[Federal Register Volume 87, Number 199 (Monday, October 17, 2022)]
[Notices]
[Pages 62903-62910]
[FR Doc No: 2022-22447]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96014; File No. SR-IEX-2022-06]

Self-Regulatory Organizations; Investors Exchange LLC; Notice of
Filing of Proposed Rule Change To Amend Rule 11.190(g) To Provide an
Alternative Calculation for Pegged Order Types for Determining Whether
a Quote Instability Condition Exists

October 11, 2022.
    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 27, 2022, the Investors Exchange LLC (``IEX'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    Pursuant to the provisions of section 19(b)(1) under the Act,\3\
and Rule 19b-4 thereunder,\4\ IEX is filing with the Commission a
proposed rule change to amend Rule 11.190(g) to provide an alternative
calculation for pegged order types for determining whether a quote
instability condition exists.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

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

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

1. Purpose
    The purpose of the proposed rule change is to amend Rule 11.190(g)
to provide an alternative quote calculation for pegged order types for
determining whether a quote instability condition exists.
Background
    Currently, as specified in Rule 11.190(g), the Exchange utilizes
quoting activity of eight away exchanges' Protected Quotations \5\ and
a proprietary mathematical calculation to assess the probability of an
imminent change to the current Protected NBB \6\ to a lower price or
imminent change to the current Protected NBO \7\ to a higher price for
a particular security. When the quoting activity meets predetermined
criteria, the System \8\ treats the quote as not stable (``quote
instability'' or a ``crumbling quote'') and the crumbling quote
indicator (``CQI'') is ``on'' at that price level for two milliseconds.
During all other times, the quote is considered stable (``quote
stability''), and the CQI is considered to be ``off''. The System
independently assesses the stability of the Protected NBB and Protected
NBO for each security.
---------------------------------------------------------------------------

    \5\ Each exchange's Protected Quotation is its best displayed
bid or offer. See Rule 1.160(bb). Current Rule 11.190(g) uses the
following eight exchanges' Protected Quotations: New York Stock
Exchange LLC (``XNYS''), the Nasdaq Stock Market LLC (``XNGS''),
NYSE Arca, Inc. (``ARCX''), Nasdaq BX, Inc. (``XBOS''), Cboe BYX
Exchange, Inc. (``BATY''), Cboe Bats BZX Exchange, Inc. (``BATS''),
Cboe EDGA Exchange, Inc. (``EDGA''), and Cboe EDGX Exchange, Inc.
(``EDGX'').
    \6\ See Rule 1.160(cc).
    \7\ See Rule 1.160(cc).
    \8\ See Rule 1.160(nn).
---------------------------------------------------------------------------

    When the CQI is on, Discretionary Peg (``D-Peg'') \9\ orders,
primary peg (``P-Peg'') \10\ orders, and Corporate Discretionary Peg
(``C-Peg'') \11\ orders do not exercise price discretion to meet the
limit price of an active (i.e., taking) order. Specifically, D-Peg, P-
Peg, and C-Peg orders peg to a price that is the less aggressive of one
(1) minimum price variant (``MPV'') \12\ less aggressive than the
primary quote (i.e., one MPV below (above) the NBB \13\ (NBO \14\) for
buy (sell) orders) or the order's limit price, if any.\15\ When the CQI
is on at the NBB (in the case of a buy order) or NBO (in the case of a
sell order), P-Peg orders are restricted by the System from exercising
price discretion to trade at the quote instability determination price
level (the ``CQI Price''), and D-Peg and C-Peg orders are restricted by
the System from exercising price discretion to trade at the CQI Price
or at more aggressive prices than the CQI Price.
---------------------------------------------------------------------------

    \9\ See Rule 11.190(b)(10).
    \10\ See Rule 11.190(b)(8).
    \11\ See Rule 11.190(b)(16). Note that C-Peg orders can only be
buy orders, so any discussion of D-Peg sell orders does not apply to
C-Peg orders.
    \12\ See Rule 11.210.
    \13\ See Rule 1.160(u).
    \14\ See Rule 1.160(u).
    \15\ C-Peg orders are also constrained by the consolidated last
sale price of the security, and therefore cannot trade, book, or
exercise discretion at a price that is more aggressive than the
consolidated last sale price. See Rule 11.190(b)(16).
---------------------------------------------------------------------------

    The manner in which D-Peg orders operate is described in Rule
11.190(b)(10). Specifically, a D-Peg order is a non-displayed, pegged
order whose price, upon entry into the System, is automatically
adjusted by the System to be equal to the less aggressive of the
Midpoint Price \16\ or the order's limit price, if any. When unexecuted
shares of such an order are posted to the Order Book,\17\ the price of
the order is automatically adjusted by the System to be equal to and
ranked at the less aggressive of one (1) MPV less

aggressive than the primary quote or the order's limit price and is
automatically adjusted by the System in response to changes in the NBB
(NBO) for buy (sell) orders up (down) to the order's limit price, if
any. In order to meet the limit price of active orders on the Order
Book, a D-Peg order will exercise the least amount of price discretion
necessary from the D-Peg order's resting price to its discretionary
price (defined as the less aggressive of the Midpoint Price or the D-
Peg order's limit price, if any), except during periods of quote
instability as defined in Rule 11.190(g).
---------------------------------------------------------------------------

    \16\ See Rule 1.160(t).
    \17\ See Rule 1.160(p).
---------------------------------------------------------------------------

    The manner in which P-Peg orders operate is described in Rule
11.190(b)(8). Specifically, a P-Peg order is a non-displayed, pegged
order whose price, upon entry and when posting to the Order Book, is
automatically adjusted by the System to be equal to and ranked at the
less aggressive of one (1) MPV less aggressive than the primary quote
(i.e., the NBB for buy orders and the NBO for sell orders) or the
order's limit price, if any. When unexecuted shares of such an order
are posted to the Order Book, the order is automatically adjusted by
the System in response to changes in the NBB (NBO) for buy (sell)
orders up (down) to the order's limit price, if any. In order to meet
the limit price of active orders on the Order Book, a P-Peg order will
exercise price discretion to its discretionary price (defined as the
primary quote), except during periods of quote instability as defined
in Rule 11.190(g).
    The manner in which C-Peg orders operate is described in Rule
11.190(b)(16). Specifically, a C-Peg order is a non-displayed, pegged
buy order whose price, upon entry into the System, is automatically
adjusted by the System to be equal to the less aggressive of the
Midpoint Price, the consolidated last sale price, or the order's limit
price, if any. When unexecuted shares of such an order are posted to
the Order Book, the price of the order is automatically adjusted by the
System to be equal to and ranked at the less aggressive of one (1) MPV
less aggressive than the primary quote or the order's limit price and
is automatically adjusted by the System in response to changes in the
NBB and the consolidated last sale price up to the order's limit price,
if any. In order to meet the limit price of active orders on the Order
Book, a C-Peg order will exercise the least amount of price discretion
necessary from the C-Peg order's resting price to its discretionary
price (defined as the less aggressive of the Midpoint Price, the
consolidated last sale price, or the C-Peg order's limit price, if
any), except during periods of quote instability as defined in Rule
11.190(g).
    IEX has consistently sought to innovate by offering order types
that counter the costs of ``adverse selection'' that participants
supplying liquidity incur when their orders are executed at worse
prices as a result of certain speed-based trading strategies.
Restricting resting D-Peg, P-Peg, and C-Peg orders from exercising
price discretion during periods of quote instability, as described in
Rule 11.190, is designed to protect such orders from unfavorable
executions at prices that the Exchange's probabilistic model predicts
are about to become ``stale.''
    As proposed, Users \18\ of D-Peg, P-Peg and C-Peg orders will be
able to designate whether the order's price will be adjusted using the
existing quote instability calculation or a new alternative quote
instability calculation. The alternative calculation is designed to
incrementally increase the coverage of the quote instability
calculation in predicting whether a particular quote is unstable by
adjusting the logic underlying the quote instability calculation and
introducing enhanced functionality designed to increase the number of
crumbling quotes identified, while maintaining the quote instability
calculation's accuracy in predicting the direction and timing of the
next price change in the NBB or NBO, as applicable.
---------------------------------------------------------------------------

