Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Market Maker Quoting Requirements, 17988-17992 [2013-06716]

Download as PDF 17988 Federal Register / Vol. 78, No. 57 / Monday, March 25, 2013 / Notices post all comments on the Commission’s Internet Web site (https://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 Web site 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; 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– NASDAQ–2013–047 and should be submitted on or before April 15, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–06731 Filed 3–22–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69175; File No. SR–ISE– 2013–17] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Market Maker Quoting Requirements mstockstill on DSK4VPTVN1PROD with NOTICES March 19, 2013. 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 March 5, 2013, 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, II, and III below, which items have been prepared by the Exchange. 14 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Mar<15>2010 17:34 Mar 22, 2013 Jkt 229001 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 its rules to make changes to market maker quoting requirements. The text of the proposed rule change is available on the Exchange’s Web site 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 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 purpose of the proposed rule change is to amend Rule 804 regarding market maker quoting requirements to: (1) Eliminate Competitive Market Maker (‘‘CMM’’) pre-opening obligations; (2) change the CMM quoting requirements to be based on a percentage of time; and (3) specify compliance standards for market maker quoting obligations. All of the proposed changes are consistent with the requirements of other options exchanges. In this respect, the Exchange believes that the current quotation requirements act as a competitive disadvantage that limits its ability to attract liquidity providers to the ISE. Moreover, applying quotation standards that are substantially similar to other options exchanges will remove a significant compliance burden on members who provide liquidity across multiple options exchanges. Background There have been a number of recent rule filings from other options exchanges related to market maker quotation requirements that have brought the rules of most other options exchanges substantially in line: The PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 Chicago Board Options Exchange amended its rules relating to continuous electronic quoting requirements in July 2012; 3 the NASDAQ Options Market (‘‘NOM’’) eliminated its market maker pre-opening obligations in August 2012; 4 and NASDAQ OMX PHLX (‘‘Phlx’’) amended its rules to specify that compliance with market maker continuous quoting rules would be determined on a monthly basis.5 In each of these filings, the exchanges explained how the proposed changes were substantially similar to the requirements of other options exchanges and represented that applying a differing quoting standard placed the exchanges at a competitive disadvantage. ISE now seeks to make similar changes to its rules so that they are substantially similar to other options exchanges. Current Quotation Requirements Pursuant to ISE Rule 804(e)(1), Primary Market Makers (‘‘PMMs’’) must maintain continuous quotations in all of the series of the options classes to which they are appointed. CMMs do not have a minimum number of options classes for which they must enter quotations. Pursuant to ISE Rule 804(e)(2)(ii), a CMM may initiate quoting in options classes to which it is appointed intraday, but only up to the number of appointed options classes for which it participated in the opening rotation on that day. Whenever a CMM enters a quote in an options class to which it is appointed, it must maintain continuous quotations for that series and at least 60% of the series of the options class listed on the Exchange until the close of trading that day. Preferenced CMMs must maintain continuous quotations for 90% of the series. Rule 804 does not define the meaning of ‘‘continuous’’ nor specify any compliance standards associated with the quoting requirements. CMM Pre-Opening Obligation The Exchange proposes to eliminate the requirement that CMMs quote before the opening in a minimum number of options classes to put them on par with market makers on other options 3 Exchange Act Release No. 67410 (July 11, 2012), 77 FR 42040 (July 17, 2012) (SR–CBOE–2012–064) (the ‘‘CBOE Release’’). This rule change was effective upon filing pursuant to Section 19(b)(3)(A) of the Act. 4 Exchange Act Release No. 67722 (August 23, 2012), 77 FR 52375 (August 29, 2012) (SR– NASDAQ–2012–095) (the ‘‘NOM Release’’). This rule change was effective upon filing pursuant to Section 19(b)(3)(A) of the Act. 5 Exchange Act Release No. 67700 (August 21, 2012), 77 FR 51835 (August 27, 2012) (the ‘‘Phlx Release’’). This rule change was effective upon filing pursuant to Section 19(b)(3)(A) of the Act. E:\FR\FM\25MRN1.SGM 25MRN1 Federal Register / Vol. 78, No. 57 / Monday, March 25, 2013 / Notices exchanges that do not have pre-market quoting obligations.6 As explained above, ISE Rule 804(e)(2)(ii) currently requires CMMs to participate in the opening in at least half of the classes in which it enters quotations on a daily basis. The Exchange proposes to eliminate this requirement so that CMMs are not restricted in the number of options classes they quote during regular trading hours on this basis. As a result, CMMs will not have an obligation to quote any options classes prior to the opening, just as other options exchanges (e.g., Phlx and NOM) do not impose a pre-opening quoting obligation on their electronic market makers. Exchange market makers have indicated that the Exchange’s requirement to participate in the opening for a minimum number of securities is a deterrent to providing liquidity on the ISE. Such market makers have indicated that, unlike other options exchanges such as Phlx and NOM, the current ISE rule restricts the number of option classes in which they enter quotations during regular market hours. Thus, the proposed rule change will level the playing field with respect to pre-opening obligations while encouraging greater liquidity on the ISE during regular trading hours. Moreover, the Exchange notes that under the current structure of the rule, options classes currently may not have CMM participation in the opening process and that in such cases the PMM provides liquidity when necessary. Accordingly, the proposal will have no impact on the functioning of the ISE’s opening process, but will serve to encourage greater liquidity during regular trading hours by allowing CMMs to quote additional options classes. The Exchange further believes that eliminating pre-opening obligations would be pro-competitive in that it will attract more market makers to the Exchange, thereby increasing the amount of liquidity on the ISE. mstockstill on DSK4VPTVN1PROD with NOTICES Calculation of CMM Continuous Quotation Requirements As noted above, currently under ISE Rule 804(e)(2)(iii), once a CMM chooses to enter quotations in an options class, it is required to quote 60% of the series of the options class (90% for preferenced CMMs) until the end of the trading day. The Exchange proposes to modify this requirement to be 60% of the time an options class is open for 6 See NOM Release, supra note 4; and Phlx Rule 1014(b)(ii)(D)(1) (continuous quoting requirements do not include a requirement to enter quotes before the opening). VerDate Mar<15>2010 17:34 Mar 22, 2013 Jkt 229001 trading on the Exchange (90% of the time for preferenced market makers). Currently, some options exchanges, such as NYSE Amex and NYSE Arca, apply a 60% minimum quoting requirement as a percentage of time rather than as a percentage of the series of a class.7 Under the proposal, the Exchange will calculate the percentage of time a market maker quotes by dividing the number of minutes a market maker entered quotes in series of an options class (the numerator) by