have occurred that qualify to update the Order
Collar Reference Price and the previous official closing price for
the security is not available, in the interest of maintaining a fair
and orderly market, the Exchange will prevent trading in a security
pursuant to Rule 11.190(f)(1)(B) by rejecting orders beginning at
the start of the Pre-Market Session, and will not conduct an Opening
Match in such security. Accordingly, in such cases, the Opening
Process will conclude with IEX opening the Regular Market Session
without an Opening Match, and trading will begin upon receipt of the
first Order Collar Reference Price for the security.
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    Under proposed Rule 11.231(c)(2), if both an Away Protected Bid and
Away Protected Offer exists (i.e., a two-sided market) the price of the
Opening Match (``Opening Match Price'') will be the price that
maximizes the number of shares of Cross Eligible Orders to be executed.
If more than one price exists that maximizes the number of shares of
Cross Eligible Orders to be executed, the Opening Match shall occur at
the entered price at which shares will remain unexecuted in the match
(i.e., the price of the most aggressive unexecuted order). If Cross
Eligible Order shares are maximized and left unexecuted at more than
one price, the Opening Match shall occur at the price that minimizes
the distance from the Cross Tie Breaker (i.e., the price at or higher
than the most aggressive unexecuted buy order and at or lower than the
most aggressive unexecuted sell order that is closest or equal to the
Cross Tie Breaker). Lastly, if the Opening Match Price established
pursuant to the procedures above is below (above) the lower (upper)
threshold price of the Cross Price Constraint, the Opening Match shall
occur at the lower (upper) threshold price of the Cross Price
Constraint.
    The following examples are designed to illustrate the process for
determining the Opening Match Price in a two-sided market, as described
above. Each example below assumes the Away Protected NBB is $10.09, the
Away Protected NBO is $10.11, and the last trade price that qualified
as an Order Collar Reference Price was $10.10:

 Example 1
    [cir] The Cross Book includes the following orders:
    [ssquf] Limit order to buy 1,500 shares with a limit price of
$10.10; and
    [ssquf] Limit order to sell 1,000 shares with a limit price of
$10.10.
    [cir] Shares are maximized at $10.10; therefore
    [ssquf] 1,000 shares would execute at the Opening Match Price of
$10.10.

 Example 2
    [cir] The Cross Book contains the following orders:
    [ssquf] Limit order to buy 1,500 shares with a limit price of
$10.10; and
    [ssquf] Market order to sell 1,000 shares.
    [cir] Shares are maximized at each price at and between the lower
threshold of the Cross Price Constraint (i.e., $10.09) and $10.10;
    [cir] The price at which shares will remain unexecuted in the
auction is $10.10; \8\ therefore
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    \8\ Note, while shares are maximized at and between the lower
threshold of the Cross Price Constraint ($10.09) and $10.10, the
entered price at which shares will remain unexecuted in the auction
is $10.10, as $10.10 is the resting price of the most aggressive
order where shares remain unexecuted.

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    [ssquf] 1,000 shares would execute at the Opening Match Price of
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$10.10.

 Example 3
    [cir] The Cross Book contains the following orders:
    [ssquf] Limit order to buy 2,000 shares with a limit price of
$10.11;
    [ssquf] Limit order to sell 2,000 shares with a limit price of
$10.09.
    [cir] The Continuous Book contains the following orders:
    [ssquf] Displayed limit order to buy 500 shares with a limit price
of $10.09;
    [ssquf] Displayed limit order to sell 600 shares with a limit price
of $10.11.
    [cir] Shares are maximized at each price at or between $10.09 and
$10.11;
    [cir] The range of prices at or between the prices at which shares
will remain unexecuted in the auction is $10.09 and $10.11;
    [cir] Because a range of prices exist after evaluating the prior
two conditions (i.e., an auction price range), the price closest to the
Cross Tie Breaker (i.e., the last trade price that qualified as an
Order Collar Reference Price) within the auction price range is $10.10;
therefore
    [ssquf] 2,000 shares would execute at the Opening Match Price of
$10.10.

