Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Make Technical Corrections to ISE Rules, 74797-74800 [2014-29363]

Download as PDF Federal Register / Vol. 79, No. 241 / Tuesday, December 16, 2014 / Notices clearance and settlement of securities transactions. III. Discussion mstockstill on DSK4VPTVN1PROD with NOTICES will be announced via a DTC Important Notice. IV. Conclusion On the basis of the foregoing, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Act and in particular with the requirements of Section 17A of the Act 17 and the rules and regulations thereunder. It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that proposed rule change SR–DTC–2014–10 be, and hereby is, approved.18 Section 19(b)(2)(C) of the Act 11 directs the Commission to approve a proposed rule change of a selfregulatory organization if it finds that such proposed rule change is consistent with the requirements of the Act and rules and regulations thereunder applicable to such organization. Section 17A(b)(3)(F) of the Act requires, among other things, that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions.12 In addition, Rule 17Ad–22(d)(12) of the Act requires that a clearing agency establish, implement, maintain and enforce written policies and procedures reasonably designed to ensure that final settlement occurs no later than the end of the settlement day and require that intraday or real-time finality be provided where necessary to reduce risks.13 The Commission finds the Proposed Rule Change consistent with the Act. More specifically, as the Proposed Rule Change pertains to requiring acceptance through RAD of any affirmed ID Transaction, the Commission finds that the Proposed Rule Change is consistent with Section 17A(b)(3)(F) of the Act 14 because the change will increase the number of deliveries that will require Receiver approval prior to DTC processing. This requirement will reduce the intraday uncertainty and associated risks that may currently arise from same-day reclaims, thus facilitating the prompt and accurate clearance and settlement of securities transactions. The Commission also finds these aspects of the Proposed Rule Change consistent with Rule 17Ad– 22(d)(12) under the Act 15 because more transactions will be subject to DTC’s risk management controls, which helps ensure that final settlement occurs no later than the end of the settlement day. As the Proposed Rule Change pertains to the proposed technical changes, the Commission finds that the Proposed Rule Change is also consistent with Section 17A(b)(3)(F) of the Act 16 because updates to the Guide to make it more clear, consistent, and current supports the prompt and accurate U.S.C. 78s(b)(2)(C). U.S.C. 78q–1(b)(3)(F). 13 17 CFR 240.17Ad–22(d)(12). 14 15 U.S.C. 78q–1(b)(3)(F). 15 17 CFR 240.17Ad–22(d)(12). 16 15 U.S.C. 78q–1(b)(3)(F). 12 15 19:38 Dec 15, 2014 [FR Doc. 2014–29360 Filed 12–15–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–73808; File No. SR–ISE– 2014–54] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Make Technical Corrections to ISE Rules December 10, 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 December 3, 2014, the International Securities Exchange, LLC (the ‘‘Exchange’’ or the ‘‘ISE’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘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 the Substance of the Proposed Rule Change The ISE proposes to make certain technical corrections to ISE rules as described in more detail below. The text of the proposed rule change is available on the Exchange’s Web site (https:// 17 15 U.S.C. 78q–1. approving the proposed rule change, the Commission considered the proposal’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 19 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 18 In 11 15 VerDate Sep<11>2014 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Kevin M. O’Neill, Deputy Secretary. Jkt 235001 PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 74797 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 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 eliminate investor confusion by making certain technical corrections to ISE rules that are either obsolete or outdated, as described in more detail below. 1. Order Type Cleanup The Exchange adopted Customer Participation Orders in August 2005 in order to facilitate members providing access to the Price Improvement Mechanism (‘‘PIM’’) 3 to Public Customers.4 Upon the entry of a Crossing Transaction into the PIM,5 a broadcast message is sent to all members, who then have 500 milliseconds to enter orders that indicate the size and price at which they want to participate in the execution (‘‘Improvement Orders’’).6 The Customer Participation Order is an instruction to the member to enter an 3 The PIM is a process by which an Electronic Access Member can provide price improvement opportunities for a transaction wherein the Electronic Access Member seeks to facilitate an order it represents as agent, and/or a transaction wherein the Electronic Access Member solicited interest to execute against an order it represents as agent (a ‘‘Crossing Transaction’’). See Rule 723(a). 