the total minutes all series of the options class were open for trading on the Exchange (denominator).8 The Exchange believes that imposing minimum CMM quoting requirements based on a percentage of series or as a percentage of time achieves the same result in terms of the amount of liquidity being provided by a market maker, but that measuring market maker participation in terms of a percentage time is a more reasonable and fair way of evaluating whether market makers are providing appropriate levels of liquidity to the market. For example, when measured as a percentage of series, a market maker that continuously quoted 80% of the series of an options class for an entire day, except for a 5 minute period where it quoted only 58% of the series, may be deemed in violation of the current minimum quoting requirement, even though such market maker provided more liquidity to the market than a CMM that continuously quoted the minimum 60% of the series for the entire day.9 Accordingly, the Exchange believes that measuring the minimum quoting requirements in terms of a percentage of time, in the same manner as NYSE Amex and NYSE Arca are doing currently, will more fairly achieve the objective of the minimum quoting requirements. Quotation Compliance Standards Rule 804 does not currently contain any standards by which compliance with market maker continuous quotation requirements are measured. Specifically, Rule 804 does not provide any guidance on how market makers 7 NYSE Amex Rule 925.1NY(c); and NYSE Arca Rule 6.37B(c). 8 For example, if a market maker quotes an options class that has 150 series all of which opened at 9:30 a.m. the denominator will be 150 × 390 minutes, or 58,500 minutes. The minimum CMM quoting requirement would therefore be 35,100 minutes (60% of 58,500 minutes). 9 If an options class has 100 options series, a market maker that quotes 60% of the series continuously for an entire trading day provides liquidity for 60 series × 390 minutes, which equals 23,400 minutes. A market maker that provides liquidity for 80 series for 385 minutes and 58 series for 5 minutes provides liquidity for a total of 31,090 minutes. PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 17989 satisfy their continuous quotation requirements, nor the method by which the Exchange reviews whether a market maker has met its quoting obligations. In contrast, Phlx and CBOE rules specify that market makers must quote 90% of the time to meet their continuous quotation requirements.10 Many exchanges also have established a time period of one month to determine whether a market maker has met its quoting obligation, stating that compliance with the continuous quoting obligations will be determined collectively across all options classes on a monthly basis.11 These exchanges’ rules also explicitly state that periods where market makers fail to maintain continuous quotes due to technical problems are not considered when determining whether market makers satisfied their quoting obligations.12 The Exchange proposes to adopt similar provisions under ISE Rule 804. Specifically, the Exchange proposes to state in Supplementary Material to Rule 804 that PMMs shall be deemed to have provided continuous quotes pursuant to Rule 804(e)(1) if they provide two-sided quotes for 90% of the time that the Exchange is open for trading.13 The Exchange further proposes to state that compliance with the PMM and CMM quoting requirements will be applied to all options classes quoted collectively on a daily basis and will be determined on a monthly basis.14 Further, the Exchange proposes to specify that if a technical failure or limitation of a system of the Exchange prevents a 10 Phlx Rule 1014(b)(ii)(D); CBOE Rule 1.1(ccc) (as amended by CBOE Release, supra note 3). 11 Phlx Release, supra note 5; NYSE Amex Rule 925.1NY and NYSE Arca Rule 6.37B. 12 Id. Market makers will be required to promptly notify the Exchange of any technical problems that prevent them from maintaining continuous quotes. In normal circumstances, such notification should be made on the same trading day. 13 This provision would apply only to PMMs and not to CMMs, as CMMs would no longer have an obligation to continuously quote a minimum number of series under the proposal. To calculate whether a PMM has maintained quotations for at least 90% of the time, the Exchange will divide the total number of minutes a PMM maintained quotations in options series of a class (the numerator) by the total minutes all series of the options class were open for trading on the Exchange (the denominator). 14 Compliance with market maker quoting obligations will be determined on a monthly basis. However, the ability of the Exchange to determine compliance on a monthly basis does not: (1) Relieve market makers from their obligation to meet daily quoting requirements in Rule 804; and (2) prohibit the Exchange from bringing disciplinary action against a market maker for failure to meet its daily quoting requirements set forth in Rule 804. The Exchange provides daily reports to market makers to enable them to monitor their compliance with quoting requirements. The Exchange will continue to provide such daily reports and to monitor market maker compliance on a daily basis. E:\FR\FM\25MRN1.SGM 25MRN1 17990 Federal Register / Vol. 78, No. 57 / Monday, March 25, 2013 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES market maker from maintaining, or prevents a market maker from communicating to the Exchange, timely and accurate quotes, the duration of such failure will not be considered in determining whether the market maker has satisfied its quoting obligations. Additionally the proposed text states that the Exchange may consider other exceptions to the continuous quoting obligation based on demonstrated legal or regulatory requirements or other mitigating circumstances. Finally, the Exchange proposes to specify that the CMM continuous quoting requirements do not include adjusted options series or long-term options.15 All of these proposed changes are consistent with the rules of other options exchanges.16 The proposal assures that compliance standards for two-sided quoting will be the same on the ISE as on other options exchanges. The Exchange believes these standards are appropriate, and that applying consistent standards across options exchanges lessens compliance burdens on members and reduces the potential for regulatory arbitrage. Specifically, specifying that PMMs satisfy their quoting obligations if they quote at least 90% of the time will provide clarity and allow PMMs to better monitor whether they are in 15 Adjusted options series are series wherein, as a result of a corporate action by the issuer of the underlying security, one options contract in the series represents the delivery of other than 100 shares of underlying stock or exchange-traded fund shares. Long-term options are series with a time to expiration of nine (9) months or greater for options on equities and exchange-traded funds, and options with a time to expiration of twelve (12) months or greater for index options. CMMs may choose to quote such series in addition to regular series in the options class, but such quotations will not be considered when determining whether a CMM has met the obligation contained in paragraph (e)(2)(iii). Thus, such series are not included in the denominator nor are any quotes entered in such series included in the numerator when the Exchange calculates the percentage of time a market maker has quoted an options class. See supra note 8 and accompanying text. This exclusion is limited to CMM quoting requirements. The PMM quoting requirements include all series of an appointed options class, including adjusted series and longterm options. A CMM that chooses to quote adjusted series and/or long-term options must meet all of the quoting obligations applicable to CMMs generally, and may be preferenced in such series and receive enhanced allocations pursuant to ISE Rule 713, Supplementary Material .03, only if it complies with the heightened 90% quoting requirement contained in Rule 804(e)(2)(iii). 