    \18\ See IEX Rule 1.160(qq).
---------------------------------------------------------------------------

Current Crumbling Quote Calculation
    In determining whether a crumbling quote exists, the Exchange
utilizes real time relative quoting activity of eight exchanges'
Protected Quotations \19\ and a proprietary mathematical calculation
(the ``quote instability calculation'') to assess the probability of an
imminent change to the current Protected NBB to a lower price or
Protected NBO to a higher price for a particular security (``quote
instability factor''). When the quoting activity meets predefined
criteria and the quote instability factor calculated is greater than
the Exchange's defined threshold (``quote instability threshold''), the
System treats the quote as not stable (``quote instability'' or a
``crumbling quote''), which turns the CQI on. During all other times,
the quote is considered stable (``quote stability'') and the CQI is
off. The System independently assesses the stability of the Protected
NBB and Protected NBO for each security.
---------------------------------------------------------------------------

    \19\ See supra note 2. [sic]
---------------------------------------------------------------------------

    Quote instability (i.e., a crumbling quote) is an assessment that
the Exchange System makes on a real-time basis, based on a pre-
determined, objective set of conditions specified in Rule 11.190(g)(1)
during the Regular Market Session.\20\ Specifically, the presence of a
crumbling quote is determined by the System when the quote instability
factor result from the quote stability calculation is greater than the
defined quote instability threshold. As set forth in Rule
11.190(g)(1)(i), this calculation applies ten fixed coefficients to
nine quote stability variables. The quote stability variables are
measures of the status of Protected Quotations of the eight exchanges,
including the number of such Protected Quotations on the near and far
side of the market and the relationship and recent changes thereto. The
quote instability calculation inputs these variables into a formula
comprised of the ten fixed coefficients to determine the quote
instability factor and whether it is greater than the defined quote
instability threshold. The quote stability variables, fixed
coefficients and formula were developed by the Exchange based on
extensive research, analysis and validation to identify when there is a
heightened probability of an imminent quote change to the NBB or NBO.
The Exchange has made incremental changes to optimize and enhance the
effectiveness of the quote instability calculation in determining
whether a crumbling quote exists three times since Exchange launch.\21\
---------------------------------------------------------------------------

    \20\ See IEX Rule 1.160(gg). Quote instability assessments are
only made by the Exchange System during the Regular Market Session
because the order types that utilize the assessment (i.e., D-Peg, P-
Peg and C-Peg orders) are only eligible to trade during the Regular
Market Session.
    \21\ See Securities Exchange Act Release 34-78510 (August 9,
2016), 81 FR 54166 (August 15, 2016) (SR-IEX-2016-11); Securities
Exchange Act Release No. 80202 (March 10, 2017), 82 FR 14058 (March
16, 2017) (SR-IEX-2017-06); and Securities Exchange Act Release No.
83048 (April 13, 2018), 83 FR 17467 (April 19, 2018) (SR-IEX-2018-
07).
---------------------------------------------------------------------------

    When the CQI is on, it remains in effect at that price level (the
``CQI Price'') for two milliseconds, unless a new determination is made
before the CQI turns off. Only one determination may be in effect at
any given time for a particular security (i.e., the System will only
treat one side of the Protected NBBO as unstable in a particular
security at any given time and the CQI can only be on at one price
level).\22\ A new determination may be made after at least 200
microseconds have elapsed since the preceding determination, or a price
change on either side of the best displayed bid or offer of the eight
exchanges used for the current quote instability calculation occurs,
whichever is first. If a new

determination is made, the original determination is no longer in
effect. A new determination can be on either side of the best displayed
bid or offer of the eight exchanges used for the current quote
instability calculation and at the same or different price level as the
original determination.
---------------------------------------------------------------------------

    \22\ See Rule 11.190(g)(1).
---------------------------------------------------------------------------

    Rule 11.190(g)(1)(A)(iii) provides that the Exchange reserves the
right to modify the quote instability coefficients or quote instability
threshold at any time, subject to a filing of a proposed rule change
with the SEC. In this rule filing, the Exchange is proposing to make
such changes by adding an alternative quote instability calculation
approach.
Proposed Alternative Quote Instability Calculation
    IEX periodically reviews the performance of the quote instability
calculation in predicting imminent quote changes, and potential
alternative approaches. Based on that review, IEX identified an
alternative approach that is designed to achieve two related
objectives. First, we sought to increase the ``coverage'' of the CQI,
meaning the percentage of all ``adverse'' NBBO changes per symbol
(lower for bids, higher for offers) that were predicted by the CQI
(meaning the CQI was ``on'' at the time of the adverse NBBO change).
Second, we sought to preserve the ``accuracy rate'' of the CQI, meaning
the percentage of time that the CQI accurately predicted the direction
of the next price change. IEX reviewed market data from March 2022 to
consider these factors.\23\ The analysis indicated that the current CQI
calculation predicted 43% of such adverse NBBO changes on a volume
weighted basis, while the alternative CQI calculation would have
predicted 62% of such adverse NBBO changes. As to the accuracy rate,
the analysis indicated that the CQI had an accuracy rate of 78%, and
the alternative CQI calculation would have had an accuracy rate of 79%.
---------------------------------------------------------------------------

    \23\ Data regarding the proposed alternative approach is based
on comprehensive back testing. Specifically, IEX adjusts TAQ (i.e.,
NYSE Trade and Quote) data by fixed latency offsets per-venue to
simulate market data seen by the IEX system. This simulated data is
used to compute CQI models and evaluate their performance. Using
this process to simulate the current CQI model confirms that
performance estimates are similar to the actual IEX production
system, and applying this process to the proposed model produces the
back testing performance estimates described herein.
---------------------------------------------------------------------------

    Based on informal feedback from Members, IEX understands that
different firms may prefer different levels of coverage, i.e., how
frequently a pegged order refrains from exercising price discretion to
meet the price of an incoming order in response to crumbling quote
predictions. Accordingly, IEX proposes to add the alternative quote
instability calculation approach for determining whether a crumbling
quote exists as an option for Users of pegged orders.
    As described in more detail below, the alternative approach would:
expand the sources and types of market data used, utilize a more plain
English rules-based approach, modify the minimum time period between
quote instability determinations, and include a real-time accuracy
assessment of each rule with the effect of deactivating a rule that is
not meeting specified metrics. In addition, pegged orders would be
restricted from exercising price discretion when the CQI is on,
regardless of whether the current NBB or NBO (as applicable) is the
same as the CQI Price.
    The following describes the proposed alternative approach:
Expanded Sources and Types of Market Data
    The Exchange is proposing to use the Protected Quotations of the
current eight exchanges \24\ in the quote instability calculation, and
to add the Protected Quotations of three additional exchanges: MIAX
PEARL, LLC (``EPRL''), MEMX LLC (``MEMX''), and Nasdaq PHLX LLC
(``XPHL'') (collectively the ``Signal Exchanges''). Additionally, as
detailed below, the Exchange is proposing to use quotation size data
\25\ from the Signal Exchanges, as well as quotation price data, which
is also used in the current approach. In connection with the Exchange's
analysis of market data,\26\ the Exchange considered several different
permutations of which exchanges to include in the model. The analysis
identified that using Protected Quotations from the 11 Signal Exchanges
in the aggregate, as well as adding quotation size data, enhanced the
predictive power of the alternative approach for determining a
crumbling quote.
---------------------------------------------------------------------------