 Example 4
    [cir] The Cross Book contains the following orders:
    [ssquf] Limit order to buy 2,000 shares with a limit price of
$10.08;
    [ssquf] Limit order to sell 2,000 shares with a limit price of
$10.08.
    [cir] The Continuous Book contains the following orders:
    [ssquf] Displayed limit order to buy 500 shares with a limit price
of $10.09;
    [ssquf] Displayed limit order to sell 600 shares with a limit price
of $10.11.
    [cir] Shares are maximized at $10.08, however $10.08 is below the
lower threshold of the Cross Price Constraint (i.e., $10.09); therefore
    [ssquf] 500 shares would execute at the Opening Match Price of
$10.09.
    The following examples are designed to illustrate the process for
determining the Opening Match Price and the proposed execution priority
including non-displayed orders on the Cross Book in two-sided market,
as described above. Each example below assumes the Away Protected NBB
is $20.19, the Away Protected NBO is $20.21, and the last trade price
that qualified as an Order Collar Reference Price was $20.20:

 Example 1
    [cir] The Cross Book includes the following orders:
    [ssquf] Midpoint Peg order to buy 2,500 shares with a resting price
of $20.20.
    [ssquf] Limit order to buy 500 shares with a limit price of $20.18;
and
    [ssquf] Limit order to sell 2,000 shares with a limit price of
$20.18.
    [cir] For purposes of determining the Opening Match Price, the
Midpoint Peg order is priced at its resting price ($20.20);
    [cir] Accordingly, shares are maximized between $20.18 and $20.20,
and the price at which shares are left unexecuted within such range, is
$20.20; therefore
    [ssquf] 2,000 shares would execute at the Opening Match Price of
$20.20;
     The Midpoint Peg buy order would receive an execution of
2,000 shares and the remaining 500 shares remain booked at the midpoint
of the NBBO;
     The limit sell order would receive an execution of 2,000
shares, and thus be fully filled; and
     The limit buy order would not receive an execution,
because the limit sell order is fully filled after matching with the
Midpoint Peg buy order with superior priority. The entire limit buy
order is booked at the $20.18.

 Example 2
    [cir] The Cross Book includes the following orders:
    [ssquf] Primary Peg order to buy 2,500 shares with a resting price
of $20.18, and limit price of $20.20;
    [ssquf] Limit order to buy 500 shares with a limit price of $20.19;
and
    [ssquf] Displayed limit order to sell 2,000 shares with a limit
price of 20.19.
    [cir] For purposes of determining the Opening Match Price, the
Primary Peg order is priced at its resting price ($20.18); the Primary
Peg order is eligible exercise price discretion up to the Opening Match
Price, so long as the match price is at or below the less aggressive of
the NBB or the order's limit price;
    [cir] Accordingly, shares are maximized at $20.19; therefore
    [ssquf] 2,000 shares would execute at the Opening Match Price of
$20.19;
     The limit buy order would receive an execution of 500
shares;
     Assuming IEX has determined the quote to be stable
pursuant to IEX Rule 11.190(g), the Primary Peg buy order would
exercise discretion up to the Opening Match Price and receive an
execution of 1,500 shares; the remaining 1,000 shares remain booked at
$20.18; and
     Assuming IEX has determined the quote to be stable
pursuant to IEX Rule 11.190(g), the limit sell order would receive an
execution of 2,000 shares. If IEX has determined the quote to be
unstable pursuant to IEX Rule 11.190(g), the limit sell order would
receive an execution of 500 shares and the remaining 1,500 shares would
post, in accordance with the display-price sliding behavior, 1 MPV
above the NBB at $20.20.

 Example 3
    [cir] The Cross Book includes the following orders:
    [ssquf] Midpoint Peg order to buy 2,500 shares with a resting price
of $20.20.
    [ssquf] Displayed limit order to buy 500 shares with a limit price
of $20.20; and
    [ssquf] Limit order to sell 2,000 shares with a limit price of
$20.20.
    [cir] For purposes of determining the Opening Match Price, the
Midpoint Peg order is priced at its resting price ($20.20);
    [cir] Accordingly, shares are maximized at $20.20; therefore
    [ssquf] 2,000 shares would execute at the Opening Match Price of
$20.20;
     The limit buy order would receive an execution of 500
shares;
     The Midpoint Peg buy order would receive an execution of
1,500 shares; and
     The limit sell order would receive an execution of 2,000
shares.

