Self-Regulatory Organizations; International Securities Exchange, Inc., Order Granting Approval of Proposed Rule Change Relating to Rule 717, 59472 [2011-24593]

Download as PDF 59472 Federal Register / Vol. 76, No. 186 / Monday, September 26, 2011 / Notices 2011–022 and should be submitted on or before October 17, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–24594 Filed 9–23–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65361; File No. SR–ISE– 2011–42] Self-Regulatory Organizations; International Securities Exchange, Inc., Order Granting Approval of Proposed Rule Change Relating to Rule 717 September 20, 2011. jlentini on DSK4TPTVN1PROD with NOTICES I. Introduction On July 25, 2011, the International Securities Exchange, LLC (the ‘‘Exchange’’ or the ‘‘ISE’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to codify an existing policy related to the application of ISE Rules 717(d) and (e). The proposed rule change was published for comment in the Federal Register on August 8, 2011.3 The Commission received no comments regarding the proposal. This order approves the proposed rule change. II. Description of Proposal ISE Rules 717(d) and (e) require members to expose orders entered on the limit order book for at least one second before executing them as principal or against orders that were solicited from other broker-dealers. This requirement gives other market participants an opportunity to participate in the execution of orders before the entering member executes them. In its enforcement of ISE Rules 717(d) and (e), the Exchange has not considered the inadvertent interaction of orders from the same firm within one second to be a violation of the exposure requirement. The Exchange currently has a policy that member firms may demonstrate that orders were entered by individuals or systems that did not have the ability to know of the pre-existing order on the limit order book due to the 12 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 34– 65011 (August 2, 2011), 76 FR 48187. VerDate Mar<15>2010 17:37 Sep 23, 2011 Jkt 223001 operation of effective information barriers in place at the time the orders were entered. This proposed rule change codifies this policy in Supplementary Material .06 to Rule 717. The proposed rule change will require that such information barriers be fully documented and provided to the Exchange upon request.4 III. Discussion and Commission Findings 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 and, in particular, the requirements of Section 6 of the Act.5 The Commission finds that the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act,6 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 foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, 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 are not designed to permit unfair discrimination between customers, issuers, brokers or dealers.7 ISE Rules 717(d) and (e) require members to expose orders entered on the limit order book for at least one second before executing them as principal or against orders that were solicited from other broker-dealers. This requirement gives other market participants an opportunity to participate in the execution of orders before the entering member executes them. The Exchange represented that it conducts routine surveillance to identify instances when an order on the limit order book is executed against an order entered by the same firm within 4 The Exchange reviews information barrier documentation to evaluate whether a member has implemented processes that are reasonably designed to prevent the flow of pre-trade order information given the particular structure of the member firm. Additionally, information barriers are reviewed as part of the Exchange’s examination program, which is administered by the Financial Industry Regulatory Authority (‘‘FINRA’’) pursuant to a regulatory services agreement. 5 15 U.S.C. 78f(b). 6 15 U.S.C. 78f(b)(5). 7 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition and capital formation. PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 one second. The Exchange represented that when it investigates potential violations of ISE Rules 717(d) and (e), it considers whether such executions during the one second exposure period were entered by persons, business units and/or systems at the same firm, and whether the firm has knowledge of preexisting orders on the limit order book. Further, the Exchange indicated that it does not consider inadvertent interaction of such orders from the same firm during the one second exposure period to be a rule violation. This proposal codifies this policy by adding Supplementary Material .06 to Rule 717 to allow members to provide evidence of effective information barriers between the persons, business units and/or systems at the time of order entry to indicate that there was no knowledge of other pre-existing orders entered by the firm. The Commission believes that this proposed rule change should clarify the intent and application of ISE Rules 717(d) and (e). In addition, the proposed rule change should enable Exchange to administer the rule more efficiently by helping to assure that member firms are adhering to the same standards for compliance with ISE Rules 717(d) and (e). The Commission therefore believes that the proposal is consistent with Section 6(b)(5) of the Act.8 IV. Conclusion It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act,9 that the proposed rule change (SR–ISE–2011– 42), be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–24593 Filed 9–23–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65353; File No. SR–BATS– 2011–035] Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing of Proposed Rule Change To Amend and Restate the Amended and Restated Bylaws of BATS Global Markets, Inc. September 19, 2011. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the 8 15 U.S.C. 78f(b)(5). U.S.C. 78s(b)(2). 10 17 CFR 200.30–3(a)(12). 9 15 E:\FR\FM\26SEN1.SGM 26SEN1

Agencies

[Federal Register Volume 76, Number 186 (Monday, September 26, 2011)]
[Notices]
[Page 59472]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-24593]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65361; File No. SR-ISE-2011-42]


Self-Regulatory Organizations; International Securities Exchange, 
Inc., Order Granting Approval of Proposed Rule Change Relating to Rule 
717

September 20, 2011.

