Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Regarding Complex Orders, 1565-1567 [2015-00221]

Download as PDF Federal Register / Vol. 80, No. 7 / Monday, January 12, 2015 / Notices Tradebook, Island, RediBook, Attain, TrackECN, BATS Trading and Direct Edge. As noted above, BATS launched as an ATS in 2006 and became an exchange in 2008, while Direct Edge began operations in 2007 and obtained exchange status in 2010. As noted above, LavaFlow ECN provides market data to its subscribers at no charge.26 In setting the proposed fees, the Exchange considered the competitiveness of the market for proprietary data and all of the implications of that competition. The Exchange believes that it has considered all relevant factors and has not considered irrelevant factors in order to establish fair, reasonable, and not unreasonably discriminatory fees and an equitable allocation of fees among all users. The existence of numerous alternatives to the Exchange’s products, including proprietary data from other sources, ensures that the Exchange cannot set unreasonable fees, or fees that are unreasonably discriminatory, when vendors and subscribers can elect these alternatives or choose not to purchase a specific proprietary data product if the attendant fees are not justified by the returns that any particular vendor or data recipient would achieve through the purchase. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others No written comments were solicited or received with respect to the proposed rule change. tkelley on DSK3SPTVN1PROD with NOTICES III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act27 and paragraph (f)(2) of Rule 19b–4 thereunder.28 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: SECURITIES AND EXCHANGE COMMISSION 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– NYSEMKT–2014–114 on the subject line. [Release No. 34–74004; File No. SR–ISE– 2014–56] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Regarding Complex Orders 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–NYSEMKT–2014–114. 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 the filing also will be available for inspection and copying at the principal office of NYSE MKT. 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– NYSEMKT–2014–114 and should be submitted on or before February 2, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.29 Brent J. Fields, Secretary. [FR Doc. 2015–00214 Filed 1–9–15; 8:45 am] supra note 24. U.S.C. 78s(b)(3)(A)(ii). 28 17 CFR 240.19b–4(f)(2). 27 15 VerDate Sep<11>2014 17:35 Jan 09, 2015 January 6, 2015. 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 23, 2014 the International Securities Exchange, LLC (the ‘‘Exchange’’ or the ‘‘ISE’’) filed with the Securities and Exchange 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 permit a greater number of complex orders to leg into the regular market. 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 this proposed rule change is to permit a greater number of complex orders to leg into the regular market. The Exchange currently BILLING CODE 8011–01–P 26 See 1 15 29 17 Jkt 235001 1565 PO 00000 CFR 200.30–3(a)(12). Frm 00073 Fmt 4703 Sfmt 4703 2 17 E:\FR\FM\12JAN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 12JAN1 1566 Federal Register / Vol. 80, No. 7 / Monday, January 12, 2015 / Notices provides functionality that automatically removes a market maker’s quotes in all series of an options class when certain parameter settings are triggered.3 The purpose of this functionality is to allow market makers to provide liquidity across hundreds of options series without being at risk of executing the full cumulative size of all such quotes before being given the opportunity to adjust their quotes. By checking the risk parameters following each execution in an options series, the risk parameters allow market makers to manage their risk. This is not the case, however, when a complex order legs into the regular market. Because the execution of each leg is contingent on the execution of the other legs, the execution of all the legs in the regular market is processed as a single transaction, not as a series of individual transactions. The legging-in of complex orders therefore presents a higher risk to market makers as compared to regular orders being entered in multiple series of an options class in the regular market as it can result in market makers exceeding their parameters by a greater number of contracts. Because this risk is directly proportional to the number of legs associated with a complex order, the Exchange amended Rule 722 to limit the legging functionality to complex orders with no more than either two or three legs, as determined by the Exchange on a class basis.4 The Legging Filing effectively limited certain legitimate complex order strategies, such as a Box Spread 5 or a Condor,6 from legging into the regular market. These strategies are limited to trading 3 See ISE Rules 722 and 804. Securities Exchange Act Release No. 70132 (August 7, 2013), 78 FR 49311 (August 13, 2013) (SR–ISE–2013–38) (the ‘‘Legging Filing’’). 