4 See Securities Exchange Act Release No. 52364 (August 31, 2005), 70 FR 53403 (September 8, 2005) (SR–ISE–2005–41). The term ‘‘Public Customer’’ means a person or entity that is not a broker or dealer in securities. See ISE Rule 100(a)(38). 5 A Crossing Transaction is comprised of the order the Electronic Access Member represents as agent (the ‘‘Agency Order’’) and a counter-side order for the full size of the Agency Order (the ‘‘Counter-Side Order’’). The Counter-Side Order may represent interest for the Member’s own account, or interest the Member has solicited from one or more other parties, or a combination of both. See Rule 723(b). 6 See ISE Rule 723(c)(1). E:\FR\FM\16DEN1.SGM 16DEN1 mstockstill on DSK4VPTVN1PROD with NOTICES 74798 Federal Register / Vol. 79, No. 241 / Tuesday, December 16, 2014 / Notices Improvement Order on behalf of a Public Customer. Specifically, a Customer Participation Order is a limit order on behalf of a Public Customer that, in addition to the limit order price in standard increments, includes a price stated in one cent increments at which the Public Customer wishes to participate in trades executed in the same options series in penny increments through the PIM.7 The Exchange no longer offers Customer Participation Orders and therefore proposes to remove this order type from its rules. Furthermore, the Exchange proposes to remove two obsolete references to Customer Participation Orders in other rules. Specifically, the Exchange proposes to remove references to Customer Participation Orders in Supplementary Material .06 to Rule 723, which explains when Improvement Orders can be entered with respect to a Customer Participation Order,8 and in Rule 723(d), which notes that the agency side of an order entered into the PIM may execute against Customer Participation Orders at the end of the exposure period. In September 2008, the ISE adopted rules to allow members to enter nondisplayed orders and quotes in penny increments in designated options with a minimum trading increment greater than one cent (‘‘non-displayed penny orders and quotes’’).9 As proposed in that filing, a non-displayed penny order or quote is available for execution at its penny price but is displayed at the closest minimum trading increment that does not violate the limit price. The Exchange does not offer non-displayed penny orders or quotes and therefore proposes to delete references to this order type from its rules as described below. First, the Exchange proposes to delete Rule 715(b)(4), which defines non-displayed penny order. Second, the Exchange proposes to delete language in Rule 804(b)(1) and Rule 805(a) that permits market makers to enter nondisplayed penny quotes and orders, respectively. Third, the Exchange proposes to delete language in Supplementary Material .06 to Rule 716 concerning split prices for nondisplayed penny orders and quotes entered into the Facilitation and Solicitation Mechanisms. Finally, the Exchange proposes to delete language in Supplementary Material .03 to Rule 717 7 See Rule 715(f). 8 Although Customer Participation Orders are no longer available, members will continue to be able to enter Improvement Orders for the account of Public Customers. 9 See Exchange Act Release No. 58486 (September 8, 2008), 73 FR 53298 (September 15, 2008) (SR– ISE–2008–36). VerDate Sep<11>2014 19:38 Dec 15, 2014 Jkt 235001 concerning the execution of nondisplayed penny orders that an Electronic Access Member represents as agent against principal orders and orders solicited from other broker dealers. 2. No Bid Options/Limit Price Rule 713(b), which deals with priority of orders, provides that if the lowest offer for any options contract is $0.05 then no member shall enter a market order to sell that series, and any such market order shall be considered a limit order to sell at a price of $0.05. This provision is intended to prevent members from submitting market orders to sell in no bid series, which would execute at a price of $0.00, and to instead convert those orders to limit orders with a limit price equal to the minimum trading increment, i.e., $0.05 for most option classes.10 A ‘‘no bid’’ or ‘‘zero bid’’ series refers to an option where the bid price is $0.00. Series of options quoted no bid are usually deep out-of-the-money series that are perceived as having little if any chance of expiring