16 With respect to compliance standards, see CBOE Rule 1.1(ccc); NYSE Arca Rule 6.37B; NYSE Amex Rule 925.1NY; and Phlx Rule 1014(d)(4). With respect to excluding adjusted series and long term options from the CMM quoting obligation, see CBOE Rule 8.7(d)(ii)(B) (requiring market makers to maintain continuous electronic quotes in 60% of the non-adjusted options series that have a time to expiration of less than nine months); NYSE Arca Rule 6.37B, Commentary .01; NYSE Amex Rule 9.25.1NY, Commentary .01; and Phlx Rule 1014(d)(4). VerDate Mar<15>2010 17:34 Mar 22, 2013 Jkt 229001 compliance with their continuous quoting obligations.17 Moreover, the Exchange believes that applying the quoting requirements for market makers collectively across all options classes and measuring such compliance over a monthly basis is a fair and more efficient way for the Exchange and market participants to evaluate compliance with market maker continuous quoting requirements.18 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Securities Exchange Act of 1934 19 (the ‘‘Act’’) in general, and furthers the objectives of Section 6(b)(5) of the Act 20 in particular, in that it is 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 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. All of the proposed changes are consistent with standards currently in place at other options exchanges. As such, the proposed change conform ISE market maker obligations to the requirements of competing markets, which will promote the application of consistent trading practices across markets that provide market makers with similar benefits. In this respect, the Exchange notes that CBOE, Phlx and NYSE Amex all have market structures that allocate trades to market makers in a manner similar to the ISE.21 However, the Exchange also notes that the same market maker obligations currently are being applied on competitive exchanges to options classes traded in a price-time market structure (such as Arca). While these different markets and market structures may provide slightly different benefits to market makers, the Exchange does not believe these differences are sufficient to out-weigh the significant existing competitive burden applying 17 See supra note 14. the basis of the daily reports, the Exchange will continue to inform market makers if they are failing to achieve their quoting requirements. Moreover, on the basis of daily monitoring activity, the Exchange can determine whether market makers violated any other Exchange rules such as, for example, Rule 400 regarding just and equitable principles of trade. Such daily monitoring will allow the Exchange to investigate unusual activity and to take appropriate regulatory action. 19 15 U.S.C. 78f(b). 20 15 U.S.C. 78f(b)(5). 21 See, e.g., CBOE Rule 6.45A and NYSE Amex Rule 964NY. 18 On PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 more stringent quotation requirements places on the Exchange. Specifically, with respect to the proposal to eliminate the requirement that CMMs quote before the opening in a minimum number of options classes, the Exchange believes that the proposal removes a requirement that is unnecessary, as evidenced by the fact that it does not exist on other competitive markets. The Exchange operates in a highly competitive market comprised of eleven U.S. options exchanges in which sophisticated and knowledgeable market participants can, and do, send order flow and/or provide liquidity to competing exchanges if they deem trading practices at a particular exchange to be onerous or cumbersome. With this proposal, ISE market makers will be relieved of a requirement that limits their ability to provide liquidity during regular market hours and places a burden upon them that does not exist on other competitive markets with similar market structures. The Exchange believes that eliminating pre-opening quoting obligations will attract more CMMs to the Exchange, thereby increasing competition and liquidity on the ISE. With respect to the proposal to base the CMMs minimum quotation requirements on a percentage of time rather than as a percentage of series, the Exchange believes that that measuring market maker participation in terms of a percentage of time is a more reasonable and fair way of evaluating whether market makers are providing appropriate levels of liquidity to the market. Moreover, the Exchange believes that measuring the minimum quoting requirements in terms of a percentage of time, as NYSE Amex and NYSE Arca are doing currently, will provide a better measure of the level of liquidity being provided by market makers. Finally, with respect to compliance standards, the Exchange believes that adopting the proposed standards will enhance compliance efforts by market makers and the Exchange, and are consistent with the requirements currently in place on other exchanges. The proposal ensures that compliance standards for continuous quoting will be the same on the Exchange as on other options exchanges, and the proposal to exclude adjusted series and long-term options from the CMM continuous quoting requirements assures that the quotation requirements are being applied similarly across exchanges, E:\FR\FM\25MRN1.SGM 25MRN1 Federal Register / Vol. 78, No. 57 / Monday, March 25, 2013 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES such as the CBOE, Phlx, NYSE Amex and NYSE Arca.22 While under the proposal the quoting requirements are changing, the Exchange does not believe that these changes reduce the overall obligations applicable to market makers. In this respect, the Exchange notes that such market makers are subject to many obligations, including the obligation to maintain a fair and orderly market in their appointed classes, which the Exchange believes eliminates the risk of a material decrease in liquidity. In addition to this and other requirements applicable to market maker quotations under Rules 803 and 804, PMMs continue to have an obligation to conduct the opening and enter continuous quotations in all of the series of their appointed options classes and to do so within maximum spread requirements. CMMs have an obligation to maintain continuous quotes for at least 60% of the time the options class is open for trading on the Exchange (as opposed to 60% of the series), and to do so within maximum spread requirements. Preferenced market makers will continue to have a heighted quotation requirement, as they are required to maintain continuous quotes for at least 90% of the time the options class is open for trading on the Exchange (as opposed to 90% of the series) and to do so within maximum spread requirements. Additionally, CMMs will continue to be obligated to enter quotes whenever, in the judgment of an Exchange official, it is necessary to do so in the interest of fair and orderly markets.23 Accordingly, the benefits the proposed rule change confers upon market makers are offset by the continued responsibilities to provide significant liquidity to the 22 See supra note 16. In this respect, the Exchange notes that NYSE Arca and NYSE Amex exclude adjusted series and long-term options from the quoting requirements for all market makers, including those markets’ equivalent of the ISE’s PMMs. For quote mitigation purposes, Arca only disseminates quotes in active options series. NYSE Arca Rule 6.86, Commentary .03, and NYSE Amex Rule 970.1NY. The ISE, however, has not implemented a similar approach to quote mitigation. Rather, the ISE disseminates quotations in all options series listed on the exchange, and pursuant to ISE Rule 804(e)(1) the ISE requires PMMs to maintain continuous quotations in all listed series of their appointed options classes, including adjusted series and long-term options. Thus, the Exchange does not believe that it is necessary to require CMMs to quote such series, and that it is appropriate to exclude such options series from the CMM quoting requirements contained in ISE Rule 804(e)(ii) in the interest of applying consistent standards across exchanges for non-specialist market makers, such as CBOE and Phlx, as well as NYSE Arca and NYSE Amex. See supra note 16. 