[Federal Register Volume 84, Number 236 (Monday, December 9, 2019)]
[Notices]
[Pages 67302-67304]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-26409]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87647; File No. SR-IEX-2019-13]
Self-Regulatory Organizations: Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
Rule 11.380 To Expand the Exchange's Optional Aggregate Risk Controls
Mechanism To Include a Net Notional Exposure Risk Check in Addition to
the Gross Notional Exposure Risk Check
December 3, 2019.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on November 27, 2019, the Investors Exchange LLC (``IEX'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Pursuant to the provisions of Section 19(b)(1) under the Act,\4\
and Rule 19b-4 thereunder,\5\ IEX is filing with the Commission a
proposed rule change to amend Rule 11.380 to offer an optional net
notional exposure risk check to Members and their clearing firms as
part of the Exchange's Aggregate Risk Controls mechanism. The Exchange
has designated this rule change as non-controversial under Section
19(b)(3)(A) of the Act \6\ and provided the Commission with the notice
required by Rule 19b-4(f)(6)(iii) thereunder.\7\
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\4\ 15 U.S.C. 78s(b)(1).
\5\ 17 CFR 240.19b-4.
\6\ 15 U.S.C. 78s(b)(3)(A).
\7\ 17 CFR 240.19b-4(f)(6)(iii).
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The text of the proposed rule change is available at the Exchange's
website at www.iextrading.com, at the principal office of the Exchange,
and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statement may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in Sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 11.380 to offer an optional net
notional exposure risk check to Members and their clearing firms as
part of the Exchange's Aggregate Risk Controls (``ARC'') mechanism.
Rule 11.380, entitled Risk Management, describes the Exchange's current
optional ARC mechanism that is designed to assist IEX Members \8\ and
their clearing firms in their risk management efforts. IEX does not
charge a fee for use of the ARC mechanism. As described in the rule,
the ARC mechanism currently can be configured to provide trading limits
based on the gross notional exposure for matched and
[[Page 67303]]
routed trades for a Member or clearing firm's broker correspondent
across MPIDs, by MPID, by FIX session or in combination, per clearing
firm relationship or Member, as applicable (``Gross Notional
Exposure''). Once the Gross Notional Exposure, as elected and
configured by a Member or its clearing firm, has exceeded the pre-
determined limit, IEX will automatically reject new orders and cancel
all open orders for the applicable MPID(s) and/or FIX session
specified. Further, the Gross Notional Exposure risk control may be
increased or decreased on an intra-day basis by a Member or the
clearing firm of a Member, as applicable. As specified in paragraph
(a)(2)(A) of Rule 11.380, Gross Notional Exposure is calculated as the
absolute sum of the notional value of all buy and sell trades (i.e.,
equal to the value of executed buys plus the absolute value of executed
long sells plus the absolute value of executed short sells). There is
no netting of buys and sales in the same symbol or across symbols. And
the Gross Notional Exposure resets for each new trading day.
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\8\ See Rule 1.160(s).
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IEX proposes to revise the rule to provide Members or the clearing
firms of Members with an additional option of configuring an ARC
trading limit on the net notional exposure for matched and routed
trades for a Member or clearing firm's broker correspondent across
MPIDs, by MPID, by FIX session or in combination, per clearing firm
relationship or Member as applicable (``Net Notional Exposure''). IEX
notes that other exchanges offer their members the option of a risk
control based upon the member's net notional exposure.\9\ As proposed,
once the Net Notional Exposure, as elected and configured by a Member
or its clearing firm, has exceeded the pre-determined limit, IEX will
automatically reject new orders and cancel all open orders for the
applicable MPID(s) and/or FIX session specified. However, just as with
the existing Gross Notional Exposure risk control, the proposed new Net
Notional Exposure risk control may be increased or decreased on an
intra-day basis by a Member or the clearing firm of a Member, as
applicable. As specified in the proposed new paragraph (a)(2)(B) of
Rule 11.380, Net Notional Exposure will be calculated as the absolute
net sum of the notional value of all buy and sell trades (i.e., equal
to the value of executed buys minus the absolute value of executed long
sells minus the absolute value of executed short sells). Netting will
be calculated across all symbols. And, as with Gross Notional Exposure
risk controls, the proposed Net Notional Exposure risk control would
reset for each new trading day.
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\9\ See e.g., Nasdaq Stock Market (``Nasdaq'') Rule 6130; Cboe
BZX Exchange, Inc. (``Cboe'') Rule 11.13 Interpretations and
Policies .01(h); see also New York Stock Exchange LLC (``NYSE'')
Technology FAQ and Best Practices: Equities (November 2019) Section
5.7, available at https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Group_Equities_Technology_FAQ.pdf.
