Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Rule 717, 61795-61797 [2010-25068]
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Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices
and for members to determine, the types
of information that should or should not
be encrypted under the rule.’’ 27 FINRA
believes that the suggested alternatives
would be more costly than the proposal
and believes the proposal ‘‘further
supports compliance with the laws in
some jurisdictions.’’ 28
Seven commenters believed that the
proposal was difficult or costly to
implement.29 For example, some
commenters believe that small firms
lack the technical experience to
implement the proposal and may have
to hire third parties.30 One commenter
suggested an exception when
information is provided directly to
FINRA staff or on the FINRA
premises.31 FINRA questioned the
burden on members ‘‘given the
availability of web-based encryption
solutions currently available at low- or
no-cost.’’ 32 FINRA noted that ‘‘members
may be subject to various data
protection laws that are in part the
impetus’’ of the proposal.33 FINRA
stated that it would ‘‘help educate its
members about the process of
encryption’’ and would ‘‘endeavor to
provide information regarding various
options for encrypting data, including
low- or no-cost web-based encryption
software.’’ 34
Three commenters suggested that the
proposed requirement to use an
encryption method that ‘‘meets industry
standards for strong encryption’’ is too
vague and suggested alternatives such as
providing members with the specific
method of encryption.35 FINRA
acknowledged that, as proposed, the
rule does not mandate a specific method
of encryption.36 However, FINRA
believes that this standard, which it
stated is ‘‘identical to that employed by
Massachusettes and Nevada,’’ is
necessary to ‘‘adapt to changing
technology regarding encryption.’’ 37
FINRA stated that it does not believe
that it is ‘‘appropriate at this time to
dictate a ‘one size fits all’ approach’’ to
encryption.38 As designed, this
requirement will allow each member to
27 Id.
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28 Id.
29 See Abel/Noser Letter, Great Nation Letter,
NAIBD Letter, PSE Letter, Triad Letter I, Triad
Letter II, and Wulff Hansen Letter.
30 See, e.g., Great Nation Letter, NAIBD Letter,
and PSE Letter.
31 See Wulff Hansen Letter.
32 See FINRA Letter.
33 Id.
34 Id.
35 See NAIBD Letter, PSE Letter, and Great Nation
Letter.
36 See FINRA Letter.
37 Id.
38 Id.
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19:00 Oct 05, 2010
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choose an appropriate method of
encryption that works for it.39
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
association.40 In particular, the
Commission finds that the proposed
rule change is consistent with the
provisions of Section 15A(b)(6) of the
Act,41 which requires, among other
things, that FINRA rules be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest.
The Commission believes that the
proposed rule change is reasonably
designed to ensure that information
provided to FINRA on a portable media
device in response to Rule 8210 is
secure. FINRA has represented that this
requirement is necessary to address
laws in some jurisdictions that establish
safeguards for personal information and
records. The Commission also notes
FINRA’s representation that there are
low- or no-cost ways to encrypt files and
that it will help educate its members
about the process of encryption and
meeting their obligations under the rule.
Although the Commission recognizes
that the proposed rule change does not
mandate a specific encryption method,
the Commission believes that some
flexibility is appropriate to allow for
changes in technology and for members
to choose encryption methods that meet
their needs. Finally, the Commission
believes that the fact that information
produced to it in other forms, such as
paper-based forms, for which there is no
comparable means of protecting the
information from unwanted disclosure,
should not preclude the protection of
information that can be protected.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19b(2) of the Act,42 that the
proposed rule change (SR–FINRA–
2010–021) be, and hereby is, approved.
40 In approving this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition and capital formation. See
15 U.S.C. 78c(f).
41 15 U.S.C. 78o–3(b)(6).
42 15 U.S.C. 78s(b)(2).