23 ISE Rule 804(e)((2)(iv). VerDate Mar<15>2010 17:34 Mar 22, 2013 Jkt 229001 market to the benefit of market participants. For the foregoing reasons, the Exchange believes that the balance between the benefits provided to market makers and the obligations imposed upon market makers by the proposed rule change is appropriate. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange believes that the current quotation requirements act as a competitive disadvantage that limits the ISE’s ability to attract liquidity providers. The proposal is comparable to current rules at competing options exchanges related to market-maker continuous quoting obligations and will ensure fair competition among the options exchange that provide market makers with similar benefits. Accordingly, the Exchange believes that the proposal will enable the Exchange to attract additional CMMs, thereby increasing competition and liquidity on the ISE. 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) 24 of the Act and Rule 19b– 4(f)(6) 25 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 24 15 25 17 PO 00000 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). Frm 00072 Fmt 4703 Sfmt 4703 17991 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 email to rulecomments@sec.gov. Please include File Number SR–ISE–2013–17 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–2013–17. 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 Web site (https://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 Web site 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 such 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– 2013–17 and should be submitted on or before April 15, 2013. E:\FR\FM\25MRN1.SGM 25MRN1 17992 Federal Register / Vol. 78, No. 57 / Monday, March 25, 2013 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–06716 Filed 3–22–13; 8:45 am] BILLING CODE 8011–01–P DEPARTMENT OF STATE [Public Notice 8254] Additional Designation of Three North Korean Individuals Pursuant to Executive Order 13382 Department of State. ACTION: Designation of Pak To-Chun, Chu Kyu-Chang, and O Kuk-Ryol Pursuant to E.O. 13382. AGENCY: Pursuant to the authority in section 1(ii) of Executive Order 13382, ‘‘Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters’’, the State Department, in consultation with the Secretary of the Treasury and the Attorney General, has determined that Pak To-Chun, Chu KyuChang, and O Kuk-Ryol have engaged, or attempted to engage, in activities or transactions that have materially contributed to, or pose a risk of materially contributing to, the proliferation of weapons of mass destruction or their means of delivery (including missiles capable of delivering such weapons), including any efforts to manufacture, acquire, possess, develop, transport, transfer or use such items, by any person or foreign country of proliferation concern. DATES: The designation by the Under Secretary of State for Arms Control and International Security of the individuals identified in this notice pursuant to Executive Order 13382 is effective on March 11, 2013. FOR FURTHER INFORMATION CONTACT: Director, Office of Counterproliferation Initiatives, Bureau of International Security and Nonproliferation, Department of State, Washington, DC 20520, tel.: 202–647–5193. SUMMARY: mstockstill on DSK4VPTVN1PROD with NOTICES Background On June 28, 2005, the President, invoking the authority, inter alia, of the International Emergency Economic Powers Act (50 U.S.C. 1701–1706) (‘‘IEEPA’’), issued Executive Order 13382 (70 FR 38567, July 1, 2005) (the ‘‘Order’’), effective at 12:01 a.m. eastern daylight time on June 30, 2005. In the Order the President took additional steps with respect to the national 26 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 17:34 Mar 22, 2013 Jkt 229001 emergency described and declared in Executive Order 12938 of November 14, 1994, regarding the proliferation of weapons of mass destruction and the means of delivering them. Section 1 of the Order blocks, with certain exceptions, all property and interests in property that are in the United States, or that hereafter come within the United States or that are or hereafter come within the possession or control of United States persons, of: (1) The persons listed in the Annex to the Order; (2) any foreign person determined by the Secretary of State, in consultation with the Secretary of the Treasury, the Attorney General, and other relevant agencies, to have engaged, or attempted to engage, in activities or transactions that have materially contributed to, or pose a risk of materially contributing to, the proliferation of weapons of mass destruction or their means of delivery (including missiles capable of delivering such weapons), including any efforts to manufacture, acquire, possess, develop, transport, transfer or use such items, by any person or foreign country of proliferation concern; (3) any person determined by the Secretary of the Treasury, in consultation with the Secretary of State, the Attorney General, and other relevant agencies, to have provided, or attempted to provide, financial, material, technological or other support for, or goods or services in support of, any activity or transaction described in clause (2) above or any person whose property and interests in property are blocked pursuant to the Order; and (4) any person determined by the Secretary of the Treasury, in consultation with the Secretary of State, the Attorney General, and other relevant agencies, to be owned or controlled by, or acting or purporting to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to the Order. Information on the additional designees is as follows: PAK TO–CHUN A.K.A.: Pak To’-Ch’un A.K.A.: Pak Do Chun D.O.B.: March 9, 1944; P.O.B. P.O.B.: Nangim County, Chagang Province, DPRK CHU KYU–CHANG A.K.A.: Chu Kyu-Ch’ang A.K.A.: Ju Kyu-Chang D.O.B.: November 25, 1928 P.O.B.: Hamju County, South Hamgyong Province, DPRK PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 O KUK–RYOL A.K.A.: O Ku’k-ryo’l D.O.B.: 7 January 1930 P.O.B.: Onso’ng County, North Hamgyo’ng Province, DPRK Dated: March 11, 2013. Rose Gottemoeller, Under Secretary for Arms Control and International Security Department of State, Acting. [FR Doc. 2013–06752 Filed 3–22–13; 8:45 am] BILLING CODE 4710–27–P DEPARTMENT OF STATE [Public Notice 8251] Preparations for the International Telecommunication Union World Telecommunication Development Conference (ITU WTDC 2014) This notice announces meetings of the Department of State’s International Telecommunication Advisory Committee (ITAC) to review the activities of its ad hoc group for preparations for the ITU World Telecommunication Development Conference (WTDC 2014), as well as preparations for other, related meetings at the ITU. The ITAC will meet on April 17, 2013 at 2PM EDT to review the work already performed in the ITAC–D ad hoc and the plans for preparation for related ITU meetings for the rest of this year. This meeting of the ITAC will be held at the Department of State, followed by additional meetings of the ITAC–D ad hoc of the ITAC on April 30, 2013 at 1300 Eye Street NW., Washington, DC fourth floor West Tower. Subsequent meetings of the ITAC–D and other ad hocs will be scheduled later. Details on these ITAC–D ad hoc meetings for preparations for WTDC14 will be announced on the Department of State’s email list, ITAC– D@lmlist.state.gov. Meetings of other ad hocs will be initially announced on the list: ITAC@lmlist.state.gov. Use of these lists is limited to meeting announcements and confirmations, distribution of agendas and other meeting documents such as Contributions. People desiring further information on these preparatory meetings, including those wishing to request reasonable accommodation to attend the meeting and those who wish to participate in the ITAC or ITAC–D lists, should contact the Secretariat at both minardje@state.gov and jminard@artelinc.com. Attendance at these meetings is open to the public as seating capacity allows. SUMMARY: E:\FR\FM\25MRN1.SGM 25MRN1

