Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change on Non-Customer Linkage and Sweep Orders, 48811-48814 [2014-19474]

Download as PDF Federal Register / Vol. 79, No. 159 / Monday, August 18, 2014 / Notices the Fund will continue to comply with all initial and continued listing requirements under BATS Rule 14.11(i). The Adviser represents that the purpose of this change is to provide additional flexibility to the Adviser to meet the Fund’s investment objective, as discussed above. The Adviser represents that there is no change to the Fund’s investment objective. Except for the changes noted above, all other representations made in the Prior Filing remain unchanged. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Act. The proposed changes to the Fund’s means of achieving the investment objective will permit the Fund to adjust its portfolio to allow the Fund to continue to meet its investment objectives by investing in Derivatives in a manner consistent with other actively-managed exchange-traded funds and will enhance competition among other issues of Managed Fund Shares. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action mstockstill on DSK4VPTVN1PROD with NOTICES The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 13 and Rule 19b– 4(f)(6) thereunder.14 Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it is filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b– 4(f)(6)(iii) thereunder.15 At any time within 60 days of the filing of the proposed rule change, the 13 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 15 17 CFR 240.19b–4(f)(6)(iii). As required under Rule 19b–4(f)(6), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change. 14 17 VerDate Mar<15>2010 16:57 Aug 15, 2014 Jkt 232001 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 (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– BATS–2014–031 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–BATS–2014–031. 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 (http://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 at 100 F Street NE., Washington, DC 20549–1090 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–BATS– 2014–031, and should be submitted on or before September 8, 2014. PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 48811 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–19477 Filed 8–15–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–72816; File No. SR–ISE– 2014–37] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change on Non-Customer Linkage and Sweep Orders August 12, 2014. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on July 31, 2014, the International Securities Exchange, LLC (‘‘Exchange’’ or ‘‘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 self-regulatory organization. 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 ISE proposes to amend its rules to introduce away market routing for Non-Customer Orders, and to implement a new order type: the ‘‘Sweep Order.’’ The text of the proposed rule change is available on the Exchange’s Web site (http:// 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 self-regulatory organization 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 16 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\18AUN1.SGM 18AUN1 48812 Federal Register / Vol. 79, No. 159 / Monday, August 18, 2014 / Notices 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 Under the Options Order Protection and Locked/Crossed Market Plan (the ‘‘Plan’’), the ISE cannot execute orders at a price that is inferior to the best price available at other options exchanges (i.e., ‘‘Protected Bids’’ and ‘‘Protected Offers’’).3 In compliance with this requirement, marketable orders that cannot be executed at the national best bid or offer (‘‘NBBO’’) or better, are instead exposed to all Members for up to one second before, if necessary, being routed to away markets by an unaffiliated Linkage Handler,4 in the case of Public Customer Orders,5 or cancelled, in the case of Non-Customer Orders.6 The Exchange now proposes to supplement its away market routing capabilities by expanding this service to include Non-Customer Orders. Under current Supplementary Material .02 to Rule 1901, if after a NonCustomer Order is exposed, the order cannot be executed in full on the Exchange at the then-current NBBO or better (i) the balance of the order will be placed on the ISE book if it is not marketable against the then-current NBBO, or (ii) the balance of the order will be canceled.7 With the proposed changes to this rule, any unexecuted balance of a Non-Customer Order will now be eligible for away market routing instead of being cancelled after the order is exposed. As with Public Customer Orders today,8 if after a NonCustomer Order is exposed, the order is marketable but cannot be executed in full on the ISE at the then-current NBBO or better, the balance of the order will be sent to the Linkage Handler for routing, up to the full displayed size of the Protected Bids or Protected Offers that are priced better than ISE’s quote. 3 See Rule 1900(o); ISE Rule 1901. Linkage Handler is an unaffiliated broker dealer with which the Exchange has contracted to provide routing services in connection with the Plan. See Supplementary Material .03 to Rule 1901. 