Self-Regulatory Organizations; International Securities Exchange, LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Modify ISE's Opening Process, 13660-13663 [2015-05861]

Download as PDF 13660 Federal Register / Vol. 80, No. 50 / Monday, March 16, 2015 / Notices 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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–EDGX– 2015–12, and should be submitted on or before April 6, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Brent J. Fields, Secretary. [FR Doc. 2015–05859 Filed 3–13–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Submission for OMB Review; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE., Washington, DC 20549–2736. Rmajette on DSK2VPTVN1PROD with NOTICES Extension: Rule 17a–5(c). SEC File No. 270–199, OMB Control No. 3235–0199. Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (‘‘PRA’’) (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) has submitted to the Office of Management and Budget (‘‘OMB’’) a request for approval of extension of the previously approved collection of information provided for in Rule 17a–5(c), (17 CFR 240.17a–5(c)), under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.). Rule 17a–5(c) generally requires broker-dealers who carry customer accounts to provide statements of the broker-dealer’s financial condition to their customers. Paragraph (5) of Rule 17a–5(c) provides a conditional 22 17 exemption from this requirement. A broker-dealer that elects to take advantage of the exemption must publish its statements on its Web site in a prescribed manner, and must maintain a toll-free number that customers can call to request a copy of the statements. The purpose of the Rule is to ensure that customers of broker-dealers are provided with information concerning the financial condition of the firm that may be holding the customers’ cash and securities. The Commission, when adopting the Rule in 1972, stated that the goal was to ‘‘directly’’ send a customer essential information so that the customer could ‘‘judge whether his broker or dealer is financially sound.’’ The Commission adopted the Rule in response to the failure of several brokerdealers holding customer funds and securities in the period between 1968 and 1971. The Commission estimates that approximately 213 broker-dealer respondents carrying approximately 115 million public customer accounts incur an average burden of 142,424 hours per year to comply with the Rule. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information under the PRA unless it displays a currently valid OMB control number. The public may view background documentation for this information collection at the following Web site: www.reginfo.gov. Comments should be directed to: (i) Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503, or by sending an email to: Shagufta_ Ahmed@omb.eop.gov; and (ii) Pamela Dyson, Director/Chief Information Officer, Securities and Exchange Commission, c/o Remi Pavlik-Simon, 100 F Street NE., Washington, DC 20549, or by sending an email to: PRA_ Mailbox@sec.gov. Comments must be submitted to OMB within 30 days of this notice. Dated: March 10, 2015. Brent J. Fields, Secretary. 14:09 Mar 13, 2015 Jkt 235001 [Release No. 34–74465; File No. SR–ISE– 2014–24] Self-Regulatory Organizations; International Securities Exchange, LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Modify ISE’s Opening Process March 10, 2015. I. Introduction On November 19, 2014, the International Securities Exchange, LLC (the ‘‘Exchange’’ or the ‘‘ISE’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 a proposed rule change to modify the opening process of the Exchange. The proposed rule change was published for comment in the Federal Register on December 10, 2014.3 On January 23, 2015, the Commission extended the time period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change, to March 10, 2015.4 The Commission received no comment letters on the proposed rule change. This order institutes proceedings under Section 19(b)(2)(B) of the Act 5 to determine whether to approve or disapprove the proposed rule change. II. Description of the Proposal The Exchange proposes to (1) clarify and codify existing functionality within the trading system regarding the procedures for initiation of the opening process, and (2) modify the manner in which the Exchange’s trading system opens trading at the beginning of the day and after trading halts. According to the Exchange, the proposed rule change would codify certain existing functionality within the trading system that was not previously described in the Exchange’s rule and would provide new procedures for initiation of the opening rotation at the Exchange’s opening and reopening after a trading halt. A more detailed [FR Doc. 2015–05984 Filed 3–13–15; 8:45 am] 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 73736 (December 4, 2014), 79 FR 73354 (‘‘Notice’’). 