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IEX Announces: Anti-Internalization Enhancements

IEX Trading Alert #2014 - 008

Please Route To: Trading and Trade Support

What you need to know:

  • IEX announces enhancements to Anti-Internalization functionality.
  • The enhancements will provide Subscribers utilizing Anti-Internalization with more flexibility and customization options.
  • The enhancements will be made available for Principal orders starting Friday, May 16th and made available for all orders starting Monday, June 2nd.

What is Anti-Internalization?

As announced in Trading Alert #2013-005, Anti-Internalization is an elective setting provided to IEX Subscribers to assist them in preventing potentially non-compliant self-match trades.

In situations when two orders from a Broker Subscriber subject to Anti-Internalization would match, the older of the orders is automatically cancelled.

What are the enhancements to Anti-Internalization?

There are two categories of enhancements: (I) Subscriber configurations and (II) compatibility with IEX Broker Priority.

I. Subscriber Configurations

Subscribers may elect to turn Anti-Internalization On or Off as a global setting. An Anti-internalization Group ID (AGID) is then used to tag a Subscriber’s order subject to Anti-Internalization, and can be set by either by the Subscribers or by IEX Market Operations (by using a default setting).

When Anti-Internalization is turned On, IEX Market Operations can help you configure the following default settings:

  • 1. Subscribers choose which grouping of orders will be subject to Anti-Internalization:
    • a. Across a Broker (Analogous to "by CRD#"): all orders sent by a Broker Subscriber, regardless of MPID, may be subject to Anti-Internalization.
    • b. Across all MPIDs or select MPIDs belonging to a Broker Subscriber: orders belonging to each MPID may be subject to Anti-Internalization. However, orders between MPIDs are able to interact even if subject to Anti-Internalization within that MPID.
    • c. By FIX session or sessions belonging to a Broker Subscriber.
  • 2. Subscribers may elect all Principal orders as subject to Anti-Internalization
  • 3. Alternatively Subscribers may elect no default setting, and may mark each order with the necessary AGID for complete control over Anti-Internalization.

Subscriber Populated AGID:

  • 1. An AGID may be added by the Subscriber to specify custom groups of orders that are subject to Anti-Internalization.
    • a. Please note: if orders across MPIDs containing the same AGID should be subject to Anti-Internalization, set the Grouping to Broker (see 1a above).
  • 2. If a Subscriber wishes to exclude any single order from the default behavior, thus allowing it to match with any other order from that Subscriber, IEX will support a "free-to-trade" identifier ("--") in the AGID field.
    • a. If Anti-Internalization is turned On with no default capacity, leaving the AGID field blank will produce the same result.
  • 3. If the Subscriber populates the AGID field on an order when Anti-Internalization is Off, it will be ignored.

II. Compatibility with IEX Broker Priority

When a Subscriber’s AGID-defined order tests against the IEX Book (the “active” order), the Subscriber’s own resting AGID-defined orders will not rise to the top of the queue as normal, but rather will stay on the book in their pre-existing time priority (all of this assuming the same price of course).

If the active order reaches orders with an enforceable AGID, Anti-Internalization cancels the older order, and the active order continues to test against the IEX Book as normal.

Broker Priority functionality is described on page 16 of our Form ATS.

Compatibility with other core ATS Functionality

Compatibility with MQTY and IEX Book Recheck remains unchanged, but is delineated as follows, for reference:

  • 1. Compatibility with Minimum Quantity (MQTY):
    • a. In the event an active AGID-defined order has a MQTY or FOK designation, IEX will determine satisfaction of the size requirement as normal without excluding any resting AGID-defined orders from the same Subscriber which would be cancelled under IEX Anti-Internalization.
    • b. There is also the case where the active order may be cancelled under Anti-Internalization, including before the MQTY size has been satisfied, see Book Recheck below.
  • 2. Compatibility with IEX Book Recheck:
    • a. In the event that an active (rechecking) AGID-defined order is older than a resting order with the same AGID, the older active order will be cancelled at the time it reaches the resting order in the course of IEX Book Priority as described above.

Why are these enhancements being made?

IEX is making these enhancements to provide flexibility, customization and control for Broker Subscribers with complex and discrete customer and broker self-match prevention needs.

What do I need to do?

Please contact IEX Market Operations at 646.568.2330 to enable and customize your Anti-Internalization settings. If your Firm does not require Anti-Internalization, no action is required.

Where can I learn more?

About IEX

Dedicated to institutionalizing fairness in the markets, IEX provides a more balanced marketplace via simplified market structure design and cutting-edge technology. IEX operates a fair-access platform accessible by any qualified broker dealer. IEX is driven by a team of cross-industry experts with backgrounds spanning market venues, electronic trading, and broker-dealers. IEX is the first equity trading venue seeded exclusively by a consortium of buy-side investors, including mutual funds, hedge funds, and family offices. Learn more at: iextrading.com.