in-the-money. For options that trade in regular nickel increments, a best offer of $0.05 corresponds to a best bid of $0.00, i.e. one minimum trading increment below the offer. However, option series may be no bid with other offer prices as well. For example, an option class would be considered no bid if it is quoted at $0.00 (bid)–$0.15 (offer). In order to avoid having these orders execute at a price of $0.00, the Exchange proposes to clarify that Rule 713(b) applies to all option classes that are quoted no bid, rather than just those option classes that have an offer of $0.05. Furthermore, on January 26th, 2007, the options exchanges commenced a pilot (the ‘‘Penny Pilot’’) to quote and trade options in one cent increments, lowering the minimum trading increment from $0.05 in certain symbols.11 The Exchange therefore proposes to clarify in Rule 713(b) that it will put a limit price equal to the minimum trading increment on market orders to sell a no bid option series. For example, if the deep out-of-the-money SPY December $230.00 call, which is traded in penny increments, is quoted at $0.00 (bid)–$0.03 (offer), a market order 10 Symbols not included in the Penny Pilot (discussed below) generally trade in $0.05 increments if the options contract is trading at less than $3.00 per option, and $0.10 increments if the options contract is trading at $3.00 per option or higher. See Rule 710. 11 See Exchange Act Release No. 55161 (January 24, 2007), 72 FR 4754 (February 1, 2007) (SR–ISE– 2006–62) (Approval Order); 54603 (October 16, 2006), 71 FR 62024 (October 20, 2006) (SR–ISE– 2006–62) (Notice). PO 00000 Frm 00117 Fmt 4703 Sfmt 4703 to sell would instead be treated as a limit order to sell at a price of $0.01. 3. Linkage Rules On April 18, 2013 the Commission approved a proposed rule change that modified the ISE’s linkage handling procedures under the Options Order Protection and Locked/Crossed Market Plan (the ‘‘Plan’’).12 Prior to this rule change Primary Market Makers (‘‘PMMs’’) were responsible for routing orders to away markets when necessary to comply with the Plan. Under the current rules, however, the ISE has contracted with unaffiliated broker dealers to route orders to other exchanges when necessary to comply with the linkage rules (‘‘Linkage Handlers’’). Since PMMs no longer perform linkage handling, the Exchange proposes to move related language in Rule 803, which concerns the obligation of market makers, to Chapter 19. In particular, the Exchange proposes to move Supplementary Material .04 and .05 to Rule 803 to the Supplementary Material to Rule 1901, which contains provisions relevant to linkage handling. In connection with this change, the Exchange also proposes to correct incorrect internal cross references to ‘‘paragraph (c)(2)’’ in this Supplementary Material. Prior to the proposed rule change described above, paragraph (c)(2) of Rule 803 contained language concerning a PMM’s linkage handling function. As away market routing is now handled by Linkage Handlers pursuant to the Supplementary Material to Rule 1901, the Exchange proposes to reference these rules instead. 4. Supplementary Material Finally, the Exchange notes that certain supplementary material is mistakenly labelled as ‘‘supplemental’’ material in the Exchange’s rulebook.13 In order to achieve consistency with how other rules are labelled, the Exchange proposes to change these to instead refer to ‘‘supplementary’’ material. 2. Statutory 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 12 See Securities Exchange Act Release No. 69396 (April 18, 2013), 78 FR 24273 (April 24, 2013) (SR– ISE–2013–18). 13 See ‘‘Supplemental’’ Material to Rules 717, 809, 810, and 1615. See also references in Rule 721(a)(3) to ‘‘Supplemental’’ Material .01 to Rule 717, in Rule 1903 to ‘‘Supplemental’’ Material .02 and .03 to Rule 1901, and in Rule 2011 to the ‘‘Supplemental’’ Material to Rule 2001. E:\FR\FM\16DEN1.SGM 16DEN1 Federal Register / Vol. 79, No. 241 / Tuesday, December 16, 2014 / Notices exchange, and, in particular, with the requirements of Section 6(b) of the Act.14 In particular, the proposal is consistent with Section 6(b)(5) of the Act,15 because 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. As explained in more detail below, the Exchange believes it is appropriate to make the proposed technical corrections to its rules so that members and investors have a clear and accurate understanding of the meaning of the ISE’s rules. mstockstill on DSK4VPTVN1PROD with NOTICES 1. Order Type Cleanup As explained above, the Exchange does not offer Customer Participation Orders or non-displayed penny orders or quotes, and thus proposes to remove obsolete definitions and other outdated references to these order types. The Exchange believes that these changes will eliminate investor confusion regarding order types available for trading on the ISE to the benefit of members of investors. 