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Federal Register / Vol. 86, No. 22 / Thursday, February 4, 2021 / Notices POP and from the order book to the system routing logic; 13 iii further describe, without alteration, how the Exchange handles incoming routable orders, and specify that the 350
microseconds of latency on inbound communications from the routing logic to the order book is in addition to the inbound latency on communications from the POP to the system; 14 iv refine references to POP throughout the rule such that they refer to connectivity at the POP or the connectivity infrastructure between the system and the POP, as appropriate; 15 v add explanatory cross references to provisions within the rule; 16 and vi make non-substantive grammatical revisions.17
III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.18 In particular, the Commission finds that the proposed rule change is consistent with Section 6b5 of the Act,19 which requires, among other things, that the rules of a national securities exchange be 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, and not be designed to permit unfair discrimination between customers, issuers, brokers or dealers; and with Section 6b8 of the Act,20 which requires that the rules of a national securities exchange not impose any burden on competition that is not necessary or appropriate.
IEXs coil delay on outbound order execution messages and proprietary market data, which has been in place since IEX became a registered national securities exchange in 2016, was designed to help IEX members avoid potential information leakage in connection with an execution on IEX
13 See
proposed Rule 11.510a and 11.510c1.
proposed Rule 11.510c1.
15 See proposed Rule 11.510.
16 See proposed Rule 11.510b, 11.510c3A, and Supp. .02.
17 See proposed Rule 11.510.
18 In approving this proposed rule change, the Commission has considered the proposed rules impact on efficiency, competition, and capital formation. See 15 U.S.C. 78cf.
19 15 U.S.C. 78fb5.
20 15 U.S.C. 78fb8.

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that could reduce their ability to access liquidity on other markets after trading on IEX.21 Since 2016, however, various technological developments, including the widespread availability of improved smart order routing techniques that take into account transmission latency in coordinating simultaneous order arrival and execution times across multiple trading venues, have greatly reduced the potential for information leakage when sweeping the market, thus mitigating the utility of IEXs outbound coil delay to IEX users.22 In addition, SIP latencies have decreased materially since 2016, effectively nullifying the purpose of the coil delay on IEX proprietary data since market participants currently can receive SIP data faster than IEX
proprietary data.23
Against this backdrop, the Exchange asserts that the considerations that existed in 2016 for imposing the coil delay on its outbound order execution messages and proprietary data have been superseded by developments in the market and are now outweighed by the benefits that would be provided by the proposalin particular, enhancement of members ability to manage risk and market exposure through receipt of execution messages and IEX market data closer in time to when executions or quote changes occur.24 The Exchange also states that the proposal would enable other exchanges to update their pegged orders faster, and enable other exchanges affiliated routing brokers to more quickly incorporate executions on IEX
into their routing decisions.25
Importantly, IEXS the Exchanges affiliated routing broker and all other IEX members will remain on equal footing in that they will experience the same 37 microseconds of latency on their receipt of IEX order execution 21 See Notice, supra note 3, at 8198384. By contrast, the inbound coil delay, which is not affected by this proposal, is designed to enable IEX
to more effectively manage and price orders resting on its book when the market moves. Id. at 81983.
22 Id. at 8198386; see also Securities Exchange Act Release No. 89686 August 26, 2020, 85 FR
54438, 54441 September 1, 2020.
23 See Notice, supra note 3, at 81984 and n.25
noting that, at the time of IEXs exchange launch in September 2016 the average latencies for quote messages was 470 microseconds for the CQ Plan and 762 microseconds for the UTP Plan, and for trade messages was 320 microseconds for the CTA
Plan and 619.7 microseconds for the UTP Plan; see also www.utpplan.com stating that current median latency is approximately 13.014.2 microseconds;
www.ctaplan.com stating that current median latency is under 17 microseconds for quotes and under 18 microseconds for trades; and compare current Rule 11.150b2 stating that the POP is currently designed to provide 350 microseconds of latency on IEX proprietary market data.
24 See Notice, supra note 3, at 8198486.
25 Id. at 81986.

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messages and proprietary market data.
As a result, IEXS will have no informational or time advantageor resulting competitive advantageover any other IEX member.26 Also, due to the equivalent reduction in the latency attendant to both outbound execution messages and IEX proprietary market data, parties to an execution on IEX will not receive information regarding the execution prior to other market participants, and thus will have no informational or time advantageor resulting competitive advantageover members who receive IEX proprietary data but are not parties to the execution.
For these reasons, the Commission believes that the proposal is not designed to permit unfair discrimination, consistent with Section 6b5 of the Act, and would not impose any inappropriate or unnecessary burden on competition, consistent with Section 6b8 of the Act.
In addition, permitting the Exchange to modernize its infrastructure in a way that will better enable its members to manage risk and market exposure without inhibiting their ability to capture liquidity when routing orders to multiple market venues is consistent with the Section 6b5 goals of promoting just and equitable principles of trade, removing impediments to and perfecting the mechanism of a free and open market and a national market system, and protecting investors and the public interest. These goals also will be furthered by the proposal to the extent that other exchanges are better able to manage their own resting orders and routing processes through faster receipt of order messages and proprietary data from IEX. This potential effect on other exchanges, coupled with the fact that no other exchange currently imposes an artificial delay on outbound order execution messages or proprietary market data,27 also support the conclusion that the proposal will not impose any inappropriate or unnecessary burden on competition, 26 IEX will sequence the necessary systems changes to implement this proposed rule change in two steps, the first occurring for IEX users and the second for IEXS, thus ensuring that IEXs system routing logic is not preferenced over other users during implementation. Id. at 81985. After step one and before step two, while all outbound communications from the order book to the routing logic would continue to be subject to an equivalent 350 microseconds of latency, outgoing messages i.e., responses from the routing logic to users with respect to routable orders sent to IEX would be subject to the proposed reduced outbound latency of 37 microseconds. Id. at 81985 n.29. During this intervening period IEXS also would be able to receive IEX proprietary market data subject to the same 37 microseconds of latency as other members and data recipients. Id.
27 Id. at 81986.

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