    \24\ Current Rule 11.190(g) uses the following eight exchanges'
Protected Quotations: XNYS; XNGS; ARCX; XBOS; BATY; BATS; EDGA; and
EDGX.
    \25\ All references to quotation size are measured in round lot
multiples.
    \26\ IEX conducted an analysis to develop a model for predicting
crumbling quotes by reviewing market data from randomly selected
days in 2018, 2019, and 2020. This model was validated by testing
across randomly selected days from the same time period, as well as
2021.
---------------------------------------------------------------------------

Use of a Rules-Based System
    As proposed, the alternative model utilizes a quote instability
calculation in which nine separate rules--each with specific conditions
based on either the price, size, or price and size of the Signal
Exchanges' Protected Quotations--can trigger a quote instability
determination for either the NBB or the NBO of a particular
security.\27\ The current quote instability calculation utilizes a
logistic regression model with multiple coefficients and variables that
must exceed a pre-defined threshold in order for the System to treat
the quote as unstable. Based upon the analysis noted above, the
Exchange believes that the proposed alternative rules-based model
(which incorporates and expands on the existing approach) will
incrementally increase the coverage of the Exchange's probabilistic
model for determining whether a crumbling quote will occur at the same
level of precision. In other words, the alternative model is expected
to increase the number of quote instability determinations while
maintaining the same degree of accuracy in predicting the timing and
direction of price changes in the NBB and NBO. The proposed quote
instability rules include four categories of Protected Quotation
changes (each comprised of one or more rules) that IEX has determined
are predictive of whether the NBB or NBO is about to move to a less
aggressive price, as follows:
---------------------------------------------------------------------------

    \27\ The nine rules are designed to work together in determining
whether a quote instability determination is triggered, so if a User
selects the alternative model all nine rules would be applicable.
Users cannot elect that only some of the rules would apply.
---------------------------------------------------------------------------

     Disappearing bids (or offers)--This category includes four
rules that focus on whether one or more of the Signal Exchanges is no
longer disseminating a bid or offer at the Signal Best Bid \28\ or
Signal Best Offer \29\ as applicable; \30\
---------------------------------------------------------------------------

    \28\ ``Signal Best Bid'' means the highest Protected Bid of the
Signal Exchanges. See proposed IEX Rule 11.190(g)(2)(B)(i).
    \29\ ``Signal Best Offer'' means the lowest Protected Offer of
the Signal Exchanges. See proposed IEX Rule 11.190(g)(2)(B)(v).
    \30\ The proposed disappearing bid/offers rules are closely
related to the current approach to the quote instability
calculation, in that both approaches share the Delta quote
instability variable, which is heavily weighted in the current quote
instability calculation. In the current calculation, Delta is
additively incorporated into the logistic formula (after scaling by
its relevant coefficient) whereas in the proposed disappearing bid/
offer rules, specific Delta values are explicitly required for the
relevant rule to be True. See IEX Rule 11.190(g)(1)(A)(i)(b)(9) and
proposed IEX Rule 11.190(g)(2)(B)(x) and (xi), each of which reflect
a count of the number of three specified exchanges that have moved
away from the best near side Protected NBBO of the Signal exchanges,
as specified. IEX expects that the overall behavior of the proposed
disappearing bid/offer rules will be similar to the behavior of the
current approach.
---------------------------------------------------------------------------

     Recent changes in quote size--This category includes two
rules that focus

on whether there is an imbalance in the size of bids and offers at the
Signal Best Bid or Signal Best Offer;
     Locked or crossed market--This category includes one rule
that focuses on situations where the Signal Best Bid and Signal Best
Offer are locked or crossed; and
     Quotation Changes--This category includes two rules that
focus on changes to the Signal Best Bid or Signal Best Offer.
    On a security-by-security basis, if the specified conditions of any
of the quote instability rules are met, then the rule is deemed to be
True for that security. As described in more detail below, each rule
must be active before it can trigger a quote instability determination.
When one or more quote instability rules is deemed to be True and any
of such rules are active, the System will treat the quote as unstable.
The following describes the proposed rules:
     Rule DB1 (DO1) is True if two or
more exchanges among BATS, EDGX, and XNGS have fallen off the Signal
Best Bid (Offer) (i.e., the exchange was at the Signal Best Bid (Offer)
but is no longer at the Signal Best Bid (Offer) ) within the past
millisecond or within the time period since the start of the current
Signal Best Bid (Offer) if shorter.\31\
---------------------------------------------------------------------------

    \31\ Note that rule DB2 (DO2/DB4/DO4) being True logically
implies that rule DB1 (DO1/DB3/DO3) is True. These rules are not
redundant however, since a rule must be both True AND Active to
generate a quote instability determination. It is possible for Rule
DB2 (DO2/DB4/DO4) to be Active while Rule DB1 (DO1/DB3/DO3) is not
Active, so these logical subset rules can add a distinct
contribution to output behavior.
---------------------------------------------------------------------------

     Rule DB2 (DO2) is True if two or
more exchanges among BATS, EDGX, and XNGS have fallen off the Signal
Best Bid (Offer) (i.e., the exchange was at the Signal Best Bid (Offer)
but is no longer at the Signal Best Bid (Offer)) within the past
millisecond or within the time period since the start of the current
Signal Best Bid (Offer) if shorter AND the total notional value of
protected displayed interest at the Signal Best Bid (Offer) is less
than $60,000.
     Rule DB3 (DO3) is True if two or
more exchanges among BATS, EDGX, and XNGS have fallen off the Signal
Best Bid (Offer) (i.e., the exchange was at the Signal Best Bid (Offer)
but is no longer at the Signal Best Bid (Offer)) within the past
millisecond or within the time period since the start of the current
Signal Best Bid (Offer) if shorter AND there is only one Signal
Exchange at the Signal Best Bid (Offer).
     Rule DB4 (DO4) is True if two or
more exchanges among BATS, EDGX, and XNGS have fallen off the Signal
Best Bid (Offer) (i.e., the exchange was at the Signal Best Bid (Offer)
but is no longer at the Signal Best Bid (Offer)) within the past
millisecond or within the time period since the start of the current
Signal Best Bid (Offer) if shorter AND the total notional value of
protected displayed interest at the Signal Best Bid (Offer) is less
than $60,000 AND there is only one Signal Exchange at the Signal Best
Bid (Offer).
     Rule SB1 (SO1) is True if there is
one Signal Exchange at the Signal Best Bid (Offer) AND the Bid (Offer)
Pressure \32\ is greater than or equal to Offer (Bid) Pressure AND the
aggregate total shares displayed at the Signal Best Offer (Bid) is
greater than the aggregate total shares displayed at the Signal Best
Bid (Offer) AND Bid (Offer) Pressure is greater than two.
---------------------------------------------------------------------------