Agencies

[Federal Register Volume 78, Number 57 (Monday, March 25, 2013)]
[Notices]
[Pages 17988-17992]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-06716]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69175; File No. SR-ISE-2013-17]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Regarding Market Maker Quoting Requirements

March 19, 2013.
    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 March 5, 2013, 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, II, and III below, which items have been prepared by the 
Exchange. 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.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its rules to make changes to market 
maker quoting requirements. The text of the proposed rule change is 
available on the Exchange's Web site 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 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 purpose of the proposed rule change is to amend Rule 804 
regarding market maker quoting requirements to: (1) Eliminate 
Competitive Market Maker (``CMM'') pre-opening obligations; (2) change 
the CMM quoting requirements to be based on a percentage of time; and 
(3) specify compliance standards for market maker quoting obligations. 
All of the proposed changes are consistent with the requirements of 
other options exchanges. In this respect, the Exchange believes that 
the current quotation requirements act as a competitive disadvantage 
that limits its ability to attract liquidity providers to the ISE. 
Moreover, applying quotation standards that are substantially similar 
to other options exchanges will remove a significant compliance burden 
on members who provide liquidity across multiple options exchanges.
Background
    There have been a number of recent rule filings from other options 
exchanges related to market maker quotation requirements that have 
brought the rules of most other options exchanges substantially in 
line: The Chicago Board Options Exchange amended its rules relating to 
continuous electronic quoting requirements in July 2012; \3\ the NASDAQ 
Options Market (``NOM'') eliminated its market maker pre-opening 
obligations in August 2012; \4\ and NASDAQ OMX PHLX (``Phlx'') amended 
its rules to specify that compliance with market maker continuous 
quoting rules would be determined on a monthly basis.\5\ In each of 
these filings, the exchanges explained how the proposed changes were 
substantially similar to the requirements of other options exchanges 
and represented that applying a differing quoting standard placed the 
exchanges at a competitive disadvantage. ISE now seeks to make similar 
changes to its rules so that they are substantially similar to other 
options exchanges.
---------------------------------------------------------------------------

    \3\ Exchange Act Release No. 67410 (July 11, 2012), 77 FR 42040 
(July 17, 2012) (SR-CBOE-2012-064) (the ``CBOE Release''). This rule 
change was effective upon filing pursuant to Section 19(b)(3)(A) of 
the Act.
    \4\ Exchange Act Release No. 67722 (August 23, 2012), 77 FR 
52375 (August 29, 2012) (SR-NASDAQ-2012-095) (the ``NOM Release''). 
This rule change was effective upon filing pursuant to Section 
19(b)(3)(A) of the Act.
    \5\ Exchange Act Release No. 67700 (August 21, 2012), 77 FR 
51835 (August 27, 2012) (the ``Phlx Release''). This rule change was 
effective upon filing pursuant to Section 19(b)(3)(A) of the Act.
---------------------------------------------------------------------------

Current Quotation Requirements
    Pursuant to ISE Rule 804(e)(1), Primary Market Makers (``PMMs'') 
must maintain continuous quotations in all of the series of the options 
classes to which they are appointed. CMMs do not have a minimum number 
of options classes for which they must enter quotations. Pursuant to 
ISE Rule 804(e)(2)(ii), a CMM may initiate quoting in options classes 
to which it is appointed intraday, but only up to the number of 
appointed options classes for which it participated in the opening 
rotation on that day. Whenever a CMM enters a quote in an options class 
to which it is appointed, it must maintain continuous quotations for 
that series and at least 60% of the series of the options class listed 
on the Exchange until the close of trading that day. Preferenced CMMs 
must maintain continuous quotations for 90% of the series. Rule 804 
does not define the meaning of ``continuous'' nor specify any 
compliance standards associated with the quoting requirements.
CMM Pre-Opening Obligation
    The Exchange proposes to eliminate the requirement that CMMs quote 
before the opening in a minimum number of options classes to put them 
on par with market makers on other options