5 A Public Customer Order is an order for the account of a person or entity that is not a broker or dealer in securities. See ISE Rules 100(a)(38)– (39). 6 A Non-Customer Order is an order for the account of a person or entity that is a broker or dealer in securities. See ISE Rules 100(a)(27)–(28). 7 See Supplementary Material .02(e) to Rule 1901. Both Public Customer Orders and Non-Customer Orders that are marked ‘‘do-not-route’’ under this section will continue to be handled in this manner. 8 See Supplementary Material .02(d) to Rule 1901. mstockstill on DSK4VPTVN1PROD with NOTICES 4A VerDate Mar<15>2010 16:57 Aug 15, 2014 Jkt 232001 Any balance of the order will be executed on the ISE if it is marketable, and any additional balance that is not marketable against the then-current NBBO will be placed on the ISE book. Members that do not wish to have their Non-Customer Orders exposed prior to being routed to away markets by the Linkage Handler will also have that option. In particular, new Supplementary Material .04 to Rule 1901 provides that Members can choose to have their marketable Non-Customer Orders sent immediately to the Linkage Handler for routing if the automatic execution of the order would trade through another exchange’s quote. In such cases, the order will not be exposed on the ISE and the Linkage Handler will immediately route the balance of the order to away markets, up to the full displayed size of any better priced Protected Bids and Protected Offers. Any balance of the order will be executed on the ISE if it is marketable, and any additional balance that is not marketable against the then-current NBBO will be placed on the ISE book. If an order marked ‘‘do-not-route’’ under this section cannot be executed in full on the ISE at the NBBO or better, the balance of the order will be placed on the ISE book if it is not marketable, or the balance of the order will be cancelled. Example: 1. ISE has 3 offers in ABC option: $1.20 for 5 contracts, $1.21 for 15 contracts, and $1.22 for 25 contracts 2. PHLX has a best offer of $1.19 for 10 contracts 3. CBOE has a best offer of $1.21 for 15 contracts 4. Amex has a best offer of $1.22 for 10 contracts Non-Customer Order to Buy 85 contracts with a limit price of $1.21; Opted out of Flash Auction 1. No Flash Auction; Linkage Handler routes 10 contracts to PHLX at $1.19 2. ISE executes 5 contracts at $1.20 and 15 contracts at $1.21 3. Linkage Handler routes 15 contracts to CBOE at $1.21 4. Remaining 40 contracts placed on the ISE book with limit price of $1.21 In addition, the Exchange proposes to adopt new Supplementary Material .05 to Rule 1901 which introduces a new order type intended to facilitate routing of Public Customer and Non-Customer Orders to away markets. A ‘‘Sweep Order’’ is a limit order that is executed against any available interest in the ISE order book at the NBBO or better and immediately sent to the Linkage Handler for away market routing. Sweep PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 orders will not be exposed to Members prior to being routed to away markets, and will instead be handled in a manner similar to Non-Customer Orders that have opted out of being exposed under new Supplementary Material .04 to Rule 1901, described above. In particular, when the automatic execution of a marketable Sweep Order would trade through another exchange’s quote, the balance of the order, up to the full displayed size of any better priced Protected Bids and Protected Offers, will be sent to the Linkage Handler for routing, with any additional balance being executed on the ISE if the order is marketable. Unlike Non-Customer Orders executed pursuant to Supplementary Material .04 to Rule 1901, however, any portion of a Sweep Order that is not executed will be cancelled rather than placed on the ISE book. Similarly, if the Sweep Order is not marketable when it is submitted to the Exchange it will be cancelled on receipt. In conjunction with the introduction of Sweep Orders the Exchange also proposes to amend Rule 805(a) to allow market makers to submit Sweep Orders in their appointed options classes.9 Example: 1. ISE has 3 offers in ABC option: $1.20 for 5 contracts, $1.21 for 15 contracts, and $1.22 for 25 contracts 2. PHLX has a best offer of $1.19 for 10 contracts 3. CBOE has a best offer of $1.21 for 15 contracts 4. Amex has a best offer of $1.22 for 10 contracts Sweep Order to Buy 85 contracts with a limit price of $1.21 1. No Flash Auction; Linkage Handler routes 10 contracts to PHLX at $1.19 2. ISE executes 5 contracts at $1.20 and 15 contracts at $1.21 3. Linkage Handler routes 15 contracts to CBOE at $1.21 4. Remaining 40 contracts cancelled 2. Basis The Exchange believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6(b) of the Act.10 In particular, the proposal is consistent with Section 6(b)(5) of the 9 Market makers are currently permitted to submit the following order types in their appointed options classes: opening only orders, immediate-or-cancel (‘‘IOC’’) orders, market orders, fill-or-kill orders, complex orders, and certain block orders and nondisplayed penny orders. See ISE Rule 805(a). 