2. No Bid Options/Limit Price The ISE, along with other options exchanges, currently operates a pilot program to permit designated options classes to be quoted and traded in increments as low as one cent. The Exchange is proposing to amend Rule 713(b) to account for the fact that option classes selected for inclusion in the Penny Pilot are permitted to trade in penny increments. For penny classes that are quoted no bid, the Exchange will convert a market order to sell to a limit order with a price of one cent. In addition, the proposed rule change clarifies that Rule 713(b) applies to all series with a bid of $0.00, and not just those series that also have an offer of $0.05. The proposed rule change is necessary to account for options trading in multiple trading increments, including under the Penny Pilot, and will ensure that market orders to sell are not inadvertently executed at a price of zero. The Exchange believes that these changes more accurately reflect the intent of Rule 713(b), as described above, and will eliminate investor confusion with respect to the operation of this rule by more accurately describing the functionality provided by the Exchange. Moreover, the Exchange notes that other exchanges have similar rules whereby a market order to sell a no bid series is treated as a limit order 14 15 15 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). VerDate Sep<11>2014 19:38 Dec 15, 2014 Jkt 235001 with a limit price equal to the minimum trading increment for the series.16 3. Linkage Rules The proposed changes to the linkage rules are non-substantive and intended to reduce investor confusion by moving rules concerning linkage handling to the appropriate chapter of the Exchange’s rulebook. As explained above, since PMMs previously conducted the linkage handling function, these rules were located in Chapter 8 of the rulebook. With the introduction of away market routing by Linkage Handlers, the Exchange believes that these rules are more appropriately located in Chapter 19. In addition, the Exchange notes that it is correcting related internal cross references. 4. Supplementary Material The proposed change to label supplementary material correctly is non-substantive and is intended to achieve consistency in how these rules are labelled to the benefit of members and investors. 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. The proposed rule change makes technical, non-substantive, amendments to the Exchange’s rules in order to eliminate investor confusion, and is not designed to have any competitive impact. 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 16 See e.g. Securities Exchange Act Release No. 59475 (February 27, 2009), 74 FR 9840 (March 6, 2009) (SR–BX–2009–014) (Notice); 59742 (April 9, 2009), 74 FR 17701 (April 16, 2009). PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 74799 19(b)(3)(A) of the Act 17 and Rule 19b– 4(f)(6) thereunder.18 A proposed rule change filed pursuant to Rule 19b–4(f)(6) under the Act 19 normally does not become operative for 30 days after the date of its filing. However, Rule 19b–4(f)(6)(iii) 20 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Exchange believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest because the proposed rule change makes non-substantive, technical changes to the ISE’s rules. The Exchange believes that these changes should take effect on filing as they increase the clarity of the ISE’s rules to the benefit of members and investors that trade on the Exchange. With respect to the provisions regarding no bid options, the Exchange believes the proposed rule change will update and clarify those rules consistent with treatment on other options exchanges. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest, as it will enhance the clarity of the ISE’s rules and will reduce investor confusion with respect to the operation of the ISE’s rules. Therefore, the Commission hereby waives the operative delay and designates the proposed rule change operative upon filing.21 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 17 15 U.S.C. 78s(b)(3)(A). 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. 19 17 CFR 240.19b–4(f)(6). 20 17 CFR 240.19b–4(f)(6)(iii). 21 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 18 17 E:\FR\FM\16DEN1.SGM 16DEN1 74800 Federal Register / Vol. 79, No. 241 / Tuesday, December 16, 2014 / Notices 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– ISE–2014–54 on the subject line. Paper Comments mstockstill on DSK4VPTVN1PROD with NOTICES • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–ISE–2014–54. 