[[Page 17989]]

exchanges that do not have pre-market quoting obligations.\6\ As 
explained above, ISE Rule 804(e)(2)(ii) currently requires CMMs to 
participate in the opening in at least half of the classes in which it 
enters quotations on a daily basis. The Exchange proposes to eliminate 
this requirement so that CMMs are not restricted in the number of 
options classes they quote during regular trading hours on this basis. 
As a result, CMMs will not have an obligation to quote any options 
classes prior to the opening, just as other options exchanges (e.g., 
Phlx and NOM) do not impose a pre-opening quoting obligation on their 
electronic market makers.
---------------------------------------------------------------------------

    \6\ See NOM Release, supra note 4; and Phlx Rule 
1014(b)(ii)(D)(1) (continuous quoting requirements do not include a 
requirement to enter quotes before the opening).
---------------------------------------------------------------------------

    Exchange market makers have indicated that the Exchange's 
requirement to participate in the opening for a minimum number of 
securities is a deterrent to providing liquidity on the ISE. Such 
market makers have indicated that, unlike other options exchanges such 
as Phlx and NOM, the current ISE rule restricts the number of option 
classes in which they enter quotations during regular market hours. 
Thus, the proposed rule change will level the playing field with 
respect to pre-opening obligations while encouraging greater liquidity 
on the ISE during regular trading hours.
    Moreover, the Exchange notes that under the current structure of 
the rule, options classes currently may not have CMM participation in 
the opening process and that in such cases the PMM provides liquidity 
when necessary. Accordingly, the proposal will have no impact on the 
functioning of the ISE's opening process, but will serve to encourage 
greater liquidity during regular trading hours by allowing CMMs to 
quote additional options classes. The Exchange further believes that 
eliminating pre-opening obligations would be pro-competitive in that it 
will attract more market makers to the Exchange, thereby increasing the 
amount of liquidity on the ISE.
Calculation of CMM Continuous Quotation Requirements
    As noted above, currently under ISE Rule 804(e)(2)(iii), once a CMM 
chooses to enter quotations in an options class, it is required to 
quote 60% of the series of the options class (90% for preferenced CMMs) 
until the end of the trading day. The Exchange proposes to modify this 
requirement to be 60% of the time an options class is open for trading 
on the Exchange (90% of the time for preferenced market makers). 
Currently, some options exchanges, such as NYSE Amex and NYSE Arca, 
apply a 60% minimum quoting requirement as a percentage of time rather 
than as a percentage of the series of a class.\7\ Under the proposal, 
the Exchange will calculate the percentage of time a market maker 
quotes by dividing the number of minutes a market maker entered quotes 
in series of an options class (the numerator) by the total minutes all 
series of the options class were open for trading on the Exchange 
(denominator).\8\
---------------------------------------------------------------------------

    \7\ NYSE Amex Rule 925.1NY(c); and NYSE Arca Rule 6.37B(c).
    \8\ For example, if a market maker quotes an options class that 
has 150 series all of which opened at 9:30 a.m. the denominator will 
be 150 x 390 minutes, or 58,500 minutes. The minimum CMM quoting 
requirement would therefore be 35,100 minutes (60% of 58,500 
minutes).
---------------------------------------------------------------------------

    The Exchange believes that imposing minimum CMM quoting 
requirements based on a percentage of series or as a percentage of time 
achieves the same result in terms of the amount of liquidity being 
provided by a market maker, but that measuring market maker 
participation in terms of a percentage time is a more reasonable and 
fair way of evaluating whether market makers are providing appropriate 
levels of liquidity to the market. For example, when measured as a 
percentage of series, a market maker that continuously quoted 80% of 
the series of an options class for an entire day, except for a 5 minute 
period where it quoted only 58% of the series, may be deemed in 
violation of the current minimum quoting requirement, even though such 
market maker provided more liquidity to the market than a CMM that 
continuously quoted the minimum 60% of the series for the entire 
day.\9\ Accordingly, the Exchange believes that measuring the minimum 
quoting requirements in terms of a percentage of time, in the same 
manner as NYSE Amex and NYSE Arca are doing currently, will more fairly 
achieve the objective of the minimum quoting requirements.
---------------------------------------------------------------------------

    \9\ If an options class has 100 options series, a market maker 
that quotes 60% of the series continuously for an entire trading day 
provides liquidity for 60 series x 390 minutes, which equals 23,400 
minutes. A market maker that provides liquidity for 80 series for 
385 minutes and 58 series for 5 minutes provides liquidity for a 
total of 31,090 minutes.
---------------------------------------------------------------------------

Quotation Compliance Standards
    Rule 804 does not currently contain any standards by which 
compliance with market maker continuous quotation requirements are 
measured. Specifically, Rule 804 does not provide any guidance on how 
market makers satisfy their continuous quotation requirements, nor the 
method by which the Exchange reviews whether a market maker has met its 
quoting obligations. In contrast, Phlx and CBOE rules specify that 
market makers must quote 90% of the time to meet their continuous 
quotation requirements.\10\ Many exchanges also have established a time 
period of one month to determine whether a market maker has met its 
quoting obligation, stating that compliance with the continuous quoting 
obligations will be determined collectively across all options classes 
on a monthly basis.\11\ These exchanges' rules also explicitly state 
that periods where market makers fail to maintain continuous quotes due 
to technical problems are not considered when determining whether 
market makers satisfied their quoting obligations.\12\ The Exchange 
proposes to adopt similar provisions under ISE Rule 804.
---------------------------------------------------------------------------

    \10\ Phlx Rule 1014(b)(ii)(D); CBOE Rule 1.1(ccc) (as amended by 
CBOE Release, supra note 3).
    \11\ Phlx Release, supra note 5; NYSE Amex Rule 925.1NY and NYSE 
Arca Rule 6.37B.
    \12\ Id. Market makers will be required to promptly notify the 
Exchange of any technical problems that prevent them from 
maintaining continuous quotes. In normal circumstances, such 
notification should be made on the same trading day.
---------------------------------------------------------------------------