10 15 U.S.C. 78f(b). E:\FR\FM\18AUN1.SGM 18AUN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 159 / Monday, August 18, 2014 / Notices Act,11 because it is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest. Currently, the Exchange only routes Public Customer orders to away markets, and cancels any marketable Non-Customer orders that cannot be executed on the ISE in compliance with the Options Order Protection and Locked/Crossed Market Plan. The proposed rule change removes impediments to and perfects the mechanism of a free and open market and a national market system by enabling Non-Customer Orders entered on the ISE to access liquidity on other exchanges for the first time. Comparable functionality is available to both Public Customer and Non-Customer Orders on other options exchanges, including, for example, NYSE Arca Options (‘‘Arca’’).12 The Exchange believes that it is in the public interest to similarly allow ISE Members to access betterpriced liquidity on other markets regardless of whether their orders are for the account of a Public Customer. In addition, the Exchange notes that NonCustomer routing will be purely voluntary, and Members that do not want their Non-Customer Orders routed to other options exchanges, or exposed on the ISE, will be able to opt out of those services. Giving Members the additional choice of having their NonCustomer Orders executed against available interest on other markets displaying better prices will improve firms’ quality of execution. The introduction of Sweep Orders on the ISE also removes impediments to and perfects the mechanism of a free and open market and a national market system because this new order type will further facilitate routing of Public Customer and Non-Customer Orders to other options exchanges. By forgoing exposure on the ISE prior to routing and cancelling any unexecuted balance of a Sweep Order, this new order type is designed to allow Members to quickly access available liquidity on the ISE and away markets. Other options exchanges also have order types similar to the proposed Sweep Order. For example, Arca offers a ‘‘NOW Order’’ that checks for available interest on the Arca order book before being routed away, with any unexecuted portion of the order being immediately cancelled.13 The ISE believes that its proposed Sweep Order U.S.C. 78f(b)(5). Arca Rule 6.76A(c). 13 See Arca Rule 6.62(o). offering is competitive with order types already in place on other markets, and will allow Members to receive fast executions against interest available across all options exchanges. Finally, the ISE believes that it is in the public interest to allow market makers to enter Sweep Orders in their appointed options classes so that they can use this order type to access liquidity on the ISE and other options exchanges. Under ISE Rules, Market Makers are permitted to provide resting liquidity in their appointed classes through the use of quotes entered in compliance with Rule 804. In order to access liquidity provided by other firms, however, Market Makers use IOC and other order types that do not rest on the regular order book.14 Because any portion of a Sweep Order that is not executed is cancelled, the proposed addition of Sweep Orders to the list of order types that market makers may use in their appointed classes is generally consistent with Rule 805(a), which was intended to prevent market makers from having both standing limit orders and quotes in the same options class. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. To the contrary, the Exchange believes that the proposed rule change is pro-competitive because it expands away market routing functionality that is currently limited to Public Customer Orders. With the proposed change, both Public Customer and Non-Customer Orders will be able to access better-priced liquidity on other competing markets when the ISE is not at the NBBO. Similar functionality is currently available at other options exchanges.15 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: (i) significantly affect 11 15 12 See VerDate Mar<15>2010 16:57 Aug 15, 2014 14 See 15 See Jkt 232001 PO 00000 supra note 9. supra notes 12 and 13. Frm 00094 Fmt 4703 Sfmt 4703 48813 the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) 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)(ii) of the Act 16 and subparagraph (f)(6) of Rule 19b-4 thereunder.17 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. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. 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 (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– ISE–2014–37 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–ISE–2014–37. 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 (http://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 16 15 U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires the Exchange to give the Commission written notice of the Exchange’s 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 of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 17 17 E:\FR\FM\18AUN1.SGM 18AUN1 48814 Federal Register / Vol. 79, No. 159 / Monday, August 18, 2014 / Notices 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 ISE. 