 Example 4
    [cir] The Cross Book includes the following orders:
    [ssquf] Discretionary Peg order to buy 2,500 shares with a resting
price of $20.19, and limit price of $20.21;
    [ssquf] Limit order to buy 500 shares with a limit price of $20.20;
and
    [ssquf] Limit order to sell 2,000 shares with a limit price of
$20.20.
    [cir] For purposes of determining the Opening Match Price, the
Discretionary Peg order is priced at its resting price ($20.19); the
Discretionary Peg order is eligible exercise price discretion up to the
Opening Match Price, so long as the match price is at or below the less
aggressive of the midpoint of the NBBO or the order's limit price.
    [cir] Accordingly, shares are maximized at $20.20; therefore
    [ssquf] 2,000 shares would execute at the Opening Match Price of
$20.20;
     The limit buy order would receive an execution of 500
shares;
     Assuming IEX has determined the quote to be stable
pursuant to IEX Rule 11.190(g), the Discretionary Peg buy order would
exercise discretion up to the Opening Match Price and receive an
execution of 1,500 shares; and
     Assuming IEX has determined the quote to be stable
pursuant to IEX Rule 11.190(g), the limit sell order would receive an
execution of 2,000 shares. If IEX has determined the quote to be
unstable pursuant to IEX Rule 11.190(g), the limit sell order would
receive an execution of 500 shares and the

remaining 1,500 shares would post at $20.20.
    Under proposed Rule 11.231(c)(3), if there is a lack of an Away
Protected Bid and/or Away Protected Offer (i.e., a one-sided, or zero-
sided market) the Opening Match Price will be the price of the Cross
Tie Breaker. If the price of the Cross Tie Breaker is below (above) the
lower (upper) threshold price of the Cross Price Constraint, the
Opening Match shall occur at the lower (upper) threshold price of the
Cross Price Constraint.\9\
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    \9\ In a one-sided market where there is no Away Protected NBB
or no Away Protected NBO, the Cross Tie Breaker is compared to the
available threshold price of the Cross Price Constraint (i.e., the
Opening Match Price will be at or above the lower threshold price,
or at or below the upper threshold price of the Cross Price
Constraint, as applicable). In a zero-sided market, the Opening
Match Price will be the Cross Tie Breaker.
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    The following examples are designed to illustrate the process for
determining the Opening Match Price in a one-sided or zero-sided market
as described above. Each example below assumes the last trade price
that qualified as an Order Collar Reference Price was $10.10:

 Example 1
    [cir] Away Protected NBB is $10.09;
    [cir] The Cross Book includes the following orders:
    [ssquf] Limit order to buy 1,500 shares with a limit price of
$10.11; and
    [ssquf] Limit order to sell 1,000 shares with a limit price of
$10.09.
    [cir] The Cross Tie Breaker is $10.10 and such price is above the
lower threshold of the Cross Price Constraint (i.e., $10.09); \10\
therefore
---------------------------------------------------------------------------

    \10\ Note, there is no upper threshold price of the Cross Price
Constraint because there is no Away Protected NBO, and therefore the
Cross Tie Breaker of $10.10 is compared to the available lower
threshold price of the Cross Price Constraint ($10.09).
---------------------------------------------------------------------------

    [ssquf] 1,000 shares would execute at the Opening Match Price of
$10.10.

 Example 2
    [cir] Away Protected NBB is $10.11;
    [cir] The Cross Book includes the following orders:
    [ssquf] Limit order to buy 1,500 shares with a limit price of
$10.11; and
    [ssquf] Limit order to sell 1,000 shares with a limit price of
$10.09.
    [cir] The Cross Tie Breaker is $10.10 however such price is below
the lower threshold of the Cross Price Constraint (i.e., $10.11);
therefore
    [ssquf] 1,000 shares would execute at the Opening Match Price of
$10.11.