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Under the proposed rule change, Members or their clearing firms, if
they choose to avail themselves of IEX's ARC mechanism, may elect to
configure the ARC mechanism to accumulate and specify a limit or limits
on either the Gross Notional Exposure, the newly-offered Net Notional
Exposure, or both (collectively defined in the proposed new rule as the
``ARC Limit'').\10\
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\10\ In the case of a Member that is subject to ARC Limits set
by its clearing firm, the Member will be advised of such limits by
IEX. In the event a Member that is subject to ARC Limits set by its
clearing firm also elects to set ARC Limits for its own trading, the
Exchange will apply both such limits with the lower of the ARC
Limits being applicable since it will trigger first.
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IEX believes that adding a Net Notional Exposure risk control to
its existing ARC mechanism will enhance the risk management tools
available to IEX Members. The Exchange notes, however, that use of an
ARC Limit by a Member or the clearing firm of a Member does not
automatically constitute compliance with IEX rules or SEC rules, nor
does it replace Member-managed and clearing firm-managed risk
management solutions. The Exchange does not propose to require Members
or their clearing firms to use the ARC mechanism, and Members and their
clearing firms may use any other appropriate risk-management tool or
service instead of, or in combination with, IEX's ARC mechanism. The
Exchange will not provide preferential treatment to Members or clearing
firms using IEX's ARC mechanism, nor will the use of the ARC mechanism
impact a Member's or clearing firm's use of IEX other than when it
results in orders being rejected or cancelled pursuant to the ARC
Limit. In addition, IEX will continue to provide the ARC mechanism to
Members and clearing firms without charge.
2. Statutory Basis
IEX believes that the proposed rule change is consistent with the
provisions of Sections 6(b) \11\ of the Act in general, and furthers
the objectives of Section 6(b)(5) \12\ of the Act, in particular, in
that it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest by enhancing the risk management protections available
to Exchange Members and their clearing firms. The Exchange believes
that the proposed rule change supports these objectives because it is
designed to enable all IEX Members an additional option for how to
manage and limit their own trading exposure (whether on the basis of
the Member's Gross Notional Exposure, Net Notional Exposure, or both)
on IEX, in addition to enabling clearing firms an additional option to
monitor their correspondent Members' trading exposure as well as their
own trading exposure (whether on the basis of the clearing firm's Gross
Notional Exposure, Net Notional Exposure, or both), including by intra-
day increases or decreases in the limits.
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\11\ 15 U.S.C. 78f.
\12\ 15 U.S.C. 78f(b)(5).
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Further, the Exchange believes that the proposed rule change is
consistent with the protection of investors and the public interest
because it provides an additional mechanism to enable IEX Members and
clearing firms of IEX Members to manage their risk by preventing
trading that exceeds a Member's, or clearing firm of a Member's,
financial resources on a net notional basis (as well as the currently
available gross notional basis risk control), and thereby contributes
to the stability of the equities markets. Thus, the Exchange believes
the addition of a Net Notional Exposure risk control offers Members and
their clearing firms an important compliance tool that Members and
their clearing firms may use to help maintain the regulatory integrity
of the markets.
The Exchange notes that other exchanges' rules provide for similar
functionality, as discussed in the Purpose section, and accordingly IEX
does not believe that the proposed rule change raises any new or novel
issues not already considered by the Commission.\13\
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\13\ See supra note 9.
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In addition, the Exchange believes that the proposal is consistent
with just and equitable principles of trade and not unfairly
discriminatory because the ARC mechanism is available to all IEX
Members and their clearing firms without charge.
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
[[Page 67304]]
necessary or appropriate in furtherance of the purposes of the Act. The
proposal is designed to expand the Exchange's existing, optional, ARC
mechanism by adding a new Net Notional Exposure risk control as
described in the Purpose section. The Exchange is not proposing to
charge any fee for use of any aspect of its ARC mechanism, which as
proposed, is available to all Members and clearing firms of Members
without charge. The Exchange does not believe the proposed rule change
will impose any burden on intermarket competition because other
exchanges offer similar functionality.\14\ The Exchange also does not
believe that the proposal will impose an burden on intramarket
competition because it is available to all Members, and clearing firms
of Members, and provides a mechanism to enable IEX Members and clearing
firms to manage their risk by preventing trading that is erroneous or
exceeds a Member's or clearing firm's financial resources, thereby
contributing to the stability of the equities markets. Accordingly, the
Exchange does not believe that this proposal will have any impact on
competition.
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\14\ See supra note 9.
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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
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \15\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
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\15\ 15 U.S.C. 78s(b)(3)(A)(iii).
\16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of 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.
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-2019-13 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-2019-13. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-IEX-2019-13 and should be submitted on
or before December 30, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-26409 Filed 12-6-19; 8:45 am]
BILLING CODE 8011-01-P