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– 2014–37 and should be submitted on or before September 8, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Kevin M. O’Neill, Deputy Secretary. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its Fees Schedule. The text of the proposed rule change is available on the Exchange’s Web site (http:// www.cboe.com/AboutCBOE/ CBOELegalRegulatoryHome.aspx), at the Exchange’s Office of the Secretary, 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 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 [FR Doc. 2014–19474 Filed 8–15–14; 8:45 am] BILLING CODE 8011–01–P 1. Purpose SECURITIES AND EXCHANGE COMMISSION [Release No. 34–72822; File No. SR–CBOE– 2014–061] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Its Fees Schedule mstockstill on DSK4VPTVN1PROD with NOTICES August 12, 2014. 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 August 1, 2014, Chicago Board Options Exchange, Incorporated (the ‘‘Exchange’’ or ‘‘CBOE’’) filed with the Securities and Exchange Commission (the ‘‘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. 18 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 16:57 Aug 15, 2014 Jkt 232001 The Exchange proposes to amend its Fees Schedule applicable to the PULSe workstation monthly fee. By way of background, the PULSe workstation is a front-end order entry system designed for use with respect to orders that may be sent to the trading systems of CBOE. The Exchange currently charges firms a fee of $350 per month for the first 10 Trading Permit Holder workstations (‘‘TPH Workstations’’) and $100 per month for all subsequent TPH Workstations. TPHs may also make a workstation available to their customers, which may include non-broker dealer public customers and non-TPH broker dealers (referred to herein as ‘‘non-TPH Workstations’’). For such non-TPH Workstations, the Exchange currently charges a fee of $350 per month per workstation.3 In addition, the Exchange waives the monthly workstation fees for the first month for the first new user of a TPH or non-TPH using a PULSe workstation.4 3 In instances where two or more TPHs wish to make a PULSe workstation available to the same non-TPH customer, a fee reduction applies. Under the reduction, if two or more TPHs make the PULSe workstation available to the same non-TPH. 4 A TPH or non-TPH Workstation is utilized by a ‘‘user’’ with a specific user login. When a firm with an existing workstation, either TPH or non- PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 The purpose of this proposed rule change is to modify the limited fee waiver available to new users of a TPH or non-TPH Workstation. Specifically, in order to give new users time to become familiar with and fully acclimated to the PULSe workstation functionality, the Exchange proposes to waive the monthly workstation fees for the first two months for all new users 5 between August 1, 2014 and December 31, 2014.6 In addition, the fee for August 2014 is waived for any users that became new users in July 2014. After December 31, 2014, the PULSe workstation fee will revert to its current form, which provides that the fee is waived for the first month for the first new user of a TPH or non-TPH workstation. The proposed fee waivers are based on CBOE’s billing period, which is based on a calendar month (i.e., begins on the first day of each month and ends on the last day of each month). For example, if a firm has a new user that begins using a PULSe workstation on August 15th, the firm’s workstation fees for the new user would be waived from August 15th— September 30th (i.e., their August and September bills would not have a charge for the new user’s workstation) or if a firm has a new user that begins using a PULSe workstation on September 25th, the firm’s workstation fees for the new user would be waived from September 25th—October 31st (i.e., their September and October bills would not have a charge for the new user’s workstation). 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the ‘‘Act’’) and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.7 Specifically, TPH, adds another workstation another user login is generated. Currently, the firm receives a one month fee waiver for the workstation utilized by the new user login, but continues to pay the fee for the previous workstation. 5 A firm that is currently utilizing a TPH or nonTPH Workstation but seeks to add another workstation is adding a new user. The proposal allows for a fee waiver for all new users between August 1, 2014 and December 31, 2014. For example, if a firm has one workstation and adds three more in August, the firm will get a fee waiver for the three new workstations for two months (i.e., their August and December [sic] bill will not have a charge for the three new workstations). A firm that is not currently utilizing a TPH or non-TPH Workstation may also add any number of workstations from August 1, 2014 and December 31, 2014, and receive the same two month fee waiver. 6 If a firm has a new user in December, the firm will receive a fee waiver for that user for December 2014 and January 2015. 7 15 U.S.C. 78f(b). E:\FR\FM\18AUN1.SGM 18AUN1