 Example 3
    [cir] There is neither an Away Protected NBB nor an Away Protected
NBO;
    [cir] The Cross Book includes the following orders:
    [ssquf] Limit order to buy 1,500 shares with a limit price of
$10.11; and
    [ssquf] Limit order to sell 1,000 shares with a limit price of
$10.09.
    [cir] The Cross Tie Breaker is $10.10; \11\ therefore
---------------------------------------------------------------------------

    \11\ Note, there is neither an upper threshold price nor a lower
threshold price of the Cross Price Constraint because there are no
away protected quotations.
---------------------------------------------------------------------------

    [ssquf] 1,000 shares would execute at the Opening Match Price of
$10.10.
    Proposed Rule 11.231(e) provides that if a security is subject to a
halt, suspension, or pause in trading during the Pre-Market Session,
the Exchange will not accept orders in the security for continuous
trading, or for queuing and participation in the Opening Process.
Pursuant to IEX Rule 11.271, any order submitted during a halt will be
rejected by the System. Any orders resting on the Order Book at the
time of a trading halt will not be canceled by the System, and will be
unavailable for trading or re-sweep during the trading halt, but will
be available for cancelation by the submitting User. Orders that were
submitted prior to the halt, suspension, or pause in trading that
joined the Cross Book or the Continuous Book will remain on the Cross
Book or the Continuous Book unless canceled by the User. If the halt,
suspension, or pause remains in effect at the start of the Regular
Market Hours, the Opening Process will not occur at the normally
scheduled time. Instead, once the security resumes trading, the
Exchange will conduct the Opening Process, as described in proposed
Rule 11.231(b) and (c), including all Cross Eligible Orders that remain
on the Cross Book and the Continuous Book. Following the conclusion of
the Opening Process, the Exchange will accept and execute orders as
usual in accordance with prevailing market session rules.
    In the event of a disruption that prevents the execution of the
Opening Process, Rule 11.231(d) provides for Opening Process
Contingency Procedures designed to allow for timely and orderly opening
of non-IEX-listed securities. As proposed, rather than matching orders
at the Opening Match Price as described in Rule 11.231(c), IEX will
publicly announce that no Opening Process will occur.\12\ All orders on
the Order Book will be canceled, and IEX will open the security for
trading without an Opening Match.
---------------------------------------------------------------------------

    \12\ Note, the Exchange intends to disseminate a System Status
Alert to publicly announce that no Opening Process will occur, which
automatically publishes an email alert, twitter update, and text
message to all persons registered to receive such alerts, as well as
publishing to the IEX public Web site. To register for System Status
Alerts, visit https://www.iextrading.com/status/#/.
---------------------------------------------------------------------------

    Lastly, proposed Rule 11.231(f) states that for purposes of Rule
611(b)(3) of Regulation NMS, and section VI(D)(6) of the Plan to
Implement a Tick Size Pilot Program, orders executed in the Opening
Process shall constitute a single-priced opening transaction by the
Exchange and may trade-through or trade-at the price of any other
Trading Center's Manual or Protected Quotations. Each of the orders
executed in the Opening Process are by definition a single priced
opening or re-opening transaction, and therefore meet the letter and
spirit of Rule 611(B)(3) of Regulation NMS and section VI(D)(6) of the
plan to Implement a Tick Size Pilot Program, consistent with the
protection of investors and the public interest.
Implementation
    The Exchange plans to implement the proposed changes during the
second quarter of 2017 pending completion of necessary technology
changes and subject to Commission approval. The Exchange will announce
the implementation date of the proposed changes by Trader Alert at
least 10 business days in advance of such implementation date and
within 90 days of approval of this proposed rule change.
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with
Section 6(b) of the Act \13\ in general, and furthers the objectives of
Section 6(b)(5) of the Act,\14\ 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, 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 proposal is consistent with the protection of
investors and the public interest in that the price discovery mechanism
utilized to determine the Opening Match Price under proposed Rule
11.231(c) will provide the greatest opportunity to match buy and sell
orders at a price that is reflective of market conditions for the
security, while also providing for orderly and timely openings of non-
IEX-listed securities.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f.
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Specifically, the Exchange believes that constraining the Opening
Match Price to prices at or between the Away Protected NBB and Away
Protected NBO is designed to respect the fact that