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– 2014–54, and should be submitted on or before January 6, 2015. VerDate Sep<11>2014 19:38 Dec 15, 2014 Jkt 235001 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–29363 Filed 12–15–14; 8:45 am] BILLING CODE 8011–01–P DEPARTMENT OF STATE [Public Notice: 8974] Request for Information for the 2015 Trafficking in Persons Report The Department of State (‘‘the Department’’) requests written information to assist in reporting on the degree to which the United States and foreign governments comply with the minimum standards for the elimination of trafficking in persons (‘‘minimum standards’’) that are prescribed by the Trafficking Victims Protection Act of 2000, (Div. A, Pub. L. 106–386) as amended (‘‘TVPA’’). This information will assist in the preparation of the Trafficking in Persons Report (‘‘TIP Report’’) that the Department submits annually to the U.S. Congress on governments’ level of compliance with the minimum standards. Foreign governments that do not comply with the minimum standards and are not making significant efforts to do so may be subject to restrictions on nonhumanitarian, nontrade-related foreign assistance from the United States, as defined by the TVPA. Submissions must be made in writing to the Office to Monitor and Combat Trafficking in Persons at the Department of State by January 20, 2015. Please refer to the Addresses, Scope of Interest, and Information Sought sections of this Notice for additional instructions on submission requirements. DATES: Submissions must be received by 5 p.m. on January 30, 2015. ADDRESSES: Written submissions and supporting documentation may be submitted by the following methods: Email (preferred): tipreport@state.gov for submissions related to foreign governments and tipreportUS@state.gov for submissions related to the United States. • Facsimile (fax): 202–312–9637. • Mail, Express Delivery, Hand Delivery and Messenger Service: U.S. Department of State, Office to Monitor and Combat Trafficking in Persons (J/ TIP), 1800 G Street NW., Suite 2148, Washington, DC 20520. Please note that materials submitted by mail may be delayed due to security screenings and processing. SUMMARY: 22 17 PO 00000 CFR 200.30–3(a)(12). Frm 00119 Fmt 4703 Sfmt 4703 Scope of Interest: The Department requests information relevant to assessing the United States’ and foreign governments’ compliance with the minimum standards for the elimination of trafficking in persons in the year 2014. The minimum standards for the elimination of trafficking in persons are listed in the Background section. Submissions must include information relevant and probative of the minimum standards for the elimination of trafficking in persons and should include, but need not be limited to, answering the questions in the Information Sought section. Only those questions for which the submitter has direct professional experience should be answered and that experience should be noted. For any critique or deficiency described, please provide a recommendation to remedy it. Note the country or countries that are the focus of the submission. Submissions may include written narratives that answer the questions presented in this Notice, research, studies, statistics, fieldwork, training materials, evaluations, assessments, and other relevant evidence of local, state, and federal government efforts. To the extent possible, precise dates should be included. Where applicable, written narratives providing factual information should provide citations to sources and copies of the source material should be provided. If possible, send electronic copies of the entire submission, including source material. If primary sources are utilized, such as research studies, interviews, direct observations, or other sources of quantitative or qualitative data, details on the research or data-gathering methodology should be provided. The Department does not include in the Report, and is therefore not seeking, information on prostitution, human smuggling, visa fraud, or child abuse, unless such conduct occurs in the context of human trafficking. Confidentiality: Please provide the name, phone number, and email address of a single point of contact for any submission. It is Department practice not to identify in the Report information concerning sources to safeguard those sources. Please note, however, that any information submitted to the Department may be releasable pursuant to the provisions of the Freedom of Information Act or other applicable law. When applicable, portions of submissions relevant to efforts by other U.S. government agencies may be shared with those agencies. Response: This is a request for information only; there will be no response to submissions. E:\FR\FM\16DEN1.SGM 16DEN1