5 The box spread, or long box, is a common strategy that involves buying a call spread together with the corresponding put spread with both spreads having the same strike prices and expiration dates. A box spread can be constructed by buying one in-the-money call, selling one outof-the-money call, buying one in-the-money put and selling one out-of-the-money put. The long box is used when the spreads are underpriced in relation to their expiration values. 6 The condor option strategy is a limited risk, non-directional option trading strategy that is structured to earn a limited profit when the underlying security is perceived to have little volatility. To establish this position, a options trader sells an in-the-money call, buys an in-themoney call (lower strike), sells an out-of-the-money call and buys an out-of-the-money call (higher strike). Using call options expiring on the same month, the trader can implement a long condor option spread by writing a lower strike in-themoney call, buying an even lower striking in-themoney call, writing a higher strike out-of-the-money call and buying another even higher striking out-ofthe-money call. A total of 4 legs are involved in the condor options strategy and a net debit is required to establish the position. tkelley on DSK3SPTVN1PROD with NOTICES 4 See VerDate Sep<11>2014 17:35 Jan 09, 2015 Jkt 235001 with other complex orders in the complex order book. Despite the limitation adopted in the Legging Filing, certain market participants continued to use atypical multi-leg strategies to trade with multiple quotes from a single market maker that caused single leg market makers to trade far more than their risk limits allowed. To minimize this risk, the Exchange recently amended its rules to prevent these atypical multi-leg strategies from legging into the regular market. These atypical multi-leg strategies are complex orders with two option legs where both legs are buying or both legs are selling and both legs are calls or both legs are puts, and complex orders with three options legs, where all legs are buying or all legs are selling regardless of whether the option is a call or a put (‘‘Non-Standard Strategies’’).7 Non-Standard Strategies are permitted to trade only in the complex order book and are prevented from legging into the regular market.8 With rules limiting Non-Standard Strategies from legging into the regular market firmly in place, the risk of market makers trading more than the limitations they have set has greatly diminished. The Exchange therefore proposes to amend Rule 722 to allow complex orders with two, three or four legs (determined by the Exchange on a class basis) to leg into the regular market.9 The proposed rule change will allow the Exchange to permit complex order strategies with three or four legs to leg into the regular market as long as all legs are not buying or all legs are not selling. To ensure that such orders do not leg into the regular market, the Exchange proposes to amend Rule 722(b)(3)(ii)(B) to extend the current limitation found in that rule to complex orders with 3 or 4 legs, where all legs are buying or all legs are selling regardless of whether the option is a call or a put. Such orders will only be permitted to trade against other complex orders in the complex order book, as is the case today. The Exchange expects this proposal to loosen the current restriction to result in a number of other 7 See Securities Exchange Act Release No. 73023 (September 9, 2014), 79 FR 55033 (September 15, 2014) (SR–ISE–2014–10). 8 See Rule 722(b)(3)(ii)(A)–(B). 9 The Exchange will issue a circular to members identifying the options classes for which legging is limited to complex orders and the associated number of legs. The Exchange will provide members with reasonable notice prior to changing the limit to allow members to make any necessary system changes. PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 legitimate complex order strategies to also be executed on the Exchange.10 The Exchange previously permitted complex orders that are the subject of this proposal to leg into the regular market and only recently limited that activity to better address the risk posed to market makers. The market maker risk that the Exchange sought to address in the Legging Filing was further strengthened when ISE amended its rules to prevent Non-Standard Strategies from legging into the regular market. With this proposed rule change, complex order strategies, such as Box Spreads and Condors, for example, will once again be permitted to leg into the regular market and thereby increase the likelihood that these orders are executed on the Exchange rather than on a competing market without posing any unintended risk to market makers. In the Legging Filing, the Exchange noted that over 85% of all complex orders have only two legs. The Exchange notes that current data continues to support that assertion in that even today, over 85% of all complex orders have only two legs and that very few complex orders are entered with more than three legs. The proposed rule change will therefore impact only a small portion of all complex orders traded on the Exchange. These orders, however, are comprised of legitimate trading strategies that have an economic purpose and are not submitted as means to bypass a market maker’s risk setting. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 11 in general, and furthers the objectives of Section 6(b)(5) of the Act 12 in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest. The Exchange believes it is reasonable to permit complex orders that are subject of this rule change to leg into the regular market. ISE has codified into its rules the specific complex order strategies that pose the greatest amount of risk to market makers and therefore, the Exchange believes the proposed rule change to permit legitimate multi-legged complex orders to interact with the regular market will promote just and equitable principles of trade. The proposed rule change will facilitate the 10 See www.theoptionsguide.com for a more comprehensive list of complex order strategies. 11 15 U.S.C. 78f(b). 12 15 U.S.C. 78f(b)(5). E:\FR\FM\12JAN1.SGM 12JAN1 Federal Register / Vol. 80, No. 7 / Monday, January 12, 2015 / Notices execution of complex order strategies, such as Box Spreads and Condors, which consist of four legs. The proposed rule change is designed to protect investors and the public interest in that the proposal amends a current rule to ensure that complex orders with three or four option legs where all legs are buying or all legs are selling only trade against other complex orders in the complex order book. The Exchange notes that prior to the Legging Filing and before the Non-Standard Strategies were codified into the Exchange’s rules, the complex order strategies affected by this proposal were permitted to trade and leg into the regular market. Therefore, this proposed rule change simply adjusts Exchange rules to once again permit the execution such complex order strategies. The proposed rule change will also benefit investors and the general public because multilegged strategies will have a greater chance of execution when they are allowed to leg into the regular market and thereby increase the execution rate for these orders thus, providing market participants with an increased opportunity to execute these orders on ISE rather than on a competing exchange. B. Self-Regulatory Organization’s Statement on Burden on Competition The proposed rule change does not impose any burden on competition. The proposed change to amend the restriction against complex order strategies, such as Box Spreads and Condors, from legging into the regular market will allow a greater number of complex orders to be executed on the Exchange without adversely impacting risk to market makers that are quoting in the regular market. tkelley on DSK3SPTVN1PROD with NOTICES 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 VerDate Sep<11>2014 17:35 Jan 09, 2015 Jkt 235001 become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b– 4(f)(6) thereunder. 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. 1567 information that you wish to make available publicly. All submissions should refer to File Number SR–ISE– 2014–56 and should be submitted on or before February 2, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Brent J. Fields, Secretary. [FR Doc. 2015–00221 Filed 1–9–15; 8:45 am] 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: BILLING CODE 8011–01–P 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 No. SR–ISE– 2014–56 on the subject line. Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Rule 123C To Specify That Exchange Systems May Close One or More Securities Electronically 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–2014–56. 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 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 January 6, 2015. PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 74006; File No. SR–NYSE– 2014–73] Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that December 23, 2014, New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) 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 selfregulatory 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 Exchange proposes to amend Rule 123C to specify that Exchange systems may close one or more securities electronically if a Designated Market Maker (‘‘DMM’’) registered in a security or securities cannot facilitate the close of trading as required by Exchange rules. The text of the proposed rule change is available on the Exchange’s Web site at www.nyse.com, at the principal office of the Exchange, on the Commission’s Web site at www.sec.gov, and at the Commission’s Public Reference Room. 13 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 E:\FR\FM\12JAN1.SGM 12JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 80, Number 7 (Monday, January 12, 2015)]
[Notices]
[Pages 1565-1567]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-00221]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74004; File No. SR-ISE-2014-56]

Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change Regarding Complex Orders

January 6, 2015.
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 23, 2014 the International Securities Exchange, LLC
(the ``Exchange'' or the ``ISE'') filed with the Securities and
Exchange 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.
---------------------------------------------------------------------------

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

The ISE proposes to amend its rules to permit a greater number of
complex orders to leg into the regular market. 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 this proposed rule change is to permit a greater
number of complex orders to leg into the regular market. The Exchange
currently

[[Page 1566]]

provides functionality that automatically removes a market maker's
quotes in all series of an options class when certain parameter
settings are triggered.\3\ The purpose of this functionality is to
allow market makers to provide liquidity across hundreds of options
series without being at risk of executing the full cumulative size of
all such quotes before being given the opportunity to adjust their
quotes. By checking the risk parameters following each execution in an
options series, the risk parameters allow market makers to manage their
risk. This is not the case, however, when a complex order legs into the
regular market. Because the execution of each leg is contingent on the
execution of the other legs, the execution of all the legs in the
regular market is processed as a single transaction, not as a series of
individual transactions. The legging-in of complex orders therefore
presents a higher risk to market makers as compared to regular orders
being entered in multiple series of an options class in the regular
market as it can result in market makers exceeding their parameters by
a greater number of contracts. Because this risk is directly
proportional to the number of legs associated with a complex order, the
Exchange amended Rule 722 to limit the legging functionality to complex
orders with no more than either two or three legs, as determined by the
Exchange on a class basis.\4\ The Legging Filing effectively limited
certain legitimate complex order strategies, such as a Box Spread \5\
or a Condor,\6\ from legging into the regular market. These strategies
are limited to trading with other complex orders in the complex order
book.
---------------------------------------------------------------------------

\3\ See ISE Rules 722 and 804.
\4\ See Securities Exchange Act Release No. 70132 (August 7,
2013), 78 FR 49311 (August 13, 2013) (SR-ISE-2013-38) (the ``Legging
Filing'').
\5\ The box spread, or long box, is a common strategy that
involves buying a call spread together with the corresponding put
spread with both spreads having the same strike prices and
expiration dates. A box spread can be constructed by buying one in-
the-money call, selling one out-of-the-money call, buying one in-
the-money put and selling one out-of-the-money put. The long box is
used when the spreads are underpriced in relation to their
expiration values.
\6\ The condor option strategy is a limited risk, non-
directional option trading strategy that is structured to earn a
limited profit when the underlying security is perceived to have
little volatility. To establish this position, a options trader
sells an in-the-money call, buys an in-the-money call (lower
strike), sells an out-of-the-money call and buys an out-of-the-money
call (higher strike). Using call options expiring on the same month,
the trader can implement a long condor option spread by writing a
lower strike in-the-money call, buying an even lower striking in-
the-money call, writing a higher strike out-of-the-money call and
buying another even higher striking out-of-the-money call. A total
of 4 legs are involved in the condor options strategy and a net
debit is required to establish the position.
---------------------------------------------------------------------------

Despite the limitation adopted in the Legging Filing, certain
market participants continued to use atypical multi-leg strategies to
trade with multiple quotes from a single market maker that caused
single leg market makers to trade far more than their risk limits
allowed. To minimize this risk, the Exchange recently amended its rules
to prevent these atypical multi-leg strategies from legging into the
regular market. These atypical multi-leg strategies are complex orders
with two option legs where both legs are buying or both legs are
selling and both legs are calls or both legs are puts, and complex
orders with three options legs, where all legs are buying or all legs
are selling regardless of whether the option is a call or a put (``Non-
Standard Strategies'').\7\ Non-Standard Strategies are permitted to
trade only in the complex order book and are prevented from legging
into the regular market.\8\
---------------------------------------------------------------------------

\7\ See Securities Exchange Act Release No. 73023 (September 9,
2014), 79 FR 55033 (September 15, 2014) (SR-ISE-2014-10).
\8\ See Rule 722(b)(3)(ii)(A)-(B).
---------------------------------------------------------------------------

With rules limiting Non-Standard Strategies from legging into the
regular market firmly in place, the risk of market makers trading more
than the limitations they have set has greatly diminished. The Exchange
therefore proposes to amend Rule 722 to allow complex orders with two,
three or four legs (determined by the Exchange on a class basis) to leg
into the regular market.\9\
---------------------------------------------------------------------------

\9\ The Exchange will issue a circular to members identifying
the options classes for which legging is limited to complex orders
and the associated number of legs. The Exchange will provide members
with reasonable notice prior to changing the limit to allow members
to make any necessary system changes.
---------------------------------------------------------------------------