4 See Securities Exchange Act Release No. 74126 (January 23, 2015), 80 FR 4953 (January 29, 2015). 5 15 U.S.C. 78s(b)(2)(B). BILLING CODE 8011–01–P 2 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 SECURITIES AND EXCHANGE COMMISSION PO 00000 Frm 00147 Fmt 4703 Sfmt 4703 E:\FR\FM\16MRN1.SGM 16MRN1 Rmajette on DSK2VPTVN1PROD with NOTICES Federal Register / Vol. 80, No. 50 / Monday, March 16, 2015 / Notices description of the initiation procedure is available in the Notice.6 The Exchange also proposes to amend its opening rotation process. The Exchange believes that there are issues with its current opening process. Namely, because its opening process does not provide away market price protection, the Exchange believes that order flow providers are sending fewer pre-open orders to ISE. In addition, the Exchange states that ‘‘the opening of options series can be delayed by imbalances that prevent ISE from determining an opening price in a timely manner’’ and that ‘‘such delays exacerbate the problem of not providing price protection at the opening.’’ 7 To address its concerns, ISE proposes an iterative opening process. As described in the Notice, in the first iteration, the trading system will attempt to derive the first opening price to be at or better than the ISE Market Maker quotes and away best bid or offer (‘‘ABBO’’) prices. When there is executable interest, the trading system will first calculate a range of prices within which to open the options series (‘‘Boundary Prices’’). As is the case today, the trading system will use quotes provided by the Primary Market Maker (‘‘PMM’’) for the series in question to set the first Boundary Prices. If the PMM is not present on either side of the market, then the best quotes from the Competitive Market Makers (‘‘CMMs’’) will be used on the corresponding side. If there are no PMM or CMM quotes on the bid side, the lowest minimum trading increment for the option class will be used on the bid side. If there are no PMM or CMM quotes on the offer side, the options class will not open because in the absence of an offer there is no limit as to the price at which an opening trade can occur. If the options class is open on another exchange, the Boundary Prices will be determined to be the higher of the ISE Market Maker’s bid in that options class and the national best bid, and the lower of the ISE Market Maker’s offer in that options class and the national best offer. Once the trading system has determined the Boundary Prices, as appropriate, it then will determine the price at which the maximum number of contracts can trade at or within the appropriate Boundary Prices (the ‘‘execution price’’).8 Once the trading system determines the execution price, 6 See Notice, supra note 3 at 73355. Notice, supra note 3 at 73356. 8 See Notice, supra note 3, at 73356, for an example showing the calculation of the execution price following the first iteration. 7 See VerDate Sep<11>2014 14:09 Mar 13, 2015 Jkt 235001 orders and quotes will be processed as follows—market orders will be given priority before limit orders and quotes, and limit orders and quotes will be given priority by price. For limit orders and quotes with the same price, priority will be accorded first to Priority Customer Orders 9 over Professional Orders 10 and quotes. Priority Customer Orders with the same limit price will be executed in random 11 while Professional Orders and quotes with the same limit price will be executed prorata based on size. If the Boundary Prices are calculated using the national best bid or offer (‘‘NBBO’’), any remaining Public Customer Orders 12 after this iteration that would lock or cross a bid or offer from another exchange will be processed in accordance with Supplementary Material .02 to ISE Rule 1901.13 Any remaining Non-Customer Orders 14 that would lock or cross a bid or offer from another exchange may trade outside the Boundary Prices by up to two trading increments as further described under the third iteration below. If after the first iteration there remain unexecuted orders and quotes that lock 9 Pursuant to ISE Rules 100(a)(37A) and 100(a)(37B), a Priority Customer Order is an order for the account of a person or entity that (i) is not a broker or dealer in securities, and (ii) does not place more than 390 orders in listed options per day on average during a calendar month for its own beneficial account(s). 