Agencies

[Federal Register Volume 79, Number 241 (Tuesday, December 16, 2014)]
[Notices]
[Pages 74797-74800]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-29363]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73808; File No. SR-ISE-2014-54]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Make Technical Corrections to ISE Rules

December 10, 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 December 3, 2014, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange Commission (``SEC'' or ``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 the 
Substance of the Proposed Rule Change

    The ISE proposes to make certain technical corrections to ISE rules 
as described in more detail below. The text of the proposed rule change 
is available on the Exchange's Web site (https://www.ise.com), at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the 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 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 eliminate investor 
confusion by making certain technical corrections to ISE rules that are 
either obsolete or outdated, as described in more detail below.
1. Order Type Cleanup
    The Exchange adopted Customer Participation Orders in August 2005 
in order to facilitate members providing access to the Price 
Improvement Mechanism (``PIM'') \3\ to Public Customers.\4\ Upon the 
entry of a Crossing Transaction into the PIM,\5\ a broadcast message is 
sent to all members, who then have 500 milliseconds to enter orders 
that indicate the size and price at which they want to participate in 
the execution (``Improvement Orders'').\6\ The Customer Participation 
Order is an instruction to the member to enter an

[[Page 74798]]

Improvement Order on behalf of a Public Customer. Specifically, a 
Customer Participation Order is a limit order on behalf of a Public 
Customer that, in addition to the limit order price in standard 
increments, includes a price stated in one cent increments at which the 
Public Customer wishes to participate in trades executed in the same 
options series in penny increments through the PIM.\7\ The Exchange no 
longer offers Customer Participation Orders and therefore proposes to 
remove this order type from its rules. Furthermore, the Exchange 
proposes to remove two obsolete references to Customer Participation 
Orders in other rules. Specifically, the Exchange proposes to remove 
references to Customer Participation Orders in Supplementary Material 
.06 to Rule 723, which explains when Improvement Orders can be entered 
with respect to a Customer Participation Order,\8\ and in Rule 723(d), 
which notes that the agency side of an order entered into the PIM may 
execute against Customer Participation Orders at the end of the 
exposure period.
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    \3\ The PIM is a process by which an Electronic Access Member 
can provide price improvement opportunities for a transaction 
wherein the Electronic Access Member seeks to facilitate an order it 
represents as agent, and/or a transaction wherein the Electronic 
Access Member solicited interest to execute against an order it 
represents as agent (a ``Crossing Transaction''). See Rule 723(a).
    \4\ See Securities Exchange Act Release No. 52364 (August 31, 
2005), 70 FR 53403 (September 8, 2005) (SR-ISE-2005-41). The term 
``Public Customer'' means a person or entity that is not a broker or 
dealer in securities. See ISE Rule 100(a)(38).
    \5\ A Crossing Transaction is comprised of the order the 
Electronic Access Member represents as agent (the ``Agency Order'') 
and a counter-side order for the full size of the Agency Order (the 
``Counter-Side Order''). The Counter-Side Order may represent 
interest for the Member's own account, or interest the Member has 
solicited from one or more other parties, or a combination of both. 
See Rule 723(b).
    \6\ See ISE Rule 723(c)(1).
    \7\ See Rule 715(f).
    \8\ Although Customer Participation Orders are no longer 
available, members will continue to be able to enter Improvement 
Orders for the account of Public Customers.
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    In September 2008, the ISE adopted rules to allow members to enter 
non-displayed orders and quotes in penny increments in designated 
options with a minimum trading increment greater than one cent (``non-
displayed penny orders and quotes'').\9\ As proposed in that filing, a 
non-displayed penny order or quote is available for execution at its 
penny price but is displayed at the closest minimum trading increment 
that does not violate the limit price. The Exchange does not offer non-
displayed penny orders or quotes and therefore proposes to delete 
references to this order type from its rules as described below. First, 
the Exchange proposes to delete Rule 715(b)(4), which defines non-
displayed penny order. Second, the Exchange proposes to delete language 
in Rule 804(b)(1) and Rule 805(a) that permits market makers to enter 
non-displayed penny quotes and orders, respectively. Third, the 
Exchange proposes to delete language in Supplementary Material .06 to 
Rule 716 concerning split prices for non-displayed penny orders and 
quotes entered into the Facilitation and Solicitation Mechanisms. 
Finally, the Exchange proposes to delete language in Supplementary 
Material .03 to Rule 717 concerning the execution of non-displayed 
penny orders that an Electronic Access Member represents as agent 
against principal orders and orders solicited from other broker 
dealers.
---------------------------------------------------------------------------

    \9\ See Exchange Act Release No. 58486 (September 8, 2008), 73 
FR 53298 (September 15, 2008) (SR-ISE-2008-36).
---------------------------------------------------------------------------