    Specifically, the Exchange proposes to state in Supplementary 
Material to Rule 804 that PMMs shall be deemed to have provided 
continuous quotes pursuant to Rule 804(e)(1) if they provide two-sided 
quotes for 90% of the time that the Exchange is open for trading.\13\ 
The Exchange further proposes to state that compliance with the PMM and 
CMM quoting requirements will be applied to all options classes quoted 
collectively on a daily basis and will be determined on a monthly 
basis.\14\ Further, the Exchange proposes to specify that if a 
technical failure or limitation of a system of the Exchange prevents a

[[Page 17990]]

market maker from maintaining, or prevents a market maker from 
communicating to the Exchange, timely and accurate quotes, the duration 
of such failure will not be considered in determining whether the 
market maker has satisfied its quoting obligations. Additionally the 
proposed text states that the Exchange may consider other exceptions to 
the continuous quoting obligation based on demonstrated legal or 
regulatory requirements or other mitigating circumstances. Finally, the 
Exchange proposes to specify that the CMM continuous quoting 
requirements do not include adjusted options series or long-term 
options.\15\ All of these proposed changes are consistent with the 
rules of other options exchanges.\16\
---------------------------------------------------------------------------

    \13\ This provision would apply only to PMMs and not to CMMs, as 
CMMs would no longer have an obligation to continuously quote a 
minimum number of series under the proposal. To calculate whether a 
PMM has maintained quotations for at least 90% of the time, the 
Exchange will divide the total number of minutes a PMM maintained 
quotations in options series of a class (the numerator) by the total 
minutes all series of the options class were open for trading on the 
Exchange (the denominator).
    \14\ Compliance with market maker quoting obligations will be 
determined on a monthly basis. However, the ability of the Exchange 
to determine compliance on a monthly basis does not: (1) Relieve 
market makers from their obligation to meet daily quoting 
requirements in Rule 804; and (2) prohibit the Exchange from 
bringing disciplinary action against a market maker for failure to 
meet its daily quoting requirements set forth in Rule 804. The 
Exchange provides daily reports to market makers to enable them to 
monitor their compliance with quoting requirements. The Exchange 
will continue to provide such daily reports and to monitor market 
maker compliance on a daily basis.
    \15\ Adjusted options series are series wherein, as a result of 
a corporate action by the issuer of the underlying security, one 
options contract in the series represents the delivery of other than 
100 shares of underlying stock or exchange-traded fund shares. Long-
term options are series with a time to expiration of nine (9) months 
or greater for options on equities and exchange-traded funds, and 
options with a time to expiration of twelve (12) months or greater 
for index options. CMMs may choose to quote such series in addition 
to regular series in the options class, but such quotations will not 
be considered when determining whether a CMM has met the obligation 
contained in paragraph (e)(2)(iii). Thus, such series are not 
included in the denominator nor are any quotes entered in such 
series included in the numerator when the Exchange calculates the 
percentage of time a market maker has quoted an options class. See 
supra note 8 and accompanying text. This exclusion is limited to CMM 
quoting requirements. The PMM quoting requirements include all 
series of an appointed options class, including adjusted series and 
long-term options. A CMM that chooses to quote adjusted series and/
or long-term options must meet all of the quoting obligations 
applicable to CMMs generally, and may be preferenced in such series 
and receive enhanced allocations pursuant to ISE Rule 713, 
Supplementary Material .03, only if it complies with the heightened 
90% quoting requirement contained in Rule 804(e)(2)(iii).
    \16\ With respect to compliance standards, see CBOE Rule 
1.1(ccc); NYSE Arca Rule 6.37B; NYSE Amex Rule 925.1NY; and Phlx 
Rule 1014(d)(4). With respect to excluding adjusted series and long 
term options from the CMM quoting obligation, see CBOE Rule 
8.7(d)(ii)(B) (requiring market makers to maintain continuous 
electronic quotes in 60% of the non-adjusted options series that 
have a time to expiration of less than nine months); NYSE Arca Rule 
6.37B, Commentary .01; NYSE Amex Rule 9.25.1NY, Commentary .01; and 
Phlx Rule 1014(d)(4).
---------------------------------------------------------------------------

    The proposal assures that compliance standards for two-sided 
quoting will be the same on the ISE as on other options exchanges. The 
Exchange believes these standards are appropriate, and that applying 
consistent standards across options exchanges lessens compliance 
burdens on members and reduces the potential for regulatory arbitrage. 
Specifically, specifying that PMMs satisfy their quoting obligations if 
they quote at least 90% of the time will provide clarity and allow PMMs 
to better monitor whether they are in compliance with their continuous 
quoting obligations.\17\ Moreover, the Exchange believes that applying 
the quoting requirements for market makers collectively across all 
options classes and measuring such compliance over a monthly basis is a 
fair and more efficient way for the Exchange and market participants to 
evaluate compliance with market maker continuous quoting 
requirements.\18\
---------------------------------------------------------------------------

    \17\ See supra note 14.
    \18\ On the basis of the daily reports, the Exchange will 
continue to inform market makers if they are failing to achieve 
their quoting requirements. Moreover, on the basis of daily 
monitoring activity, the Exchange can determine whether market 
makers violated any other Exchange rules such as, for example, Rule 
400 regarding just and equitable principles of trade. Such daily 
monitoring will allow the Exchange to investigate unusual activity 
and to take appropriate regulatory action.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Securities Exchange Act of 1934 \19\ (the 
``Act'') in general, and furthers the objectives of Section 6(b)(5) of 
the Act \20\ in particular, in that it is 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 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. All of the proposed changes are 
consistent with standards currently in place at other options 
exchanges. As such, the proposed change conform ISE market maker 
obligations to the requirements of competing markets, which will 
promote the application of consistent trading practices across markets 
that provide market makers with similar benefits. In this respect, the 
Exchange notes that CBOE, Phlx and NYSE Amex all have market structures 
that allocate trades to market makers in a manner similar to the 
ISE.\21\ However, the Exchange also notes that the same market maker 
obligations currently are being applied on competitive exchanges to 
options classes traded in a price-time market structure (such as Arca). 
While these different markets and market structures may provide 
slightly different benefits to market makers, the Exchange does not 
believe these differences are sufficient to out-weigh the significant 
existing competitive burden applying more stringent quotation 
requirements places on the Exchange.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ See, e.g., CBOE Rule 6.45A and NYSE Amex Rule 964NY.
---------------------------------------------------------------------------