10 Pursuant to ISE Rule 100(a)(37C), a Professional Order is an order that is for the account of a person or entity that is not a Priority Customer. 11 Priority Customer orders with the same limit price in the regular order book are currently executed in time priority during the opening. The Exchange believes executing these orders on a random basis is a fairer approach because the current time priority is dependent on when such orders are communicated to the Exchange by a Priority Customer’s broker before the market, not the time the Priority Customer expressed interest in doing the trade. Executing these orders in random will provide Priority Customer orders an equal opportunity to participate at the open. 12 Pursuant to ISE Rules 100(a)(38) and 100(a)(39), a Public Customer means a person or entity that is not a broker or dealer in securities and a Public Customer Order means an order for the account of a Public Customer. 13 Under the Options Order Protection and Locked/Crossed Market Plan (‘‘Options Linkage Plan’’), the Exchange cannot execute orders at a price that is inferior to the NBBO, nor can the Exchange place an order on its book that would cause the ISE best bid or offer to lock or cross another exchange’s quote. In compliance with this requirement, Non-Customer Orders and Public Customer Orders are exposed to all ISE Members for up to one second to give them an opportunity to execute orders at the NBBO price or better before orders are rejected (in the case of Non-Customer Orders) or routed out to other exchanges (in the case of Public Customer Orders). See Supplementary Material .02 to Rule 1901. 14 Pursuant to ISE Rules 100(a)(27) and (28), a Non-Customer means a person or entity that is a broker or dealer in securities and a Non-Customer Order means an order for the account of a NonCustomer. PO 00000 Frm 00148 Fmt 4703 Sfmt 4703 13661 or cross each other, the trading system will initiate a second iteration.15 In the second iteration, the trading system will use either the ISE Market Maker quotes or the ABBO prices,16 whichever was not used in the first iteration, to establish the Boundary Prices. For example, if the ISE Market Maker quotes were used in the first iteration, the second iteration will use ABBO prices and vice versa. If there were no ABBO prices for consideration for the first iteration, then this second iteration will not occur and the trading system will initiate the third iteration as described below. In the second iteration, the trading system will again determine the execution price at which the maximum number of contracts can trade at or within the widened Boundary Prices. Once the trading system determines the second execution price, orders and quotes will be processed as follows— market orders will be given priority before limit orders and quotes, and limit orders and quotes will be given priority by price. For limit orders and quotes with the same price, priority will be accorded first to Priority Customer Orders over Professional Orders and quotes. Priority Customer Orders with the same limit price will be executed in random order while Professional Orders and quotes with the same limit price will be executed pro-rata based on size. If the Boundary Prices in the second iteration are calculated using the NBBO, any remaining Public Customer Orders after this iteration that would lock or cross a bid or offer from another exchange will be processed in accordance with Supplementary Material .02 to ISE Rule 1901. Any remaining Non-Customer Orders that would lock or cross a bid or offer from another exchange may trade outside the Boundary Prices by up to two trading increments as further described under the third iteration below. If after the second iteration there remain unexecuted orders and quotes that lock or cross each other, the trading system will initiate a third iteration.17 In the third iteration, the prior Boundary Prices, i.e., the prices used in the second iteration, and in the case where the second iteration does not occur, the prices used in the first iteration, will be widened by two trading increments. The trading system will then determine the 15 See Notice, supra note 3, at 73357, for an example showing the calculation of the execution price following the second iteration. 16 The ABBO prices considered in the first iteration are also used during the second iteration. 