Frm 00104
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.43
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–25067 Filed 10–5–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63017; File No. SR–ISE–
2010–95]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change Amending Rule 717
September 29, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 21, 2010, the International
Securities Exchange, LLC (the
‘‘Exchange’’ or the ‘‘ISE’’) 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 Exchange. The Exchange has
filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 3 and Rule 19b–4(f)(6)
thereunder.4 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend to
amend [sic] ISE Rule 717 (Limitations
on Orders) to eliminate some of its
restrictions. The text of the proposed
rule change is available on the
Exchange’s Web site https://
www.ise.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
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
39 Id.
PO 00000
61795
Fmt 4703
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43 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
1 15
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61796
Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices
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 Exchange is proposing to amend
Rule 717(b) in order to eliminate some
of its restrictions. First, Rule 717(b)
currently provides that an Electronic
Access Member (‘‘EAM’’), acting either
as principal or agent, may not enter
orders in the same options series, for the
account or accounts of the same or
related beneficial owner(s), in such a
manner that the EAM or the beneficial
owner(s) effectively is operating as a
market maker by holding itself out as
willing to buy and sell such options
contracts on a regular or continuous
basis. The Exchange is proposing that
these restrictions be amended to only be
applicable to Priority Customer Orders 5
(i.e., non-broker-dealer orders) and not
Professional Orders 6 (as described
below), since such Priority Customer
Orders have priority at any price over
bids and offers of Professional Orders.7
5 See
ISE Rule 100(37B).
Order’’ means an order that is for
the account of a person or entity that is not a
Priority Customer. See ISE Rule 100(37C).
7 The Exchange notes that the Commission has
previously found that it is consistent with the Act
for an options exchange not to prohibit a user of its
market from effectively operating as a market maker
by holding itself out as willing to buy and sell
options contracts on a regular or continuous basis
without registering as a market maker. See
Securities Exchange Act Release No. 57478 (March
12, 2008), 73 FR 14521 (March 18, 2008) (SR–
NASDAQ–2007–004) (Order approving, among
other things, a proposed rule change to establish
rules governing the trading of options on NASDAQ
Options Market (‘‘NOM’’)).
The Exchange notes that in the order approving
a Chicago Board Options Exchange (‘‘CBOE’’) rule
change to amend its rules prohibiting members
from functioning as market makers, the Commission
stated that any entity that acts as a ‘‘dealer,’’ as
defined in Section 3(a)(5) of the Act, 15 U.S.C.
78c(a)(5), would be required to register with the
Commission under Section 15 of the Act, 15 U.S.C.
78o, and the rules and regulations thereunder, or
qualify for any exception or exemption from
registration. Activity that may cause a person to be
deemed a dealer includes ‘‘ ‘quoting a market in or
publishing quotes for securities (other than quotes
on one side of the market on a quotations system
generally available to non-broker-dealers, such as a
retail screen broker for government securities).’ ’’
See Definitions of Terms in and Specific
Exemptions for Banks, Savings Associations, and
Savings Banks Under Sections 3(a)(4) and 3(a)(5) of
the Securities Exchange Act of 1934, Securities
Exchange Act Release No. 47364, 68 FR 8686, 8689,
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6 ‘‘Professional
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19:00 Oct 05, 2010
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Rule 717(b) was adopted to limit the
ability of EAMs that are not market
makers to compete on preferential terms
within ISE’s automated systems.
Because Priority Customer Orders are
provided with certain benefits, such as
priority of bids and offers, the Exchange
continues to believe that Priority
Customer Orders should be subject to
the Rule’s restrictions. However,
because Priority Orders 8 are not subject
to any priority that is any better than
market makers, the Exchange no longer
believes it is necessary to impose the
Rule’s restrictions on the entry of
broker-dealer orders. Similarly, because
Voluntary Professionals are not subject
to priority that is any better than market
makers, we do not believe it is necessary
to impose the Rule’s restrictions on
Voluntary Professionals.9
note 26 (February 24, 2003) (quoting OTC
Derivatives Dealers, Securities Exchange Act
Release No. 40594 (October 23, 1998), 63 FR 59362,
59370, note 61 (November 3, 1998)). See [sic]
Securities Exchange Act Release No. 59701 (April
3, 2009), 74 FR 16247 (April 9, 2009). The
Commission notes that the immediately preceding
citation (Notice of filing and immediate
effectiveness of SR–ISE–2009–15) is incorrect. The
correct citation should be to Securities Exchange
Act Release No. 59700 (April 2, 2009), 74 FR 16246
(April 9, 2009) (order approving SR–CBOE–2009–
009).