The proposed rule change will allow the Exchange to permit complex
order strategies with three or four legs to leg into the regular market
as long as all legs are not buying or all legs are not selling. To
ensure that such orders do not leg into the regular market, the
Exchange proposes to amend Rule 722(b)(3)(ii)(B) to extend the current
limitation found in that rule to complex orders with 3 or 4 legs, where
all legs are buying or all legs are selling regardless of whether the
option is a call or a put. Such orders will only be permitted to trade
against other complex orders in the complex order book, as is the case
today. The Exchange expects this proposal to loosen the current
restriction to result in a number of other legitimate complex order
strategies to also be executed on the Exchange.\10\
---------------------------------------------------------------------------

\10\ See www.theoptionsguide.com for a more comprehensive list
of complex order strategies.
---------------------------------------------------------------------------

The Exchange previously permitted complex orders that are the
subject of this proposal to leg into the regular market and only
recently limited that activity to better address the risk posed to
market makers. The market maker risk that the Exchange sought to
address in the Legging Filing was further strengthened when ISE amended
its rules to prevent Non-Standard Strategies from legging into the
regular market. With this proposed rule change, complex order
strategies, such as Box Spreads and Condors, for example, will once
again be permitted to leg into the regular market and thereby increase
the likelihood that these orders are executed on the Exchange rather
than on a competing market without posing any unintended risk to market
makers. In the Legging Filing, the Exchange noted that over 85% of all
complex orders have only two legs. The Exchange notes that current data
continues to support that assertion in that even today, over 85% of all
complex orders have only two legs and that very few complex orders are
entered with more than three legs. The proposed rule change will
therefore impact only a small portion of all complex orders traded on
the Exchange. These orders, however, are comprised of legitimate
trading strategies that have an economic purpose and are not submitted
as means to bypass a market maker's risk setting.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \11\ in general, and furthers the objectives of Section
6(b)(5) of the Act \12\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism for a free and open market and a national
market system, and, in general, to protect investors and the public
interest.
---------------------------------------------------------------------------

\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

The Exchange believes it is reasonable to permit complex orders
that are subject of this rule change to leg into the regular market.
ISE has codified into its rules the specific complex order strategies
that pose the greatest amount of risk to market makers and therefore,
the Exchange believes the proposed rule change to permit legitimate
multi-legged complex orders to interact with the regular market will
promote just and equitable principles of trade. The proposed rule
change will facilitate the

[[Page 1567]]

execution of complex order strategies, such as Box Spreads and Condors,
which consist of four legs. The proposed rule change is designed to
protect investors and the public interest in that the proposal amends a
current rule to ensure that complex orders with three or four option
legs where all legs are buying or all legs are selling only trade
against other complex orders in the complex order book. The Exchange
notes that prior to the Legging Filing and before the Non-Standard
Strategies were codified into the Exchange's rules, the complex order
strategies affected by this proposal were permitted to trade and leg
into the regular market. Therefore, this proposed rule change simply
adjusts Exchange rules to once again permit the execution such complex
order strategies. The proposed rule change will also benefit investors
and the general public because multi-legged strategies will have a
greater chance of execution when they are allowed to leg into the
regular market and thereby increase the execution rate for these orders
thus, providing market participants with an increased opportunity to
execute these orders on ISE rather than on a competing exchange.

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

The proposed rule change does not impose any burden on competition.
The proposed change to amend the restriction against complex order
strategies, such as Box Spreads and Condors, from legging into the
regular market will allow a greater number of complex orders to be
executed on the Exchange without adversely impacting risk to market
makers that are quoting in the regular market.

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 and Rule 19b-
4(f)(6) thereunder.
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an Email to rule-comments@sec.gov. Please include
File No. SR-ISE-2014-56 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-2014-56. 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 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-2014-56 and should be
submitted on or before February 2, 2015.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

\13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2015-00221 Filed 1-9-15; 8:45 am]
BILLING CODE 8011-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.