Agencies

[Federal Register Volume 79, Number 159 (Monday, August 18, 2014)]
[Notices]
[Pages 48811-48814]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-19474]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72816; File No. SR-ISE-2014-37]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change on Non-Customer Linkage and Sweep Orders

August 12, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 31, 2014, the International Securities Exchange, LLC 
(``Exchange'' or ``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 self-
regulatory organization. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE proposes to amend its rules to introduce away market 
routing for Non-Customer Orders, and to implement a new order type: the 
``Sweep Order.'' The text of the proposed rule change is available on 
the Exchange's Web site (http://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 self-regulatory organization 
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

[[Page 48812]]

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
    Under the Options Order Protection and Locked/Crossed Market Plan 
(the ``Plan''), the ISE cannot execute orders at a price that is 
inferior to the best price available at other options exchanges (i.e., 
``Protected Bids'' and ``Protected Offers'').\3\ In compliance with 
this requirement, marketable orders that cannot be executed at the 
national best bid or offer (``NBBO'') or better, are instead exposed to 
all Members for up to one second before, if necessary, being routed to 
away markets by an unaffiliated Linkage Handler,\4\ in the case of 
Public Customer Orders,\5\ or cancelled, in the case of Non-Customer 
Orders.\6\ The Exchange now proposes to supplement its away market 
routing capabilities by expanding this service to include Non-Customer 
Orders.
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    \3\ See Rule 1900(o); ISE Rule 1901.
    \4\ A Linkage Handler is an unaffiliated broker dealer with 
which the Exchange has contracted to provide routing services in 
connection with the Plan. See Supplementary Material .03 to Rule 
1901.
    \5\ A Public Customer Order is an order for the account of a 
person or entity that is not a broker or dealer in securities. See 
ISE Rules 100(a)(38)-(39).
    \6\ A Non-Customer Order is an order for the account of a person 
or entity that is a broker or dealer in securities. See ISE Rules 
100(a)(27)-(28).
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    Under current Supplementary Material .02 to Rule 1901, if after a 
Non-Customer Order is exposed, the order cannot be executed in full on 
the Exchange at the then-current NBBO or better (i) the balance of the 
order will be placed on the ISE book if it is not marketable against 
the then-current NBBO, or (ii) the balance of the order will be 
canceled.\7\ With the proposed changes to this rule, any unexecuted 
balance of a Non-Customer Order will now be eligible for away market 
routing instead of being cancelled after the order is exposed. As with 
Public Customer Orders today,\8\ if after a Non-Customer Order is 
exposed, the order is marketable but cannot be executed in full on the 
ISE at the then-current NBBO or better, the balance of the order will 
be sent to the Linkage Handler for routing, up to the full displayed 
size of the Protected Bids or Protected Offers that are priced better 
than ISE's quote. Any balance of the order will be executed on the ISE 
if it is marketable, and any additional balance that is not marketable 
against the then-current NBBO will be placed on the ISE book.
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    \7\ See Supplementary Material .02(e) to Rule 1901. Both Public 
Customer Orders and Non-Customer Orders that are marked ``do-not-
route'' under this section will continue to be handled in this 
manner.
    \8\ See Supplementary Material .02(d) to Rule 1901.
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    Members that do not wish to have their Non-Customer Orders exposed 
prior to being routed to away markets by the Linkage Handler will also 
have that option. In particular, new Supplementary Material .04 to Rule 
1901 provides that Members can choose to have their marketable Non-
Customer Orders sent immediately to the Linkage Handler for routing if 
the automatic execution of the order would trade through another 
exchange's quote. In such cases, the order will not be exposed on the 
ISE and the Linkage Handler will immediately route the balance of the 
order to away markets, up to the full displayed size of any better 
priced Protected Bids and Protected Offers. Any balance of the order 
will be executed on the ISE if it is marketable, and any additional 
balance that is not marketable against the then-current NBBO will be 
placed on the ISE book. If an order marked ``do-not-route'' under this 
section cannot be executed in full on the ISE at the NBBO or better, 
the balance of the order will be placed on the ISE book if it is not 
marketable, or the balance of the order will be cancelled.
    Example:

1. ISE has 3 offers in ABC option: $1.20 for 5 contracts, $1.21 for 15 
contracts, and $1.22 for 25 contracts
2. PHLX has a best offer of $1.19 for 10 contracts
3. CBOE has a best offer of $1.21 for 15 contracts
4. Amex has a best offer of $1.22 for 10 contracts

    Non-Customer Order to Buy 85 contracts with a limit price of $1.21; 
Opted out of Flash Auction

1. No Flash Auction; Linkage Handler routes 10 contracts to PHLX at 
$1.19
2. ISE executes 5 contracts at $1.20 and 15 contracts at $1.21
3. Linkage Handler routes 15 contracts to CBOE at $1.21
4. Remaining 40 contracts placed on the ISE book with limit price of 
$1.21

    In addition, the Exchange proposes to adopt new Supplementary 
Material .05 to Rule 1901 which introduces a new order type intended to 
facilitate routing of Public Customer and Non-Customer Orders to away 
markets. A ``Sweep Order'' is a limit order that is executed against 
any available interest in the ISE order book at the NBBO or better and 
immediately sent to the Linkage Handler for away market routing. Sweep 
orders will not be exposed to Members prior to being routed to away 
markets, and will instead be handled in a manner similar to Non-
Customer Orders that have opted out of being exposed under new 
Supplementary Material .04 to Rule 1901, described above. In 
particular, when the automatic execution of a marketable Sweep Order 
would trade through another exchange's quote, the balance of the order, 
up to the full displayed size of any better priced Protected Bids and 
Protected Offers, will be sent to the Linkage Handler for routing, with 
any additional balance being executed on the ISE if the order is 
marketable. Unlike Non-Customer Orders executed pursuant to 
Supplementary Material .04 to Rule 1901, however, any portion of a 
Sweep Order that is not executed will be cancelled rather than placed 
on the ISE book. Similarly, if the Sweep Order is not marketable when 
it is submitted to the Exchange it will be cancelled on receipt. In 
conjunction with the introduction of Sweep Orders the Exchange also 
proposes to amend Rule 805(a) to allow market makers to submit Sweep 
Orders in their appointed options classes.\9\
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    \9\ Market makers are currently permitted to submit the 
following order types in their appointed options classes: opening 
only orders, immediate-or-cancel (``IOC'') orders, market orders, 
fill-or-kill orders, complex orders, and certain block orders and 
non-displayed penny orders. See ISE Rule 805(a).
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    Example:
1. ISE has 3 offers in ABC option: $1.20 for 5 contracts, $1.21 for 15 
contracts, and $1.22 for 25 contracts
2. PHLX has a best offer of $1.19 for 10 contracts
3. CBOE has a best offer of $1.21 for 15 contracts
4. Amex has a best offer of $1.22 for 10 contracts

    Sweep Order to Buy 85 contracts with a limit price of $1.21

1. No Flash Auction; Linkage Handler routes 10 contracts to PHLX at 
$1.19
2. ISE executes 5 contracts at $1.20 and 15 contracts at $1.21
3. Linkage Handler routes 15 contracts to CBOE at $1.21
4. Remaining 40 contracts cancelled
2. Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6(b) of the Act.\10\ In 
particular, the proposal is consistent with Section 6(b)(5) of the