much of the liquidity seeking execution at the start of Regular Market
Hours is aggregated at the primary market center. Therefore, including
the quotations of the primary market (along with those of all other
protected markets) for purposes of pricing the Opening Match is
designed to provide the greatest opportunity to match buy and sell
orders at a price that is reflective of the market for the security, in
furtherance of the perfection of a free and open market and a national
market system, and consistent with the protection of investors and the
public interest. The Exchange notes that as proposed, the Cross Price
Constraint will not include IEX's protected quotations when determining
the upper and lower threshold prices within which the Opening Match
must occur, because the inclusion of such quotes may unnecessarily
constrain the prices at which the Opening Match may occur, needlessly
restricting price discovery in the Opening Process when the Opening
Match would maximize shares traded at a price beyond the IEX best bid
(offer) but within the Away Protected NBB (NBO). However, shares that
comprise protected quotations on IEX would necessarily be included in
the Opening Process pursuant to proposed Rule 11.220(a)(2) regarding
priority. Accordingly, the Exchange believes that excluding IEX's
protected quotations is consistent with the protection of investors and
the public interest, in that it is designed to allow for robust price
discovery to occur at or within the prices which best reflect the
broader market for the security.
    The Exchange believes that not supporting AGID modifiers in the
Opening Process is consistent with the protection of investors and the
public interest because within the context of the Opening Match
process, counterparties are not considered; only the aggregate
available volume for execution is considered. It is illogical to cancel
an order that happens to be allocated an execution against an order
entered using the same MPID, because both orders execute at the exact
same price to the exact same effect where the orders happen to execute
against orders of a different MPID. Furthermore, the Exchange believes
that supporting AGID modifiers and including Minimum Quantity orders in
the Opening Process would introduce additional technical complexities
to the Opening Process, and the Exchange believes providing simplicity
in this regard is in the interest of the protection of investors and
the public interest.\15\
---------------------------------------------------------------------------

    \15\ The Exchange notes that Bats BZX Exchange, Inc (``Bats'')
does not support broker self-match restrictions in their opening
process for non-listed securities. See Bats Rule 11.24(b), which
states that all MTP modifiers, as defined in Bats Rule 11.9(f), will
be ignored as it relates to executions occurring as part of the Bats
opening match process.
---------------------------------------------------------------------------

    The Exchange notes that the proposed handling of Minimum Quantity
orders in the Opening Process is distinct from the proposed handling of
such orders in the Opening Auction for IEX-listed securities pursuant
to proposed Rule 11.350(c).\16\ Specifically, in the case of an Opening
Auction for an IEX-listed security pursuant to proposed Rule
11.350(c)(2)(C), Minimum Quantity orders are eligible for execution in
the auction, but the minimum quantity instructions will not be
supported, although it will be enforced on all unexecuted shares
released for continuous trading following the Opening Auction match.
Conversely, for the Opening Process for non-IEX-listed securities,
Minimum Quantity orders are not eligible for execution in the Opening
Process. The Exchange believes the Opening Process will yield small
execution sizes in comparison the size of an Opening Auction.
Accordingly, the Exchange does not believe that including Minimum
Quantity orders but not supporting the instruction is an effective
approach for handling such orders because the Opening Match is likely
to result in more executions that are smaller than an order's minimum
quantity instruction. Accordingly, the Exchange believes that the
proposed functionality regarding Minimum Quantity orders is consistent
with the protection of investors and the public interest.
---------------------------------------------------------------------------

    \16\ See proposed Rule 11.350(c)(2)(C) in SR-IEX-2017-10
available at https://www.iextrading.com/regulation/rule-filings/.
---------------------------------------------------------------------------