    \32\ See proposed IEX Rules 11.190(g)(2)(B)(xii) and (xiii).
---------------------------------------------------------------------------

     Rule SB2 (SO2) is True if there is
one Signal Exchange at the Signal Best Bid (Offer) AND Bid (Offer)
Pressure is greater than or equal to Offer (Bid) Pressure AND the
aggregate total shares displayed at the Signal Best Offer (Bid) is
greater than the aggregate total shares displayed at the Signal Best
Bid (Offer) AND Bid (Offer) Pressure is greater than one AND the spread
is less than the average of the spread over the past twenty Updates
\33\ to either the Protected Bid or Offer of any Signal Exchange.
---------------------------------------------------------------------------

    \33\ ``Update'' means any change to either the price or size of
any Signal Exchange's Protected Bid or Offer, or a change to the
quote condition (e.g., when the quote becomes slow or non-firm, or
the security is halted).
---------------------------------------------------------------------------

     Rule LB1 (LO1) is True if either of
the following conditions are met: (A) the Signal Best Bid is greater
than or equal to the Signal Best Offer AND the Signal Best Offer (Bid)
is less than (greater than) the Signal Best Offer (Bid) as of the last
Update; OR the Signal Best Bid is greater than or equal to the Signal
Best Offer AND the aggregate total shares displayed at the Signal Best
Offer (Bid) is greater than the aggregate total shares displayed at the
Signal Best Offer (Bid) as of the last Update AND the aggregate total
shares displayed at the Signal Best Offer (Bid) is greater than the
aggregate total shares displayed at the Signal Best Bid (Offer).
     Rule FB1 (FO1) is True if the Signal
Best Bid (Offer) is greater (less) than the Signal Best Bid (Offer) as
of the last Update.
     Rule FB2 (FO2) is True if the Signal
Best Bid (Offer) is less (greater) than the Signal Best Bid (Offer) as
of the last Update.
Time and Direction Constraints on the CQI
    The Exchange proposes three distinct changes for the alternative
model to the time and direction constraints on the CQI in the current
model. These changes are designed to provide a more dynamic methodology
for quote instability determinations, thereby incrementally increasing
the coverage of the formula in predicting a crumbling quote by
expanding the scope of the model to additional situations where the
Exchange's probabilistic model predicts that the NBB or NBO is in the
process of moving to a less aggressive price and is about to become
stale.
    First, the quote instability calculation could turn on concurrently
on both sides of the market (i.e., the NBB and NBO) and always remains
on for the full two millisecond period each time it turns on. In the
current model, the quote instability calculation independently assesses
the stability of the Protected NBB and Protected NBO for each security,
but it can only turn on for one side of the market for each security at
a time. Thus, if the quote instability calculation determines that the
Protected NBB is unstable, the CQI turns on for the NBB. If thereafter
the quote instability calculation determines that the Protected NBO for
that same security is also unstable while the CQI is still on for the
NBB, the System will turn off the CQI for NBB and turn it on for the
NBO. As proposed, the CQI could be on concurrently on the buy and sell
side of the market and will be able to remain on for the full two
millisecond period after turning on because a subsequent determination
on the opposite side of the market will not turn off a prior
determination. While both sides of the market do not frequently crumble
concurrently, IEX nonetheless believes that when they do, providing
corresponding protection to orders on both sides of the market is
appropriate.
    Second, pursuant to the alternative model, when the CQI turns on it
would not be constrained to a specific price level. Currently the CQI
is on at a specific CQI Price, the particular price in effect at the
time it turned on, and if the NBB or NBO (as applicable) changes during
the time it is on, the CQI does not constrain D-Peg, P-Peg, and C-Peg
orders from exercising discretion since the CQI Price is no longer set
by reference to the current NBB or NBO (as applicable).\34\ As
proposed, pursuant to the alternative approach, the CQI will continue
to turn on at a specific price,

but it will restrict D-Peg, P-Peg, and C-Peg orders from exercising
discretion past their resting price when the CQI is on for the same
side of the market as such orders regardless of whether the price at
which it turned on is currently equal to the NBB or NBO (as
applicable). The Exchange also proposes conforming changes to Rules
11.190(b)(8)(K)(i) and (ii), (b)(10)(K)(i) and (ii), and (b)(16)(K) to
reflect this change to D-Peg, P-Peg, and C-Peg orders' behavior if the
User selects the alternative quote instability calculation. Based on
IEX's analysis of market data, as described above, the Exchange has
determined that continuing to restrict D-Peg, P-Peg, and C-Peg orders
from exercising discretion when the CQI is on, even if the CQI Price
has changed, will protect such orders from potential adverse selection
at the new price level.
---------------------------------------------------------------------------

    \34\ See IEX Rules 11.190(b)(8)(K)(i) and (ii), (b)(10)(K)(i)
and (ii), (b)(16)(K).
---------------------------------------------------------------------------

    Third, pursuant to the alternative model, IEX proposes to change
the amount of time the System waits after the CQI turns on before it
can make a new quote instability determination on the same side of the
market from 200 microseconds to 250 microseconds (irrespective of any
change in the Signal Best Bid or Offer). Because pegged orders will be
constrained from exercising price discretion when the CQI is on,
regardless of whether the current NBB or NBO (as applicable) is the
same as the CQI price, CQI triggers in extremely rapid succession are
unnecessary to continuously restrict discretion across successive NBBO
changes. Moreover, increasing the 200 microsecond ``cooldown'' period
to 250 microseconds before the System can make another quote
instability determination is designed to reduce the technical
processing burden on the System.
Activation Values/Activation Thresholds
    As proposed, in applying the alternative approach, consistent with
using a rules-based model instead of a logistic regression model for
the quote instability calculation, the Exchange would maintain an
activation value (``Activation Value'') for each quote instability
rule. Each rule's Activation Value is computed (on a security-by-
security basis for the Bid and Offer side) in real time as a function
of the number of times the quote moves to a less aggressive price
within the two milliseconds (or the start time of the current Signal
Best Bid or Signal Best Offer, as applicable, if shorter) following the
time the rule was True and the total number of times the rule was True.
Whenever the Activation Value for a given rule exceeds a fixed
predetermined activation threshold specific to that rule (``Activation
Threshold''), the rule is active (i.e., it is eligible to trigger a
quote instability determination when True).
    The Activation Value and Activation Threshold computations are
intended to optimize the overall accuracy of the quote instability
determinations by providing a mechanism to turn off a particular rule
when market conditions are such that it is relatively less accurate in
predicting a crumbling quote. IEX believes that utilizing Activation
Thresholds is a useful innovation because it enables the use of rules
that can be highly predictive in certain market conditions but not in
others. The Activation Thresholds are tailored for each rule based on
the rule's expected general accuracy in predicting a crumbling quote,
based on IEX's market data analysis, so that a rule that has a higher
potential to be less accurate has a higher activation threshold burden
to meet. The Activation Thresholds are designed to increase the
coverage for the alternative quote instability calculation by enabling
more frequent triggers than the current approach but with accuracy
controls safeguards.
    As proposed, the Activation Threshold for the DB, DO, SB and SO
rules is 0.30; the Activation Threshold for Rules LB and LO is 0, and
the Activation Threshold for the FB and FO rules is 0.50.\35\ The
Exchange would utilize an initial activation value of 0.50 for all
rules at the start of the Regular Market Session, which is then
modified during the course of the Regular Market Session to reflect
each rule's predictive performance. Specifically, each time a rule is
True \36\ its existing Activation Value is multiplied by a Decay Factor
of 0.94. In addition, each time the Signal Best Bid or Signal Best
Offer moves to less aggressive price within two milliseconds of a rule
being True at that price level, 0.06 will be added to that rule's
existing Activation Threshold (i.e., (1-decay factor) + previous
Activation Value as specified in IEX Rule 11.190(g)(2)(D)(ii).
---------------------------------------------------------------------------