17 See Notice, supra note 3, at 73357, for an example showing the calculation of the execution price following the third iteration. E:\FR\FM\16MRN1.SGM 16MRN1 13662 Federal Register / Vol. 80, No. 50 / Monday, March 16, 2015 / Notices price at which the maximum number of contracts could trade at or within the widened Boundary Prices. Once the trading system determines the third execution price, orders and quotes will be processed as follows—market orders will be given priority before limit orders and quotes, and limit orders and quotes will be given priority by price. For limit orders and quotes with the same price, priority will be accorded first to Priority Customer Orders over Professional Orders and quotes. Priority Customer Orders with the same limit price will be executed in random order while Professional Orders and quotes with the same limit price will be executed prorata based on size. Thereafter, any unexecuted Priority Customer Orders that lock or cross the Boundary Prices will be handled by the PMM 18 and any unexecuted Professional Orders and Non-Customer Orders that lock or cross the Boundary Prices will be canceled. If after the third iteration there remain unexecuted orders and quotes that lock or cross each other, the trading system will initiate a fourth and final iteration.19 In the fourth iteration, the trading system will not calculate new Boundary Prices. The trading system will simply trade any remaining interest. Thereafter, the trading system will open the options series by disseminating the Exchange’s best bid and offer derived from the remaining orders and quotes. III. Proceedings To Determine Whether To Approve or Disapprove SR–ISE– 2014–24 and Grounds for Disapproval Under Consideration Rmajette on DSK2VPTVN1PROD with NOTICES The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Act 20 to determine whether the proposed rule change should be approved or disapproved. Institution of such proceedings is appropriate at this time in view of the legal and policy issues raised by the proposed rule change, as discussed 18 The PMM has the obligation under existing Exchange rules to engage in dealings for its own account when, among other things, there is a temporary disparity between the supply of and demand for a particular options contract, and to act with due diligence in handling orders. See ISE Rule 803(c). 19 See Notice, supra note 3, at 73357–8, for an example showing the calculation of the execution price following the fourth and final iteration. 20 15 U.S.C. 78s(b)(2)(B). Id. Section 19(b)(2) of the Exchange Act also provides that proceedings to determine whether to disapprove a proposed rule change must be concluded within 180 days of the date of publication of notice of the filing of the proposed rule change. See id. The time for conclusion of the proceedings may be extended for up to 60 days if the Commission finds good cause for such extension and publishes its reasons for so finding. See id. VerDate Sep<11>2014 14:09 Mar 13, 2015 Jkt 235001 below. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, as described in greater detail below, the Commission seeks and encourages interested persons to provide additional comment on the proposed rule change. The Exchange believes that ‘‘each iteration of the proposed iterative process complies with Section 5(a) of the [Options] Linkage Plan, or qualifies as an exception under Section 5(b)(ii) of the [Options] Linkage Plan.’’ 21 Section 5(a)—Order Protection—of the Options Linkage Plan requires that each participant exchange establish written policies and procedures that are reasonably designed to prevent tradethroughs and to conduct surveillance to ascertain the effectiveness of such policies and procedures.22 Section 5(b) provides a number of exceptions to the order protection requirements.23 Section 5(b)(ii), in particular, provides an exception for a ‘‘transaction traded through a Protected Quotation being disseminated by an Eligible Exchange during a trading rotation.’’ 24 In the Commission’s Order approving the Options Linkage Plan,25 the Commission stated that the Section 5(b)(ii) exception from trade-throughs was carried over from the previous linkage plan and is similar to an exception available for NMS stocks under Regulation NMS.26 The Commission further noted that the ‘‘trading rotation’’ in the Options Linkage Plan is ‘‘effectively a single price auction to price the option.’’ 27 The Commission believes that ISE’s proposal raises interpretive issues that warrant further public comment and Commission consideration. Namely, the Commission believes that proceedings are appropriate to consider whether the Exchange’s proposed opening process, which would undertake potentially four separate iterations, each with its own execution price, is consistent with the Options Linkage Plan and with Section 6 of the Act, particularly Section 6(b)(5),28 which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and 21 See Notice, supra note 3, at 73358. 