[[Page 48813]]

Act,\11\ because it is designed to promote just and equitable 
principles of trade, remove impediments to and perfect the mechanisms 
of a free and open market and a national market system and, in general, 
to protect investors and the public interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Currently, the Exchange only routes Public Customer orders to away 
markets, and cancels any marketable Non-Customer orders that cannot be 
executed on the ISE in compliance with the Options Order Protection and 
Locked/Crossed Market Plan. The proposed rule change removes 
impediments to and perfects the mechanism of a free and open market and 
a national market system by enabling Non-Customer Orders entered on the 
ISE to access liquidity on other exchanges for the first time. 
Comparable functionality is available to both Public Customer and Non-
Customer Orders on other options exchanges, including, for example, 
NYSE Arca Options (``Arca'').\12\ The Exchange believes that it is in 
the public interest to similarly allow ISE Members to access better-
priced liquidity on other markets regardless of whether their orders 
are for the account of a Public Customer. In addition, the Exchange 
notes that Non-Customer routing will be purely voluntary, and Members 
that do not want their Non-Customer Orders routed to other options 
exchanges, or exposed on the ISE, will be able to opt out of those 
services. Giving Members the additional choice of having their Non-
Customer Orders executed against available interest on other markets 
displaying better prices will improve firms' quality of execution.
---------------------------------------------------------------------------

    \12\ See Arca Rule 6.76A(c).
---------------------------------------------------------------------------

    The introduction of Sweep Orders on the ISE also removes 
impediments to and perfects the mechanism of a free and open market and 
a national market system because this new order type will further 
facilitate routing of Public Customer and Non-Customer Orders to other 
options exchanges. By forgoing exposure on the ISE prior to routing and 
cancelling any unexecuted balance of a Sweep Order, this new order type 
is designed to allow Members to quickly access available liquidity on 
the ISE and away markets. Other options exchanges also have order types 
similar to the proposed Sweep Order. For example, Arca offers a ``NOW 
Order'' that checks for available interest on the Arca order book 
before being routed away, with any unexecuted portion of the order 
being immediately cancelled.\13\ The ISE believes that its proposed 
Sweep Order offering is competitive with order types already in place 
on other markets, and will allow Members to receive fast executions 
against interest available across all options exchanges.
---------------------------------------------------------------------------

    \13\ See Arca Rule 6.62(o).
---------------------------------------------------------------------------

    Finally, the ISE believes that it is in the public interest to 
allow market makers to enter Sweep Orders in their appointed options 
classes so that they can use this order type to access liquidity on the 
ISE and other options exchanges. Under ISE Rules, Market Makers are 
permitted to provide resting liquidity in their appointed classes 
through the use of quotes entered in compliance with Rule 804. In order 
to access liquidity provided by other firms, however, Market Makers use 
IOC and other order types that do not rest on the regular order 
book.\14\ Because any portion of a Sweep Order that is not executed is 
cancelled, the proposed addition of Sweep Orders to the list of order 
types that market makers may use in their appointed classes is 
generally consistent with Rule 805(a), which was intended to prevent 
market makers from having both standing limit orders and quotes in the 
same options class.
---------------------------------------------------------------------------

    \14\ See supra note 9.
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. To the contrary, the 
Exchange believes that the proposed rule change is pro-competitive 
because it expands away market routing functionality that is currently 
limited to Public Customer Orders. With the proposed change, both 
Public Customer and Non-Customer Orders will be able to access better-
priced liquidity on other competing markets when the ISE is not at the 
NBBO. Similar functionality is currently available at other options 
exchanges.\15\
---------------------------------------------------------------------------

    \15\ See supra notes 12 and 13.
---------------------------------------------------------------------------

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: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
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)(ii) of the Act \16\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\17\
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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 of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2014-37 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2014-37. 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 (http://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

[[Page 48814]]

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 ISE. 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-2014-37 and should be submitted on 
or before September 8, 2014.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-19474 Filed 8-15-14; 8:45 am]
BILLING CODE 8011-01-P