    \35\ Note that the FB/FO rules will not have activation values
strictly above their activation thresholds of 0.5 upon the first
time they are satisfied (they are initialized daily at 0.5 and
multiplied by the decay factor of 0.94 when they are satisfied),
therefore the first time each day that either or both of these rules
is True will not trigger a quote instability determination.
    \36\ Excluding instances where the rule was already True at the
same unchanged price level in the prior two milliseconds.
---------------------------------------------------------------------------

    When a rule is active, the System continues to evaluate if its
Activation Value exceeds its Activation Threshold. If the rule's
Activation Value subsequently does not exceed its Activation Threshold,
the rule will not trigger the System to treat the relevant quote as
unstable even if the rule is True. The System continues to track the
Activation Value for rules that are inactive, and if the Activation
Value subsequently exceeds the rule's Activation Threshold, the System
will reactivate the rule.
    Based on IEX's market data analysis, the Exchange believes that the
use of Activation Thresholds, as proposed, would provide a dynamic
performance evaluation methodology that will optimize the frequency and
accuracy of the quote instability calculation, by enabling IEX to
utilize a broader array of rules that may be predictive of a crumbling
quote in certain market conditions but not others. Moreover, as
proposed all aspects of the activation calculations are fully
transparent in IEX rules thus enabling Members, market participants and
others to perform the same calculations to determine whether a
particular security is subject to a quote instability determination.
Specific Rule Changes
    IEX proposes to make the following changes to Rule 11.190(g) to
specify that there are two alternative proprietary mathematical
calculations (Option 1 and Option 2) to assess the probability of an
imminent change to the current Protected NBB to a lower price or a
Protected NBO to a higher price for a particular security:
     Add new language to the introductory section of Rule
11.190(g) after the phrase ``Quote Stability'' at the beginning of the
Rule specifying that the Exchange utilizes two User Selected
alternative proprietary mathematical calculations to assess the
probability of an imminent change to the current Protected NBB to a
lower price or a Protected NBO to a higher price for a particular
security.
     Add language immediately following the new language
described in the preceding bullet and prior to the existing text
stating that ``[f]or Option 1, as set forth in subparagraph (1) of Rule
11.190(g),''.
     Add a new paragraph after the current first paragraph
providing introductory language describing Option 2 and specifying that
Option 2 is set forth in subparagraph (2) of Rule 11.190(g).
     Add ``Option 1'' prior to ``Crumbling Quote'' in the
heading to subparagraph (1) of Rule 11.190(g).
     Relocate and revise subparagraph (1)(A)(iii) of Rule
11.190(g) with new subparagraph (3) of Rule 11.190(g) which makes
clarifying changes to the terminology in current subsection

(1)(A)(iii) of Rule 11.190(g), which specifies that the Exchange
reserves the right to modify the quote instability coefficients or
quote instability threshold at any time, subject to a filing of a
proposed rule change with the SEC. IEX proposes to revise the rule
provision to reference ``the proprietary mathematical calculations used
to assess the probability of an imminent change to the current
Protected NBB to a lower price or a Protected NBO to a higher price for
a particular security'' rather than existing references to ``the quote
instability coefficients or quote instability threshold.'' Current
language that provides that such changes are ``subject to a filing of a
proposed rule change with the SEC'' would be retained. In addition, IEX
proposes to renumber this subsection to be subsection (3) of Rule
11.190(g).
     Add new subparagraph (2) (including subparagraphs) of Rule
11.190(g) to describe the alternative quote instability model and refer
to such model as ``Option 2 Crumbling Quote''.
    The Exchange also proposes to make conforming changes to Rules
11.190(b)(8)(K)(i) and (ii) (``P-Peg''), (b)(10)(K)(i) and (ii) (``D-
Peg''), and (b)(16)(K) (``C-Peg'') to reflect differences in whether
the System will restrict applicable orders from exercising price
discretion when the CQI is on. Specifically, if the User selected the
existing quote instability model (Option 1), D-Peg, P-Peg, and C-Peg
orders will be restricted from exercising discretion while the CQI is
on for the same side of the market if the current NBB/NBO (as
applicable) is the same as the NBB/NBO that the quote instability
determination was based on. If the User selected the alternative quote
instability model (Option 2), D-Peg, P-Peg, and C-Peg orders will be
restricted from exercising discretion while the CQI is on for the same
side of the market, even if the current NBB/NBO (as applicable) is
different than the NBB/NBO upon which the quote instability
determination was based. In addition, the Exchange proposes to make a
conforming change to Rule 11.190(b)(7) to reflect that only Option 1
will be applicable to Discretionary Limit orders.
Implementation
    The Exchange will announce the implementation date of the proposed
rule change by Trading Alert at least ten business days in advance of
such implementation date and within 90 days of effectiveness of this
proposed rule change.
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with
section 6(b) \37\ of the Act in general, and furthers the objectives of
section 6(b)(5) of the Act,\38\ in particular, in that it is designed
to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system and, in general, to protect investors and the
public interest. Specifically, and as discussed in the Purpose section,
the proposal is designed to provide an alternative quote instability
approach for pegged orders that is designed to make more frequent
predictions while maintaining a similar true positive ratio as the
existing approach. Based on informal feedback from Members, IEX
understands that different firms prefer different levels of coverage
with respect to the CQI and its impact on pegged orders exercising
price discretion to meet the price of an incoming order. The
alternative quote instability approach is responsive to that feedback
and would provide additional coverage to Users of D-Peg, P-Peg and C-
Peg orders, i.e., as discussed in the Purpose section, it would result
in more frequent predictions and thereby increase the circumstances in
which the order would not exercise discretion.
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78f.
    \38\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes it is consistent with the protection of
investors and the public interest to provide an alternative quote
instability calculation model that is designed to protect pegged orders
from potential unfavorable executions during periods of quote
instability when the Exchange's probabilistic model identifies that the
market appears to be moving adversely to them. IEX believes that the
alternative approach, in the aggregate and with respect to the specific
changes proposed, is rigorously sound, supported by market data
analysis, and consistent with the Act as described below.
    The Exchange believes that it is consistent with the Act to expand
the sources and types of market data used by the quote instability
calculation. As described in the Purpose section, based on market data
analysis and testing, the Exchange believes that using the market data
of three additional exchanges, and using quotation size data (in
addition to quotation price data) of all eleven Signal Exchanges, will
result in robust predictive power and accuracy of the quote instability
calculation.
    The Exchange also believes that it is consistent with the Act to
utilize a rules-based model to determine whether a crumbling quote will
occur. As discussed in the Purpose section, based on market data
analysis, the Exchange believes that the nine proposed quote
instability rules--each with specific conditions based on either the
price, size, or price and size of the Signal Exchange's Protected
Quotations--will result in robust predictive power and accuracy of the
Exchange's alternative probabilistic model for determining whether a
crumbling quote will occur by expanding the scope of the model to
additional situations where the Exchange's probabilistic model predicts
that the NBB or NBO is about to become stale. IEX believes that this
proposed change will potentially enhance the protection available to
market participants using pegged order types that elect to use the
alternative model. Moreover, IEX believes that the alternative quote
instability calculation, as a plain English rules-based system, will be
more readily understood by market participants, thereby increasing the
transparency of IEX's rules and removing impediments to a free and open
market.
    The Exchange further believes that it is consistent with the Act to
restrict D-Peg, P-Peg, and C-Peg orders from exercising price
discretion when the alternative quote instability calculation model is
on for the same side of the market as the order regardless of the
triggering price. As discussed in the Purpose section, based on market
data analysis, the Exchange believes that continuing to restrict D-Peg,
P-Peg, and C-Peg orders from exercising discretion when the CQI is on
even if the CQI Price has changed will protect such orders from
potential adverse selection at new price levels resulting from
consecutive closely timed price moves as the market ``settles'' at a
new price level.
    Additionally, the Exchange believes that it is consistent with the
Act to change the time and direction constraints on the alternative
quote instability calculation model. As discussed in the Purpose
section, these differences--keeping the CQI on for a full two
millisecond period every time it turns on and allowing the CQI to turn
on concurrently on both sides of the market (i.e., the NBB and NBO)--
are designed to incrementally increase the coverage of the alternative
quote instability calculation model in predicting a crumbling quote by
increasing the duration of time in which the CQI is on. Based on market
data analysis, the Exchange believes these changes to the CQI's time
and direction constraints will increase the coverage of quote
instability determinations.