5(a) of the Options Linkage Plan. 23 Section 5(b) of the Options Linkage Plan. 24 Section 5(b)(ii) of the Options Linkage Plan. 25 See Securities Exchange Act Release No. 60405 (July 30, 2009), 74 FR 39362 (August 6, 2009) (‘‘Options Linkage Plan Approval Order). 26 See Options Linkage Plan Approval Order, id. at 39366. 27 Id. 28 15 U.S.C. 78f(b)(5). 22 Section PO 00000 Frm 00149 Fmt 4703 Sfmt 4703 equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. IV. Procedure: Request for Written Comments The Commission requests that interested persons provide written submissions of their views, data and arguments with respect to the concerns identified above, as well as any other concerns they may have with the proposed rule change. In particular, the Commission invites the written views of interested persons concerning whether the proposal is inconsistent with Section 6(b)(5) 29 or any other provision of the Act, or the rules and regulation thereunder. Although there do not appear to be any issues relevant to approval or disapproval which would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.30 In addition to any other facets of the proposal on which persons may seek to comment, the Commission is soliciting the views of interested persons regarding provisions of the proposed rule change concerning compliance with Section 5(a) of the Options Linkage Plan or qualification as an exception under Section 5(b)(ii) of the Options Linkage Plan. Interested persons are invited to submit written data, views, and arguments regarding whether the proposal should be approved or disapproved by April 6, 2015. Any person who wishes to file a rebuttal to any other person’s submission must file that rebuttal by April 20, 2015. The Commission asks that commenters address the sufficiency and merit of the Exchange’s statements in support of the proposed rule change, in addition to any other comments they may wish to submit about the proposed rule change. In particular, the Commission seeks comment on the statements of the Exchange contained in the Notice,31 including the statements made with 29 15 U.S.C. 78f(b)(5). 19(b)(2) of the Act, as amended by the Securities Act Amendments of 1975, Pub. L. 94–29 (June 4, 1975), grants to the Commission flexibility to determine what type of proceeding—either oral or notice and opportunity for written comments— is appropriate for consideration of a particular proposal by a self-regulatory organization. See Securities Act Amendments of 1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). 31 See Notice, supra note 3. 30 Section E:\FR\FM\16MRN1.SGM 16MRN1 Federal Register / Vol. 80, No. 50 / Monday, March 16, 2015 / Notices respect to compliance with the Options Linkage Plan, and any other issues raised by the proposed rule change. 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–2014–24 on the subject line. Rmajette on DSK2VPTVN1PROD with NOTICES 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–2014–24. 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 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– 2014–24 and should be submitted by April 6, 2015. Rebuttal comments should be submitted by April 20, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.32 Brent J. Fields, Secretary. [FR Doc. 2015–05861 Filed 3–13–15; 8:45 am] BILLING CODE 8011–01–P 32 17 CFR 200.30–3(a)(57). VerDate Sep<11>2014 14:09 Mar 13, 2015 Jkt 235001 SMALL BUSINESS ADMINISTRATION Surrender of License of Small Business Investment Company Pursuant to the authority granted to the United States Small Business Administration under the Small Business Investment Act of 1958, under Section 309 of the Act and Section 107.1900 of the Small Business Administration Rules and Regulations (13 CFR 107.1900) to function as a small business investment company under the Small business Investment Company License No. 03/73–0229 issued to Walker Investment Fund II SBIC, L.P., said license is hereby declared null and void. Dated: February 17, 2015. U.S. Small Business Administration. Javier E. Saade, Associate Administrator for Investment. [FR Doc. 2015–05926 Filed 3–13–15; 8:45 am] BILLING CODE 8025–01–P 13663 authority held by Florida West to Southern. Docket Number: DOT–OST–2015– 0037. Date Filed: February 20, 2015. Due Date for Answers, Conforming Applications, or Motion To Modify Scope March 13, 2015. Description Application of Liberty