8 The Commission notes ISE incorrectly stated
that ‘‘Priority Orders are not subject to any priority
that is any better than market makers * * *.’’ The
Commission believes that the term ‘‘Priority Orders’’
in the above-referenced sentence should be
replaced with the term ‘‘Professional Orders.’’ See
Securities Exchange Act Release No. See Securities
Exchange Act Release No. 59287 (January 23, 2009),
74 FR 5964 (January 30, 2009) (SR–ISE–2006–26)
(order approving ISE proposal to create Priority
Customer and Professional order types).
9 The Exchange notes that this rule change would
only eliminate the restrictions of Rule 717(b) in the
manner proposed. Members would continue to
remain subject to the requirements of Rule 408
(which requires Members to establish, maintain and
enforce written policies and procedures reasonably
designed, taking into consideration the nature of
such Member’s business, to prevent the misuse of
material, nonpublic information by such Member or
persons associated with such Member),
Supplementary Material .02 to Rule 400 (which
may consider it conduct inconsistent with just and
equitable principles of trade for any person
associated with a Member who has knowledge of
all material terms and conditions of (i) an order and
a solicited order; (ii) an order being facilitated; or
(iii) orders being crossed; the execution of which
are imminent, to enter, based on such knowledge,
an order to buy or sell an option for the same
underlying security as any option that is the subject
of the order, or an order to buy or sell the security
underlying such class, or an order to buy or sell any
related instrument until (a) the terms of the order
and any change in the terms of the order of which
the person associated with the Member has
knowledge are disclosed to the trading crowd, or (b)
the trade can no longer reasonably be considered
imminent in the view of the passage of time since
the order was received); Rule 717(d) (which state
that EAMs may not execute as principal orders they
represent as agent unless (i) agency orders are first
exposed on the Exchange for at least one (1) second,
(ii) the EAM has been bidding or offering on the
Exchange for at least one (1) second prior to
PO 00000
Frm 00105
Fmt 4703
Sfmt 4703
Second, in those instances where the
restrictions are applicable, Rule 717(b)
currently provides that, in determining
whether an EAM or beneficial owner
effectively is operating as a market
maker, the Exchange will consider,
among other things, the simultaneous or
near-simultaneous entry of limit orders
to buy and sell the same options
contract; the multiple acquisition and
liquidation of positions in the same
options series during the same day; and
the entry of multiple limit orders at
different prices in the same options
series. The Exchange is proposing to
remove the condition pertaining to the
multiple acquisition and liquidation of
positions from its list of factors used for
determining whether a beneficial owner
is operating as a market maker. In light
of the proliferation of day trading
activity and the fact that such a
prohibition does not exist on other
markets,10 the Exchange no longer
believes that this activity should be
considered a factor in determining
whether an EAM or beneficial owner is
effectively acting as a market maker.
2. Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act 11 in general, and
furthers the objectives of Section 6(b)(5)
of the Act 12 in particular, because it is
designed to prevent fraudulent and
manipulative acts and practices, and 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. The
proposed changes should contribute to
the Exchange’s ability to maintain a fair
and orderly market in a manner that
will limit unfair advantage and
encourage competition. Specifically,
because broker-dealer orders are not
subject to priority on the ISE that is any
receiving an agency order that is executable against
such bid or offer, (iii) the Member utilizes the
Facilitation Mechanism pursuant to Rule 716(d), or
(iv) the Member utilizes the Price Improvement
Mechanism for Crossing Transactions pursuant to
Rule 723); and Rule 717(e) (which states that EAMs
may not execute orders they represent as agent on
the Exchange against orders solicited from Members
and non-member broker-dealers to transact with
such orders unless (i) the unsolicited order is first
exposed on the Exchange for at least one (1) second,
(ii) the Member utilizes the Solicited Order
Mechanism pursuant to Rule 716(e), (iii) the
Member utilizes the Facilitation Mechanism
pursuant to Rule 716(d) or (iv) the Member utilizes
the Price Improvement Mechanism for Crossing
Transactions pursuant to Rule 723).