    The Exchange additionally believes that it is consistent with the
protection of investors and the public interest to extend by 50
microseconds the ``cooldown'' period before the System can make another
quote instability determination (extending it from 200 microseconds to
250 microseconds). As discussed in the Purpose section, based on market
data analysis, because pegged orders will be constrained from
exercising price discretion when the CQI is on regardless of whether
the current NBB or NBO (as applicable) is the same as the CQI price,
CQI triggers in extremely rapid succession are unnecessary to
continuously restrict discretion across successive NBBO changes.
Moreover, increasing the ``cooldown'' period before the System can make
another quote instability determination is designed to reduce the
technical processing burden on the System thereby supporting the
resiliency of the Exchange and removing impediments to and perfecting
the mechanism of a free and open market and a national market system.
    The Exchange also believes that using activation thresholds instead
of a quote stability threshold is consistent with the Act because the
activation thresholds are designed to enable broader coverage while
controlling for overall accuracy of the quote instability
determinations by providing a mechanism to turn off a particular rule
when market conditions are such that it is relatively less accurate in
predicting a crumbling quote. Based upon market data analysis, IEX
believes that utilizing activation thresholds is a useful innovation
because it enables the use of rules that can be highly predictive in
certain market conditions but not in others. The activation thresholds
are tailored for each rule based on the rule's general accuracy in
predicting a crumbling quote so that a rule that has a higher potential
to be less accurate has a higher activation threshold burden to meet.
    The Exchange believes that it is consistent with the protection of
investors and the public interest to offer an alternative User selected
quote instability calculation model for pegged orders. As discussed in
the Purpose section and above, IEX understands that different market
participants seek differing levels of coverage with respect to the CQI
and its impact on when a pegged order exercises price discretion to
meet the price of an incoming order. The proposed rule change is
designed to provide a market-based approach to such differing
objectives in a manner that is transparent to market participants.
Moreover, IEX's market data analysis evidences that both quote
instability calculations will be ``on'' for a small portion of the
trading day while providing robust protection to pegged orders.
    The Exchange believes that the proposed rule change may result in
more and larger sized pegged orders being entered on IEX as a result of
the ability to select the quote instability calculation alternative
which, as discussed above, is designed to provide greater coverage with
respect to the CQI and its impact on pegged orders exercising price
discretion to meet the price of an incoming order. To the extent more
orders are entered, the increased liquidity would benefit all IEX
members and their customers.
    Regardless of whether a User selects to use the current or proposed
alternative quote instability calculation, when multiple pegged orders
exercise discretion at the same time, their relative priority is
retained.\39\ Thus, the Exchange notes that the proposed rule change
does not raise any new or novel issues in this regard.
---------------------------------------------------------------------------

    \39\ See IEX Rule 11.190(b)(8), (10) and (16).
---------------------------------------------------------------------------

    Furthermore, the Exchange notes that all Members are eligible to
use D-Peg, P-Peg, and C-Peg orders, and therefore all Members are
eligible to benefit from these order types' protections against adverse
selection, and will also benefit if use of the alternative quote
instability calculation bring more liquidity to the Exchange. Thus, the
Exchange believes that application of the rule change is equitable and
not unfairly discriminatory.
    Further, the Exchange believes that the proposed changes (as
described in the Purpose section) to relocate and revise subparagraph
(1)(A)(iii) of Rule 11.190(g) with new subparagraph (3) of Rule
11.190(g) and to make clarifying changes to the terminology in current
subsection (1)(A)(iii) of Rule 11.190(g), which specifies that the
Exchange reserves the right to modify the quote instability
coefficients or quote instability threshold at any time, subject to a
filing of a proposed rule change with the SEC are consistent with the
Act. The proposed changes merely update terms and descriptive language
to describe both alternative quote instability calculations, and
without changing the operative language that any future changes would
continue to be subject to a filing of a proposed rule change with the
SEC.
    The Exchange also believes that the proposed conforming rule
changes, as described in the Purpose section are consistent with the
Act because the changes would promote clarity in IEX's rules.
    Finally, the Exchange notes that, as proposed, both quote
instability calculations will continue to be fixed formulas specified
transparently in IEX's rules. The Exchange is not proposing to add any
new functionality, but merely to provide an alternative quote
instability calculation for pegged orders based on market data analysis
designed to increase its accuracy in predicting a crumbling quote, and
as contemplated by the rule.

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, as discussed
in the Statutory Basis section, the proposal is designed to enhance
IEX's competitiveness by incentivizing the entry of increased
liquidity.
    With regard to intra-market competition, the proposed changes to
the quote instability calculation will apply equally to all Members on
a fair, impartial and nondiscriminatory basis without imposing any new
burdens on the Members. The Commission has already considered the
Exchange's D-Peg order type in connection with its grant of IEX's
application for registration as a national securities exchange under
sections 6 and 19 of the Act \40\ and approved the Exchange's P-Peg
\41\ order type. The Commission has also allowed the Exchange's C-Peg
\42\ order type to become effective. As discussed in the Purpose and
Statutory Basis sections, the proposed rule change is designed to
merely provide an optional alternative quote instability calculation;
therefore, no new burdens are being proposed.
---------------------------------------------------------------------------

    \40\ See Securities Exchange Act Release 78101 (June 17, 2016),
81 FR 41142 (June 23, 2016) (File No. 10-222).
    \41\ See Securities Exchange Act Release No. 80223 (March 13,
2017), 82 FR 14240 (March 17, 2017) (SR-IEX-2016-18).
    \42\ See Securities Exchange Act Release No. 87019 (September
19, 2019), 84 FR 50485 (September 25, 2019) (SR-IEX-2019-10).
---------------------------------------------------------------------------

    With regard to inter-market competition, other exchanges are free
to adopt similar quote instability calculations. In this regard, the
Exchange notes that that NYSE American LLC has adopted a rule copying
an earlier iteration of the Exchange's Discretionary Peg Order type and
quote instability calculation.\43\
---------------------------------------------------------------------------

    \43\ See NYSE American LLC Rule 7.31E(h)(3)(D).