    Specifically, with respect to the proposal to eliminate the 
requirement that CMMs quote before the opening in a minimum number of 
options classes, the Exchange believes that the proposal removes a 
requirement that is unnecessary, as evidenced by the fact that it does 
not exist on other competitive markets. The Exchange operates in a 
highly competitive market comprised of eleven U.S. options exchanges in 
which sophisticated and knowledgeable market participants can, and do, 
send order flow and/or provide liquidity to competing exchanges if they 
deem trading practices at a particular exchange to be onerous or 
cumbersome. With this proposal, ISE market makers will be relieved of a 
requirement that limits their ability to provide liquidity during 
regular market hours and places a burden upon them that does not exist 
on other competitive markets with similar market structures. The 
Exchange believes that eliminating pre-opening quoting obligations will 
attract more CMMs to the Exchange, thereby increasing competition and 
liquidity on the ISE.
    With respect to the proposal to base the CMMs minimum quotation 
requirements on a percentage of time rather than as a percentage of 
series, the Exchange believes that that measuring market maker 
participation in terms of a percentage of time is a more reasonable and 
fair way of evaluating whether market makers are providing appropriate 
levels of liquidity to the market. Moreover, the Exchange believes that 
measuring the minimum quoting requirements in terms of a percentage of 
time, as NYSE Amex and NYSE Arca are doing currently, will provide a 
better measure of the level of liquidity being provided by market 
makers.
    Finally, with respect to compliance standards, the Exchange 
believes that adopting the proposed standards will enhance compliance 
efforts by market makers and the Exchange, and are consistent with the 
requirements currently in place on other exchanges. The proposal 
ensures that compliance standards for continuous quoting will be the 
same on the Exchange as on other options exchanges, and the proposal to 
exclude adjusted series and long-term options from the CMM continuous 
quoting requirements assures that the quotation requirements are being 
applied similarly across exchanges,

[[Page 17991]]

such as the CBOE, Phlx, NYSE Amex and NYSE Arca.\22\
---------------------------------------------------------------------------

    \22\ See supra note 16. In this respect, the Exchange notes that 
NYSE Arca and NYSE Amex exclude adjusted series and long-term 
options from the quoting requirements for all market makers, 
including those markets' equivalent of the ISE's PMMs. For quote 
mitigation purposes, Arca only disseminates quotes in active options 
series. NYSE Arca Rule 6.86, Commentary .03, and NYSE Amex Rule 
970.1NY. The ISE, however, has not implemented a similar approach to 
quote mitigation. Rather, the ISE disseminates quotations in all 
options series listed on the exchange, and pursuant to ISE Rule 
804(e)(1) the ISE requires PMMs to maintain continuous quotations in 
all listed series of their appointed options classes, including 
adjusted series and long-term options. Thus, the Exchange does not 
believe that it is necessary to require CMMs to quote such series, 
and that it is appropriate to exclude such options series from the 
CMM quoting requirements contained in ISE Rule 804(e)(ii) in the 
interest of applying consistent standards across exchanges for non-
specialist market makers, such as CBOE and Phlx, as well as NYSE 
Arca and NYSE Amex. See supra note 16.
---------------------------------------------------------------------------

    While under the proposal the quoting requirements are changing, the 
Exchange does not believe that these changes reduce the overall 
obligations applicable to market makers. In this respect, the Exchange 
notes that such market makers are subject to many obligations, 
including the obligation to maintain a fair and orderly market in their 
appointed classes, which the Exchange believes eliminates the risk of a 
material decrease in liquidity. In addition to this and other 
requirements applicable to market maker quotations under Rules 803 and 
804, PMMs continue to have an obligation to conduct the opening and 
enter continuous quotations in all of the series of their appointed 
options classes and to do so within maximum spread requirements. CMMs 
have an obligation to maintain continuous quotes for at least 60% of 
the time the options class is open for trading on the Exchange (as 
opposed to 60% of the series), and to do so within maximum spread 
requirements. Preferenced market makers will continue to have a 
heighted quotation requirement, as they are required to maintain 
continuous quotes for at least 90% of the time the options class is 
open for trading on the Exchange (as opposed to 90% of the series) and 
to do so within maximum spread requirements. Additionally, CMMs will 
continue to be obligated to enter quotes whenever, in the judgment of 
an Exchange official, it is necessary to do so in the interest of fair 
and orderly markets.\23\ Accordingly, the benefits the proposed rule 
change confers upon market makers are offset by the continued 
responsibilities to provide significant liquidity to the market to the 
benefit of market participants.
---------------------------------------------------------------------------

    \23\ ISE Rule 804(e)((2)(iv).
---------------------------------------------------------------------------

    For the foregoing reasons, the Exchange believes that the balance 
between the benefits provided to market makers and the obligations 
imposed upon market makers by the proposed rule change is appropriate.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the current quotation requirements act 
as a competitive disadvantage that limits the ISE's ability to attract 
liquidity providers. The proposal is comparable to current rules at 
competing options exchanges related to market-maker continuous quoting 
obligations and will ensure fair competition among the options exchange 
that provide market makers with similar benefits. Accordingly, the 
Exchange believes that the proposal will enable the Exchange to attract 
additional CMMs, thereby increasing competition and liquidity on the 
ISE.

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) \24\ of the Act and Rule 19b-
4(f)(6) \25\ 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.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78s(b)(3)(A).
    \25\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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 email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2013-17 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-2013-17. 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 Web site (https://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 Web site 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 such 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-2013-17 and should be 
submitted on or before April 15, 2013.


[[Page 17992]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
---------------------------------------------------------------------------

    \26\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06716 Filed 3-22-13; 8:45 am]
BILLING CODE 8011-01-P
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