10 See note 7 and Securities Exchange Act Release
No. 59700 (April 2, 2009), 74 FR 16246 (April 9,
2009) (SR–CBOE–2009–009).
11 15 U.S.C. 78f (b) [sic].
12 15 U.S.C. 78f (b)(5) [sic].
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Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices
better than market makers, the Exchange
does not believe it is necessary to
impose the Rule’s restrictions on the
entry of broker-dealer orders. The
Exchange believes that the elimination
of these restrictions will permit entities
other than market makers to enter orders
on both sides of the market more freely,
resulting in more orders on the ISE book
and therefore increase liquidity on the
ISE market, all to the benefit of
investors.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The proposed rule change does not
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
members or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not significantly affect the
protection of investors or the public
interest, does not impose any significant
burden on competition, and, by its
terms, does not 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) 13 of the Act and Rule 19b–
4(f)(6) 14 thereunder. The Exchange
provided the Commission with written
notice of its intent to file the proposed
rule change, along with a brief
description and text of the proposed
rule change, at least five business days
prior to the date of filing the proposed
rule change.
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.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
U.S.C. 78s(b)(3)(A).
14 17 CFR 240.19b–4(f)(6).
19:00 Oct 05, 2010
Jkt 223001
BILLING CODE 8010–01–P
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–ISE–2010–95 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–ISE–2010–95. This file
number should be included on the
subject line if e-mail 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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission,15 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, 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–ISE–2010–95 and should be
submitted on or before October 27,
2010.
PO 00000
Frm 00106
Fmt 4703
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–25068 Filed 10–5–10; 8:45 am]
Electronic Comments
15 The text of the proposed rule change is
available on the Commission’s Web site at https://
www.sec.gov/rules/sro.shtml.
13 15
VerDate Mar<15>2010
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:
61797
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63022; File No. SR–
NASDAQ–2010–116)]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Modify
Nasdaq’s Order Routing Rule
September 30, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1, and Rule 19b–4 2 thereunder,
notice is hereby given that on
September 27, 2010, The NASDAQ
Stock Market LLC (‘‘Nasdaq’’) filed with
the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I and II, which Items have been
prepared by Nasdaq. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Nasdaq is filing a proposal for the
NASDAQ Options Market (‘‘NOM’’ or
‘‘Exchange’’) to modify Chapter VI,
Section 11 of the NOM rules, to add a
new order routing option and to assign
a name to the existing routing option.
The text of the proposed rule change
is available from Nasdaq’s Web site at
https://nasdaq.cchwallstreet.com, at
Nasdaq’s principal office, 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
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
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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]]>Agencies
[Federal Register Volume 75, Number 193 (Wednesday, October 6, 2010)]
[Notices]
[Pages 61795-61797]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-25068]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63017; File No. SR-ISE-2010-95]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change Amending Rule 717
September 29, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on September 21, 2010, the International Securities Exchange, LLC
(the ``Exchange'' or the ``ISE'') 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 Exchange. The Exchange has filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend to amend [sic] ISE Rule 717
(Limitations on Orders) to eliminate some of its restrictions. The text
of the proposed rule change is available on the Exchange's Web site
https://www.ise.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 Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed
[[Page 61796]]
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 Exchange is proposing to amend Rule 717(b) in order to
eliminate some of its restrictions. First, Rule 717(b) currently
provides that an Electronic Access Member (``EAM''), acting either as
principal or agent, may not enter orders in the same options series,
for the account or accounts of the same or related beneficial owner(s),
in such a manner that the EAM or the beneficial owner(s) effectively is
operating as a market maker by holding itself out as willing to buy and
sell such options contracts on a regular or continuous basis. The
Exchange is proposing that these restrictions be amended to only be
applicable to Priority Customer Orders \5\ (i.e., non-broker-dealer
orders) and not Professional Orders \6\ (as described below), since
such Priority Customer Orders have priority at any price over bids and
offers of Professional Orders.\7\
---------------------------------------------------------------------------
\5\ See ISE Rule 100(37B).