2. No Bid Options/Limit Price
    Rule 713(b), which deals with priority of orders, provides that if 
the lowest offer for any options contract is $0.05 then no member shall 
enter a market order to sell that series, and any such market order 
shall be considered a limit order to sell at a price of $0.05. This 
provision is intended to prevent members from submitting market orders 
to sell in no bid series, which would execute at a price of $0.00, and 
to instead convert those orders to limit orders with a limit price 
equal to the minimum trading increment, i.e., $0.05 for most option 
classes.\10\ A ``no bid'' or ``zero bid'' series refers to an option 
where the bid price is $0.00. Series of options quoted no bid are 
usually deep out-of-the-money series that are perceived as having 
little if any chance of expiring in-the-money. For options that trade 
in regular nickel increments, a best offer of $0.05 corresponds to a 
best bid of $0.00, i.e. one minimum trading increment below the offer. 
However, option series may be no bid with other offer prices as well. 
For example, an option class would be considered no bid if it is quoted 
at $0.00 (bid)-$0.15 (offer). In order to avoid having these orders 
execute at a price of $0.00, the Exchange proposes to clarify that Rule 
713(b) applies to all option classes that are quoted no bid, rather 
than just those option classes that have an offer of $0.05. 
Furthermore, on January 26th, 2007, the options exchanges commenced a 
pilot (the ``Penny Pilot'') to quote and trade options in one cent 
increments, lowering the minimum trading increment from $0.05 in 
certain symbols.\11\ The Exchange therefore proposes to clarify in Rule 
713(b) that it will put a limit price equal to the minimum trading 
increment on market orders to sell a no bid option series. For example, 
if the deep out-of-the-money SPY December $230.00 call, which is traded 
in penny increments, is quoted at $0.00 (bid)-$0.03 (offer), a market 
order to sell would instead be treated as a limit order to sell at a 
price of $0.01.
---------------------------------------------------------------------------

    \10\ Symbols not included in the Penny Pilot (discussed below) 
generally trade in $0.05 increments if the options contract is 
trading at less than $3.00 per option, and $0.10 increments if the 
options contract is trading at $3.00 per option or higher. See Rule 
710.
    \11\ See Exchange Act Release No. 55161 (January 24, 2007), 72 
FR 4754 (February 1, 2007) (SR-ISE-2006-62) (Approval Order); 54603 
(October 16, 2006), 71 FR 62024 (October 20, 2006) (SR-ISE-2006-62) 
(Notice).
---------------------------------------------------------------------------

3. Linkage Rules
    On April 18, 2013 the Commission approved a proposed rule change 
that modified the ISE's linkage handling procedures under the Options 
Order Protection and Locked/Crossed Market Plan (the ``Plan'').\12\ 
Prior to this rule change Primary Market Makers (``PMMs'') were 
responsible for routing orders to away markets when necessary to comply 
with the Plan. Under the current rules, however, the ISE has contracted 
with unaffiliated broker dealers to route orders to other exchanges 
when necessary to comply with the linkage rules (``Linkage Handlers''). 
Since PMMs no longer perform linkage handling, the Exchange proposes to 
move related language in Rule 803, which concerns the obligation of 
market makers, to Chapter 19. In particular, the Exchange proposes to 
move Supplementary Material .04 and .05 to Rule 803 to the 
Supplementary Material to Rule 1901, which contains provisions relevant 
to linkage handling. In connection with this change, the Exchange also 
proposes to correct incorrect internal cross references to ``paragraph 
(c)(2)'' in this Supplementary Material. Prior to the proposed rule 
change described above, paragraph (c)(2) of Rule 803 contained language 
concerning a PMM's linkage handling function. As away market routing is 
now handled by Linkage Handlers pursuant to the Supplementary Material 
to Rule 1901, the Exchange proposes to reference these rules instead.
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release No. 69396 (April 18, 
2013), 78 FR 24273 (April 24, 2013) (SR-ISE-2013-18).
---------------------------------------------------------------------------

4. Supplementary Material
    Finally, the Exchange notes that certain supplementary material is 
mistakenly labelled as ``supplemental'' material in the Exchange's 
rulebook.\13\ In order to achieve consistency with how other rules are 
labelled, the Exchange proposes to change these to instead refer to 
``supplementary'' material.
---------------------------------------------------------------------------

    \13\ See ``Supplemental'' Material to Rules 717, 809, 810, and 
1615. See also references in Rule 721(a)(3) to ``Supplemental'' 
Material .01 to Rule 717, in Rule 1903 to ``Supplemental'' Material 
.02 and .03 to Rule 1901, and in Rule 2011 to the ``Supplemental'' 
Material to Rule 2001.
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2. Statutory 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