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

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 up to 90 days of such
date (i) as the Commission may designate 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 protected]. Please include
File Number SR-IEX-2022-06 on the subject line.

Paper Comments:

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

All submissions should refer to File Number SR-IEX-2022-06. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street, NE, Washington,
DC 20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal offices 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-2022-06, and should be submitted on
or before November 7, 2022.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\44\
---------------------------------------------------------------------------

    \44\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-22447 Filed 10-14-22; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 76, Number 236 (Thursday, December 8, 2011)]
[Notices]
[Pages 76781-76783]
[FR Doc No: 2011-31485]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65876; File No. SR-BX-2011-078]

 Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Routing Fees for BX

December 2, 2011.
    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 November 22, 2011, NASDAQ OMX BX, Inc. (the ``Exchange'' or
``BX'') 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 Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    BX is filing with the Commission a proposed rule change to modify
pricing for BX members using the NASDAQ OMX BX Equities System. The new
pricing will take effect immediately. The text of the proposed rule
change is available at BX's principal office, at http:/
nasdaqomxbx.cchwallstreet.com/, at the Commission's Public Reference
Room, and at http://www.sec.gov.

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 Exchange 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 Exchange 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 purpose of the proposed rule change is to adopt fees applicable
to the new routing services on the NASDAQ OMX BX Equities Market.\3\ BX
has a pricing model under which members are charged for the execution
of quotes/orders posted on the BX book (i.e., quotes/orders that
provide liquidity), while members receive a rebate for orders that
access liquidity; this is not changing. The proposed fees, because they
apply to routed orders, will apply only to orders executed at venues
other than the NASDAQ OMX BX Equities Market.
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 65470 (October 3, 2011),
76 FR 62489 (October 7, 2011) (SR-BX-2011-048).
---------------------------------------------------------------------------

    BX proposes to amend BX Rule 7018(a) to adopt fees for the
execution of routed orders in securities priced at $1 or more per share
and BX Rule 7018(b) to adopt fees for routing of securities priced at
less than $1 per share. In BX Rule 7018(a), the charges depend on both
where the order was executed and the order's routing strategy, which is
similar to NASDAQ Rule 7018(a).\4\ The different routing strategies,
BSTG,\5\ BSCN,\6\ BMOP,\7\ BTFY \8\ and BCRT,\9\ are defined in BX Rule
4758 and correlate to some of the routing strategies of NASDAQ, as
explained below. The proposed BX routing fees are the same as or less
than NASDAQ's, which is also explained further below.\10\
---------------------------------------------------------------------------

    \4\ Similar to the fees proposed here, NASDAQ bases the charge
on the type of routing strategy employed and where the order was
executed, because routing fees are generally intended to the recoup
the cost of routing the order to another venue for execution.
However, unlike BX, NASDAQ also bases its routing fees on where the
security is listed. This is not a significant difference because the
proposed fees include a separate charge for execution on the NYSE.
    \5\ See BX Rule 4758(a)(1)(A)(iii).
    \6\ See BX Rule 4758(a)(1)(A)(iv).
    \7\ See BX Rule 4758(a)(1)(A)(vi).
    \8\ See BX Rule 4758(a)(1)(A)(v).
    \9\ See BX Rule 4758(a)(1)(A)(vii).
    \10\ Pursuant to a November 28, 2011 conference call with
Commission staff, Edith Hallahan,
    Principal Associate General Counsel, the NASDAQ OMX Group, Inc.,
confirmed that the proposed BX routing fees are the same as (not
less than) NASDAQ's existing routing fees.
---------------------------------------------------------------------------

    Respecting BSTG and BSCN orders, the charge is $0.0023 per share
executed at NYSE and $0.0030 per share executed at venues other than
NYSE. Respecting NASDAQ's comparable STGY and SCAN orders,\11\ this
charge is the same for shares executed on NYSE and also the same as
what NASDAQ charges for routed executions at other venues in NASDAQ-
listed securities, NYSE-listed securities and for securities listed on
exchanges other than NASDAQ or NYSE ($0.0030 per share).\12\ The
Exchange believes that charging the same routing fees as NASDAQ should
attract users to its new routing program.
---------------------------------------------------------------------------

    \11\ See NASDAQ Rule 4758(a)(1)(A)(iii) and (iv).
    \12\ For NASDAQ-listed securities, there is no separate, lower
fee for orders executed at NYSE, because NASDAQ-listed securities do
not trade on NYSE and thus would not route there.
---------------------------------------------------------------------------

    Respecting BMOP orders, the charge is $0.0025 per share executed at
NYSE and $0.0035 per share executed at venues other than NYSE. This is
the same as what NASDAQ charges for its comparable MOPP orders,\13\
which is, following the format of the NASDAQ fee schedule: (i) for
NASDAQ-listed securities, $0.0035 per share; (ii) for NYSE-listed
securities, $0.0035 per share executed at venues other than NYSE or
$0.0025 per share executed at NYSE; and (iii) for securities listed on
exchanges other than NASDAQ or NYSE, $0.0035 per share. The Exchange
has determined that this is the appropriate charge to attract BMOP
orders to BX.
---------------------------------------------------------------------------

    \13\ See NASDAQ Rule 4758(a)(1)(A)(vi).
---------------------------------------------------------------------------

    Respecting BTFY orders, the charge is $0.0022 per share executed at
NYSE and $0.0005 per share executed at venues other than NYSE, NASDAQ
or PSX. For orders that execute at PSX, BX will pass through all fees
assessed and rebates offered by PSX and for orders that execute at
NASDAQ, BX will pass through all fees assessed and rebates offered by
NASDAQ. BX, PSX and NASDAQ are affiliates. This is the same as what
NASDAQ charges for its comparable TFTY orders,\14\ which is $0.0022 per
share executed at NYSE and $0.0005 per share executed at venues other
than NYSE, BX or PSX, regardless of where the security is listed. For
orders that execute at BX, NASDAQ gives a credit of $0.0014 for orders
that

remove liquidity at BX, which is the equivalent of a pass through of BX
fees, because BX currently provides a credit of $0.0014 for executions
on BX.\15\ Accordingly, BTFY fees are the same as TFTY fees. Pass
through fees are intended to recover costs without specifying what
those costs are, because the applicable fees may be lengthy and
dependent on various factors, and thereby difficult to replicate, even
in an affiliated exchange's fee schedule. In addition, pass through
fees are useful because they can keep pace with changes in the fees
being passed through without extensive changes to the fee schedule.
---------------------------------------------------------------------------

    \14\ See NASDAQ Rule 4758(a)(1)(A)(v).
    \15\ See BX Rule 7018(a) (Credit for entering order that
accesses liquidity).
---------------------------------------------------------------------------

    Respecting BCRT orders, for orders that execute at PSX, BX will
pass through all fees assessed and rebates offered by PSX and for
orders that executed at NASDAQ, BX will pass through all fees assessed
and rebates offered by NASDAQ; PSX and NASDAQ are affiliates of BX.\16\
NASDAQ similarly passes through all fees assessed and rebates offered
respecting orders routed to PSX (its affiliates) for its comparable
CART \17\ orders executed on PSX. With respect to BX, NASDAQ gives a
credit of $0.0014 for orders that remove liquidity at BX; this is the
equivalent of a pass through of BX fees, because the BX fee schedule
currently provides a credit of $0.0014 for executions on BX.\18\
---------------------------------------------------------------------------