\6\ ``Professional Order'' means an order that is for the
account of a person or entity that is not a Priority Customer. See
ISE Rule 100(37C).
\7\ The Exchange notes that the Commission has previously found
that it is consistent with the Act for an options exchange not to
prohibit a user of its market from effectively operating as a market
maker by holding itself out as willing to buy and sell options
contracts on a regular or continuous basis without registering as a
market maker. See Securities Exchange Act Release No. 57478 (March
12, 2008), 73 FR 14521 (March 18, 2008) (SR-NASDAQ-2007-004) (Order
approving, among other things, a proposed rule change to establish
rules governing the trading of options on NASDAQ Options Market
(``NOM'')).
The Exchange notes that in the order approving a Chicago Board
Options Exchange (``CBOE'') rule change to amend its rules
prohibiting members from functioning as market makers, the
Commission stated that any entity that acts as a ``dealer,'' as
defined in Section 3(a)(5) of the Act, 15 U.S.C. 78c(a)(5), would be
required to register with the Commission under Section 15 of the
Act, 15 U.S.C. 78o, and the rules and regulations thereunder, or
qualify for any exception or exemption from registration. Activity
that may cause a person to be deemed a dealer includes `` `quoting a
market in or publishing quotes for securities (other than quotes on
one side of the market on a quotations system generally available to
non-broker-dealers, such as a retail screen broker for government
securities).' '' See Definitions of Terms in and Specific Exemptions
for Banks, Savings Associations, and Savings Banks Under Sections
3(a)(4) and 3(a)(5) of the Securities Exchange Act of 1934,
Securities Exchange Act Release No. 47364, 68 FR 8686, 8689, note 26
(February 24, 2003) (quoting OTC Derivatives Dealers, Securities
Exchange Act Release No. 40594 (October 23, 1998), 63 FR 59362,
59370, note 61 (November 3, 1998)). See [sic] Securities Exchange
Act Release No. 59701 (April 3, 2009), 74 FR 16247 (April 9, 2009).
The Commission notes that the immediately preceding citation (Notice
of filing and immediate effectiveness of SR-ISE-2009-15) is
incorrect. The correct citation should be to Securities Exchange Act
Release No. 59700 (April 2, 2009), 74 FR 16246 (April 9, 2009)
(order approving SR-CBOE-2009-009).
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Rule 717(b) was adopted to limit the ability of EAMs that are not
market makers to compete on preferential terms within ISE's automated
systems. Because Priority Customer Orders are provided with certain
benefits, such as priority of bids and offers, the Exchange continues
to believe that Priority Customer Orders should be subject to the
Rule's restrictions. However, because Priority Orders \8\ are not
subject to any priority that is any better than market makers, the
Exchange no longer believes it is necessary to impose the Rule's
restrictions on the entry of broker-dealer orders. Similarly, because
Voluntary Professionals are not subject to priority that is any better
than market makers, we do not believe it is necessary to impose the
Rule's restrictions on Voluntary Professionals.\9\
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\8\ The Commission notes ISE incorrectly stated that ``Priority
Orders are not subject to any priority that is any better than
market makers * * *.'' The Commission believes that the term
``Priority Orders'' in the above-referenced sentence should be
replaced with the term ``Professional Orders.'' See Securities
Exchange Act Release No. See Securities Exchange Act Release No.
59287 (January 23, 2009), 74 FR 5964 (January 30, 2009) (SR-ISE-
2006-26) (order approving ISE proposal to create Priority Customer
and Professional order types).
\9\ The Exchange notes that this rule change would only
eliminate the restrictions of Rule 717(b) in the manner proposed.