[[Page 74799]]

exchange, and, in particular, with the requirements of Section 6(b) of 
the Act.\14\ In particular, the proposal is consistent with Section 
6(b)(5) of the Act,\15\ because 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. As explained 
in more detail below, the Exchange believes it is appropriate to make 
the proposed technical corrections to its rules so that members and 
investors have a clear and accurate understanding of the meaning of the 
ISE's rules.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

1. Order Type Cleanup
    As explained above, the Exchange does not offer Customer 
Participation Orders or non-displayed penny orders or quotes, and thus 
proposes to remove obsolete definitions and other outdated references 
to these order types. The Exchange believes that these changes will 
eliminate investor confusion regarding order types available for 
trading on the ISE to the benefit of members of investors.
2. No Bid Options/Limit Price
    The ISE, along with other options exchanges, currently operates a 
pilot program to permit designated options classes to be quoted and 
traded in increments as low as one cent. The Exchange is proposing to 
amend Rule 713(b) to account for the fact that option classes selected 
for inclusion in the Penny Pilot are permitted to trade in penny 
increments. For penny classes that are quoted no bid, the Exchange will 
convert a market order to sell to a limit order with a price of one 
cent. In addition, the proposed rule change clarifies that Rule 713(b) 
applies to all series with a bid of $0.00, and not just those series 
that also have an offer of $0.05. The proposed rule change is necessary 
to account for options trading in multiple trading increments, 
including under the Penny Pilot, and will ensure that market orders to 
sell are not inadvertently executed at a price of zero. The Exchange 
believes that these changes more accurately reflect the intent of Rule 
713(b), as described above, and will eliminate investor confusion with 
respect to the operation of this rule by more accurately describing the 
functionality provided by the Exchange. Moreover, the Exchange notes 
that other exchanges have similar rules whereby a market order to sell 
a no bid series is treated as a limit order with a limit price equal to 
the minimum trading increment for the series.\16\
---------------------------------------------------------------------------

    \16\ See e.g. Securities Exchange Act Release No. 59475 
(February 27, 2009), 74 FR 9840 (March 6, 2009) (SR-BX-2009-014) 
(Notice); 59742 (April 9, 2009), 74 FR 17701 (April 16, 2009).
---------------------------------------------------------------------------

3. Linkage Rules
    The proposed changes to the linkage rules are non-substantive and 
intended to reduce investor confusion by moving rules concerning 
linkage handling to the appropriate chapter of the Exchange's rulebook. 
As explained above, since PMMs previously conducted the linkage 
handling function, these rules were located in Chapter 8 of the 
rulebook. With the introduction of away market routing by Linkage 
Handlers, the Exchange believes that these rules are more appropriately 
located in Chapter 19. In addition, the Exchange notes that it is 
correcting related internal cross references.
4. Supplementary Material
    The proposed change to label supplementary material correctly is 
non-substantive and is intended to achieve consistency in how these 
rules are labelled to the benefit of members and investors.

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. The proposed rule change 
makes technical, non-substantive, amendments to the Exchange's rules in 
order to eliminate investor confusion, and is not designed to have any 
competitive impact.

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) of the Act \17\ and Rule 19b-
4(f)(6) thereunder.\18\
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \19\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \20\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The Exchange 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because the proposed 
rule change makes non-substantive, technical changes to the ISE's 
rules. The Exchange believes that these changes should take effect on 
filing as they increase the clarity of the ISE's rules to the benefit 
of members and investors that trade on the Exchange. With respect to 
the provisions regarding no bid options, the Exchange believes the 
proposed rule change will update and clarify those rules consistent 
with treatment on other options exchanges. The Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest, as it will enhance the clarity of 
the ISE's rules and will reduce investor confusion with respect to the 
operation of the ISE's rules. Therefore, the Commission hereby waives 
the operative delay and designates the proposed rule change operative 
upon filing.\21\
---------------------------------------------------------------------------

    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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

[[Page 74800]]

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ISE-2014-54 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2014-54. 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-2014-54, and should be 
submitted on or before January 6, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-29363 Filed 12-15-14; 8:45 am]
BILLING CODE 8011-01-P
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