    \16\ BCRT orders can only execute on BX, PSX or NASDAQ. See BX
Rule 4758(a)(1)(A)(vii).
    \17\ See NASDAQ Rule 4758(a)(1)(A)(xi).
    \18\ See BX Rule 7018(a) (Credit for entering order that
accesses liquidity).
---------------------------------------------------------------------------

    Respecting securities prices at less than $1 executed at a venue
other than BX, BX proposes to amend BX Rule 7018(b) to adopt a charge
of 0.3% of the total transaction cost. This is the same as what NASDAQ
charges for orders that route and execute at an away market,\19\ which
the Exchange believes is reasonable.
---------------------------------------------------------------------------

    \19\ See NASDAQ Rule 7018(b).
---------------------------------------------------------------------------

2. Statutory Basis
    BX believes that the proposed rule change is consistent with the
provisions of Section 6 of the Act,\20\ in general, and with Section
6(b)(4) of the Act,\21\ in particular, in that it provides for the
equitable allocation of reasonable dues, fees and other charges among
members and issuers and other persons using any facility or system
which BX operates or controls. The new routing fees are reasonable
because they seek to recoup the cost of the execution on the other
venue, which is generally borne by the order router and, ultimately,
the routing exchange. In particular, pass through fees, as proposed
herein for BTFY and BCRT orders executed on NASDAQ and BX, are
structured to recoup routing costs. The Exchange does not believe that
the proposed pass through of such fees for orders routed to and
executed at NASDAQ or BX should create any inappropriate incentives or
raise any novel regulatory issues. The pass through proposed herein
applies to exchanges affiliated with the Exchange, NASDAQ and PHLX,
which BX believes is reasonable and currently exists in NASDAQ Rule
7018(a).
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78f.
    \21\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The proposed fees mimic the routing fee structure in effect on
NASDAQ for some time.\22\ The fees for BSCN, BSTG and BMOP are the same
on BX as for SCAN, STGY and MOPP on NASDAQ. With respect to BTFY and
BCRT, these are the same as TFTY and CART on NASDAQ with respect to a
pass through of charges and credits from executions at PSX. TFTY and
CART executions at BX receive a credit of $0.0014, which is equivalent
to the charge on BX for removing liquidity and is thereby the same as a
pass through of BX charges. Accordingly, the proposed pass through of
fees for BTFY and BCRT with respect to executions at NASDAQ, although
it would not result in a credit of $0.0014, is still the same, because
the pass through charge will be NASDAQ's charge for removing liquidity.
---------------------------------------------------------------------------

    \22\ See NASDAQ Rule 7018.
---------------------------------------------------------------------------

    BX also believes that the proposed routing fees are equitable. All
similarly situated members are subject to the same fee structure, and
access to BX is offered on fair and non-discriminatory terms.
Specifically, the same routing fee, credit or pass through fee applies
to any participant and does not differ based on user type (e.g.,
customer or broker-dealer).
    Furthermore, the new routing fees are reasonable and equitable in
that the decision to use send routable orders and to use BX as a router
is entirely voluntary; members can avail themselves of numerous other
means of directing orders to other venues, including becoming members
of those markets or using any of a number of competitive routing
services offered by other exchanges and brokers.

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

    BX 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, as amended. Because the market
for order execution and routing is extremely competitive, members may
readily opt to disfavor BX's execution and routing services if they
believe that alternatives offer them better value. For this reason and
the reasons discussed in connection with the statutory basis for the
proposed rule change, BX does not believe that the proposed fees will
impair the ability of members or competing order execution venues to
maintain their competitive standing in the financial markets.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or 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) of the Act.\23\ 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 to determine whether the
proposed rule should be approved or disapproved.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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-BX-2011-078 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2011-078. 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 a.m. and 3 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; 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-BX-2011-078 and should be submitted on or before
December 29, 2011.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-31485 Filed 12-7-11; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 83, Number 232 (Monday, December 3, 2018)]
[Rules and Regulations]
[Pages 62250-62251]
[FR Doc No: 2018-26112]

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

DEPARTMENT OF HOMELAND SECURITY

Coast Guard

33 CFR Part 117

[Docket No. USCG-2018-1033]

Drawbridge Operation Regulation; South Branch of the Elizabeth
River, Chesapeake, VA

AGENCY: Coast Guard, DHS.

ACTION: Notice of deviation from drawbridge regulation.

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

SUMMARY: The Coast Guard has issued a temporary deviation from the
operating schedule that governs the Norfolk Southern #7 Railroad Bridge
across the South Branch of the Elizabeth River, mile 5.8, at
Chesapeake, VA. The deviation is necessary to facilitate maintenance.
This deviation allows the bridge to remain in the closed-to-navigation
position.

DATES: This deviation is effective without actual notice from December
3, 2018 through 5 p.m. on December 13, 2018. For the purposes of
enforcement, actual notice will be used from 7 a.m. on November 26,
2018, until December 3, 2018.

ADDRESSES: The docket for this deviation, [USCG-2018-1033] is available
at http://www.regulations.gov. Type the docket number in the ``SEARCH''
box and click ``SEARCH''. Click on Open Docket Folder on the line
associated with this deviation.

FOR FURTHER INFORMATION CONTACT: If you have questions on this
temporary deviation, call or email Mr. Martin Bridges, Bridge
Administration Branch Fifth District, Coast Guard; telephone (757) 398-
6422, email [email protected].

SUPPLEMENTARY INFORMATION: The Norfolk Southern Corporation, owner and
operator of the Norfolk Southern #7 Railroad Bridge across the South
Branch of the Elizabeth River, mile 5.8, at Chesapeake, VA, has
requested a temporary deviation from the current operating schedule to
accommodate bridge maintenance to perform a tie replacement project.
The current operating regulation is set out in 33 CFR 117.997(d).
    Under this temporary deviation, the bridge will be maintained in
the closed-to-navigation position from 7 a.m. to 11:30 a.m. and from
12:30 p.m. to 5 p.m., Monday through Thursday, from November 26, 2018,
through December 13, 2018. At all other times the bridge will operate
per 33 CFR 117.997(d). The bridge has a vertical clearance of 7 feet
above mean high water in the closed position.
    The South Branch of the Elizabeth River is used by a variety of
vessels including deep draft ocean-going vessels, U.S. government
vessels, small commercial vessels, recreational vessels and tug and
barge traffic. The Coast Guard has carefully considered the nature and
volume of vessel traffic on the waterway and coordinated with maritime
stakeholders in publishing this temporary deviation.
    Vessels able to pass through the bridge in the closed position may
do so, after providing 15 minutes notice to the project supervisor at
the bridge on VHF-FM channel 13. The bridge will be able to open for
emergencies if at least a 1-hour notice is given and there is no
immediate alternate route for vessels unable to pass through the bridge
in the closed position. The Coast Guard will also inform the users of
the waterways

through our Local and Broadcast Notice to Mariners of the change in
operating schedule for the bridge so that vessel operators can arrange
their transits to minimize any impact caused by this temporary
deviation.
    In accordance with 33 CFR 117.35(e), the drawbridge must return to
its regular operating schedule immediately at the end of this effective
period of this temporary deviation. This deviation from the operating
regulations is authorized under 33 CFR 117.35.

    Dated: November 27, 2018.
Hal R. Pitts,
Bridge Program Manager, Fifth Coast Guard District.
[FR Doc. 2018-26112 Filed 11-30-18; 8:45 am]
 BILLING CODE 9110-04-P