Members would continue to remain subject to the requirements of Rule
408 (which requires Members to establish, maintain and enforce
written policies and procedures reasonably designed, taking into
consideration the nature of such Member's business, to prevent the
misuse of material, nonpublic information by such Member or persons
associated with such Member), Supplementary Material .02 to Rule 400
(which may consider it conduct inconsistent with just and equitable
principles of trade for any person associated with a Member who has
knowledge of all material terms and conditions of (i) an order and a
solicited order; (ii) an order being facilitated; or (iii) orders
being crossed; the execution of which are imminent, to enter, based
on such knowledge, an order to buy or sell an option for the same
underlying security as any option that is the subject of the order,
or an order to buy or sell the security underlying such class, or an
order to buy or sell any related instrument until (a) the terms of
the order and any change in the terms of the order of which the
person associated with the Member has knowledge are disclosed to the
trading crowd, or (b) the trade can no longer reasonably be
considered imminent in the view of the passage of time since the
order was received); Rule 717(d) (which state that EAMs may not
execute as principal orders they represent as agent unless (i)
agency orders are first exposed on the Exchange for at least one (1)
second, (ii) the EAM has been bidding or offering on the Exchange
for at least one (1) second prior to receiving an agency order that
is executable against such bid or offer, (iii) the Member utilizes
the Facilitation Mechanism pursuant to Rule 716(d), or (iv) the
Member utilizes the Price Improvement Mechanism for Crossing
Transactions pursuant to Rule 723); and Rule 717(e) (which states
that EAMs may not execute orders they represent as agent on the
Exchange against orders solicited from Members and non-member
broker-dealers to transact with such orders unless (i) the
unsolicited order is first exposed on the Exchange for at least one
(1) second, (ii) the Member utilizes the Solicited Order Mechanism
pursuant to Rule 716(e), (iii) the Member utilizes the Facilitation
Mechanism pursuant to Rule 716(d) or (iv) the Member utilizes the
Price Improvement Mechanism for Crossing Transactions pursuant to
Rule 723).
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Second, in those instances where the restrictions are applicable,
Rule 717(b) currently provides that, in determining whether an EAM or
beneficial owner effectively is operating as a market maker, the
Exchange will consider, among other things, the simultaneous or near-
simultaneous entry of limit orders to buy and sell the same options
contract; the multiple acquisition and liquidation of positions in the
same options series during the same day; and the entry of multiple
limit orders at different prices in the same options series. The
Exchange is proposing to remove the condition pertaining to the
multiple acquisition and liquidation of positions from its list of
factors used for determining whether a beneficial owner is operating as
a market maker. In light of the proliferation of day trading activity
and the fact that such a prohibition does not exist on other
markets,\10\ the Exchange no longer believes that this activity should
be considered a factor in determining whether an EAM or beneficial
owner is effectively acting as a market maker.
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\10\ See note 7 and Securities Exchange Act Release No. 59700
(April 2, 2009), 74 FR 16246 (April 9, 2009) (SR-CBOE-2009-009).
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2. Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \11\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \12\ in particular, because it
is designed to prevent fraudulent and manipulative acts and practices,
and 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. The proposed changes should contribute to the
Exchange's ability to maintain a fair and orderly market in a manner
that will limit unfair advantage and encourage competition.
Specifically, because broker-dealer orders are not subject to priority
on the ISE that is any
[[Page 61797]]
better than market makers, the Exchange does not believe it is
necessary to impose the Rule's restrictions on the entry of broker-
dealer orders. The Exchange believes that the elimination of these
restrictions will permit entities other than market makers to enter
orders on both sides of the market more freely, resulting in more
orders on the ISE book and therefore increase liquidity on the ISE
market, all to the benefit of investors.
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\11\ 15 U.S.C. 78f (b) [sic].
\12\ 15 U.S.C. 78f (b)(5) [sic].
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not significantly
affect the protection of investors or the public interest, does not
impose any significant burden on competition, and, by its terms, does
not 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) \13\ of the Act and Rule 19b-
4(f)(6) \14\ thereunder. The Exchange provided the Commission with
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at least
five business days prior to the date of filing the proposed rule
change.
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6).
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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.
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 (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-ISE-2010-95 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-ISE-2010-95. This file
number should be included on the subject line if e-mail 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 (https://www.sec.gov/rules/sro.shtml). Copies of the submission,\15\ 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, 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-ISE-2010-95 and should be submitted on or before October
27, 2010.
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\15\ The text of the proposed rule change is available on the
Commission's Web site at https://www.sec.gov/rules/sro.shtml.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-25068 Filed 10-5-10; 8:45 am]
BILLING CODE 8010-01-P