    Furthermore, the Exchange believes that the proposed changes to
Rule 11.220(a)(2) regarding the priority of orders eligible to execute
in the proposed Opening Process is consistent with the protection of
investors and the public interest because the proposed Opening Process
priority is designed to create continuity between the priority rules
applied during continuous trading and in the Opening Process.
Specifically, identical to the Pre-Market, Regular Market, and Post
Market Sessions, the Exchange is proposing to apply price--display--
time priority for purpose of ranking and maintaining orders eligible to
execute in the proposed Opening Process. Furthermore, the Exchange
notes that the proposed priority for the Opening Process is
substantially similar to the priority of the opening processes for non-
listed securities on NYSE Arca, Inc. (``NYSE Arca'') and the Nasdaq
Stock Market (``Nasdaq'').\17\
---------------------------------------------------------------------------

    \17\ See, e.g., Nasdaq Rule 4752(d)(3)(A)-(D), and NYSE Arca
Rule 7.35(a)(6) and 7.35(c)(4), describing priority for the opening
auction.
---------------------------------------------------------------------------

    The Exchange believes that allowing primary peg, midpoint peg and
Discretionary Peg orders to participate in the proposed Opening Process
is designed to promote just and equitable principles of trade, remove
impediments to and perfect the mechanisms of a free and open market and
a national market system, and protect investors and the public
interest. Specifically, as proposed, primary peg, midpoint peg, and
Discretionary Peg orders as set forth in Rules 11.190(b)(8),
11.190(b)(9), and 11.190(b)(10), respectively, would be ranked and
eligible for execution in the Opening Process at their resting price.
As proposed, primary peg and Discretionary Peg orders would have the
ability to exercise price discretion to execute at the Opening Match
Price. When primary peg and Discretionary Peg orders exercise
discretion to execute at the Opening Match Price, such orders are
prioritized behind all other non-displayed interest at the Opening
Match Price; if multiple orders exercise discretion, they maintain
their relative time priority at the Opening Match Price. Primary peg
orders may exercise price discretion up (down) to the Opening Match
Price, subject to the less aggressive of the NBB (NBO) or the order's
limit price, if any, except during periods of quote instability, as
defined in IEX Rule 11.190(g). Discretionary Peg orders may exercise
price discretion up (down) to the Opening Match Price, subject to the
less aggressive of the Midpoint Price or the order's limit price, if
any, except during periods of quote instability, as defined in IEX Rule
11.190(g). The Exchange believes that inclusion of such orders is
designed to maximize the liquidity available for execution in the
Opening Process, thereby facilitating price discovery and a more
orderly opening.
    As proposed, primary peg, midpoint peg, and Discretionary Peg
orders participate in the Opening Process in a manner that is
fundamentally substantially similar to the behavior of such orders
during continuous trading. Specifically, the manner in which such
orders are eligible for execution in the Opening Process are
functionally identical to their eligibility for execution during
continuous trading. For example, a resting Discretionary Peg

order would exercise discretion up (down) to the less aggressive of the
Midpoint Price or the order's limit price to interact with an incoming
spread crossing order. Similarly, in the Opening Process, a
Discretionary Peg order would exercise discretion up (down) to the
Opening Match Price, subject to the less aggressive of the Midpoint
Price, or the order's limit price to interact contra-side liquidity in
the Opening Process. Accordingly, inclusion of such orders would be in
accord with existing functionality already approved by the Commission
in connection with its grant of IEX's application for registration as a
national securities exchange under Sections 6 and 19 of the Act,
wherein the Commission specifically found IEX's order type rules to be
consistent with the Act and, in particular, the Section 6(b)(5)
requirement that the Exchange's rules be designed to promote just and
equitable principles of trade, remove impediments to and perfect the
mechanisms of a free and open market and a national market system, and
protect investors and the public interest.\18\ Accordingly, the
Exchange does not believe that allowing these orders to participate in
the proposed Opening Process in accordance with their current
functionality raises any new or novel issues that have not already been
considered by the Commission, and is thus consistent with the
protection of investors and the public interest.
---------------------------------------------------------------------------