I. Introduction

    On July 25, 2011, the International Securities Exchange, LLC (the 
``Exchange'' or the ``ISE'') filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to codify an existing policy 
related to the application of ISE Rules 717(d) and (e). The proposed 
rule change was published for comment in the Federal Register on August 
8, 2011.\3\ The Commission received no comments regarding the proposal. 
This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 34-65011 (August 2, 
2011), 76 FR 48187.
---------------------------------------------------------------------------

II. Description of Proposal

    ISE Rules 717(d) and (e) require members to expose orders entered 
on the limit order book for at least one second before executing them 
as principal or against orders that were solicited from other broker-
dealers. This requirement gives other market participants an 
opportunity to participate in the execution of orders before the 
entering member executes them. In its enforcement of ISE Rules 717(d) 
and (e), the Exchange has not considered the inadvertent interaction of 
orders from the same firm within one second to be a violation of the 
exposure requirement. The Exchange currently has a policy that member 
firms may demonstrate that orders were entered by individuals or 
systems that did not have the ability to know of the pre-existing order 
on the limit order book due to the operation of effective information 
barriers in place at the time the orders were entered. This proposed 
rule change codifies this policy in Supplementary Material .06 to Rule 
717. The proposed rule change will require that such information 
barriers be fully documented and provided to the Exchange upon 
request.\4\
---------------------------------------------------------------------------

    \4\ The Exchange reviews information barrier documentation to 
evaluate whether a member has implemented processes that are 
reasonably designed to prevent the flow of pre-trade order 
information given the particular structure of the member firm. 
Additionally, information barriers are reviewed as part of the 
Exchange's examination program, which is administered by the 
Financial Industry Regulatory Authority (``FINRA'') pursuant to a 
regulatory services agreement.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    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 and, in 
particular, the requirements of Section 6 of the Act.\5\ The Commission 
finds that the proposed rule change is consistent with the requirements 
of Section 6(b)(5) of the Act,\6\ 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 foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, 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 are not designed to 
permit unfair discrimination between customers, issuers, brokers or 
dealers.\7\
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition and 
capital formation.
---------------------------------------------------------------------------

    ISE Rules 717(d) and (e) require members to expose orders entered 
on the limit order book for at least one second before executing them 
as principal or against orders that were solicited from other broker-
dealers. This requirement gives other market participants an 
opportunity to participate in the execution of orders before the 
entering member executes them. The Exchange represented that it 
conducts routine surveillance to identify instances when an order on 
the limit order book is executed against an order entered by the same 
firm within one second. The Exchange represented that when it 
investigates potential violations of ISE Rules 717(d) and (e), it 
considers whether such executions during the one second exposure period 
were entered by persons, business units and/or systems at the same 
firm, and whether the firm has knowledge of pre-existing orders on the 
limit order book. Further, the Exchange indicated that it does not 
consider inadvertent interaction of such orders from the same firm 
during the one second exposure period to be a rule violation. This 
proposal codifies this policy by adding Supplementary Material .06 to 
Rule 717 to allow members to provide evidence of effective information 
barriers between the persons, business units and/or systems at the time 
of order entry to indicate that there was no knowledge of other pre-
existing orders entered by the firm.
    The Commission believes that this proposed rule change should 
clarify the intent and application of ISE Rules 717(d) and (e). In 
addition, the proposed rule change should enable Exchange to administer 
the rule more efficiently by helping to assure that member firms are 
adhering to the same standards for compliance with ISE Rules 717(d) and 
(e). The Commission therefore believes that the proposal is consistent 
with Section 6(b)(5) of the Act.\8\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-ISE-2011-42), be, and hereby 
is, approved.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------


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

    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-24593 Filed 9-23-11; 8:45 am]
BILLING CODE 8011-01-P