    \18\ See Securities Exchange Act Release No. 34-78101 at 47
(June 17, 2016), 81 FR 41142 (June 23, 2016) (File No. 10-222).
---------------------------------------------------------------------------

    The Exchange also believes that the proposal is designed 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, because proposed Rule 11.231(d) sets forth an opening
process contingency procedure, which provides a clear and transparent
process designed to provide a means for trading in a non-IEX-listed
security to open in an orderly and timely manner even after a
disruption has prevented the execution of the Opening Process.
Furthermore, the Exchange believes that proposed Rule 11.231(e) is
designed 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 in that the Exchange would
conduct the Opening Process for non-IEX-listed securities that were
subject to and remained in a halt, suspension, or pause in trading at
the commencement of the Opening Process, while still allowing Users to
cancel any queued interest prior to the commencement of the Opening
Process. Applying the proposed Opening Process for securities that open
after the start of Regular Market Hours as a result of a halt,
suspension, or pause in trading provides the greatest opportunity to
match buy and sell orders at a price that is reflective of market
conditions for the security, while also providing for orderly and
timely openings of non-IEX-listed securities, and creating uniformity
among all non-IEX-listed securities by applying a consistent approach
to open trading on IEX in such securities.
    In addition, the Exchange believes that allowing market orders with
a time-in-force of DAY to be entered into the System for queueing in
the Pre-Market session while also allowing such orders to participate
in the Opening Process provides Users with greater control and
flexibility with respect to entering orders, and may simplify the order
entry process for Users. In this regard, Users are able to enter orders
that will either queue on the Cross Book for participation in the
Opening Process, or are eligible for execution in the Pre-Market
Session prior to participating in the Opening Process, which removes
impediments to a free and open market and benefits all Users of the
Exchange. In addition, the Exchange believes that its proposal to make
a minor conforming change to the language used in reference to the LULD
Price Bands in Rule 11.190(a)(1)(2) [sic] in order to conform the
reference to the language used throughout the Exchange's rules is
consistent with the protection of investors and the public interest
because it is designed to provide consistency and clarity in the
Exchange's rules, which benefits all market participants.
    The Exchange is not proposing to disseminate indicative pricing or
imbalance information relating to the Opening Process. The Exchange is
not proposing to disseminate indicative pricing or imbalance
information prior to the Opening Process because the Exchange is not
trying to establish equilibrium in order to determine the official
opening price of the security. Rather, the Opening Process is designed
to efficiently resolve the queue of orders awaiting the Regular Market
Session at a fair price, that reflects the broader market for the
security. Accordingly, the Exchange believes that not providing
indicative pricing or imbalance information related to the Opening
Process is consistent with the protection of investors and the public
interest.\19\
---------------------------------------------------------------------------

    \19\ The Exchange notes that Bats does not provide indicative
pricing or imbalance information for its process for opening non-
listed securities pursuant to Bats Rule 11.24.
---------------------------------------------------------------------------

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. To the contrary, the Exchange
believes that the proposed Opening Process is designed to promote fair
competition among brokers and dealers and among exchange markets by
offering an Opening Process that competes with existing opening
processes for non-listed securities offered by IEX's competitors,
thereby promoting intermarket competition between exchanges in
furtherance of the principles of Section 11A(a)(1).\20\
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------

    With respect to intramarket competition, the proposed Opening
Process will apply equally to all non-IEX-listed securities, and all
Members and market participants that send orders to IEX through
Members. Members are permitted to enter any type of Cross Eligible
Order and there are no privileged participants who receive enhanced
priority, or have access to special order types. Consequently, IEX does
not believe that the proposal will impose any burden on intramarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.

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

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be 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<EMAIL_ADDRESS>Please include
File Number SR-IEX-2017-11 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-IEX-2017-11. 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 Web site (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 Web site 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 such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-IEX-2017-11, and should be
submitted on or before May 19, 2017.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-08575 Filed 4-27-17; 8:45 am]
 BILLING CODE 8011-01-P