Helicopters Inc. requesting authority to engage in scheduled operations as a commuter air carrier and proposes to operate flights between various New York City heliports, and the following destinations: NYC Metro Airports, Mohegan Sun Casino, Montauk, Southampton, and East Hampton (‘‘Proposed Service’’). Barbara J. Hairston, Supervisory Dockets Officer, Docket Operations, Federal Register Liaison. [FR Doc. 2015–05893 Filed 3–13–15; 8:45 am] BILLING CODE 4910–9X–P DEPARTMENT OF TRANSPORTATION DEPARTMENT OF TRANSPORTATION Office of the Secretary Notice of Applications for Certificates of Public Convenience and Necessity and Foreign Air Carrier Permits Filed Under Subpart B (Formerly Subpart Q) During the Week Ending February 21, 2015 The following Applications for Certificates of Public Convenience and Necessity and Foreign Air Carrier Permits were filed under Subpart B (formerly Subpart Q) of the Department of Transportation’s Procedural Regulations (see 14 CFR 302. 201 et seq.). The due date for Answers, Conforming Applications, or Motions to Modify Scope are set forth below for each application. Following the Answer period DOT may process the application by expedited procedures. Such procedures may consist of the adoption of a show-cause order, a tentative order, or in appropriate cases a final order without further proceedings. Docket Number: DOT–OST–2015– 0033. Date Filed: February 19, 2015. Due Date for Answers, Conforming Applications, or Motion To Modify Scope: March 12, 2015. Description Joint application of Southern Air Inc. (‘‘Southern’’) and Florida West International Airways, Inc. (‘‘Florida West’’) requesting approval of the de facto transfer of all international PO 00000 Frm 00150 Fmt 4703 Sfmt 4703 Federal Motor Carrier Safety Administration [Docket No. FMCSA–2006–26367] Motor Carrier Safety Advisory Committee (MCSAC): Public Meeting Federal Motor Carrier Safety Administration (FMCSA), DOT. ACTION: Notice of meeting. AGENCY: FMCSA announces that its MCSAC will meet on Monday and Tuesday, March 30–31, 2015. The MCSAC will meet to discuss and analyze data to support the potential benefits and feasibility of voluntary compliance and ways to credit carriers and drivers who initiate and establish programs that promote safety beyond the standards established in FMCSA regulations. The meeting will be open to the public for its entirety with a public comment period at the end of each day. Times and Dates: The meeting will be held Monday—Tuesday, March 30–31, 2015, from 9 a.m. to 4:30 p.m., Eastern Daylight Time (EDT), at the Hyatt Regency Crystal City, 2799 Jefferson Davis Highway, Arlington, VA 22202, (703) 418–1234. Copies of the MCSAC Task Statement and an agenda for the entire meeting will be made available in advance of the meeting at https:// mcsac.fmcsa.dot.gov. SUMMARY: FOR FURTHER INFORMATION CONTACT: Shannon L. Watson, Senior Policy E:\FR\FM\16MRN1.SGM 16MRN1 Ms.

Agencies

[Federal Register Volume 80, Number 50 (Monday, March 16, 2015)]
[Notices]
[Pages 13660-13663]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-05861]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74465; File No. SR-ISE-2014-24]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove a Proposed Rule Change To Modify ISE's Opening Process

March 10, 2015.

I. Introduction

    On November 19, 2014, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange Commission (the ``Commission''), pursuant to Section 19(b)(1) 
of the Securities Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to modify the opening process of 
the Exchange. The proposed rule change was published for comment in the 
Federal Register on December 10, 2014.\3\ On January 23, 2015, the 
Commission extended the time period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change, to March 10, 2015.\4\ The Commission received no comment 
letters on the proposed rule change. This order institutes proceedings 
under Section 19(b)(2)(B) of the Act \5\ to determine whether to 
approve or disapprove the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 73736 (December 4, 
2014), 79 FR 73354 (``Notice'').
    \4\ See Securities Exchange Act Release No. 74126 (January 23, 
2015), 80 FR 4953 (January 29, 2015).
    \5\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange proposes to (1) clarify and codify existing 
functionality within the trading system regarding the procedures for 
initiation of the opening process, and (2) modify the manner in which 
the Exchange's trading system opens trading at the beginning of the day 
and after trading halts.
    According to the Exchange, the proposed rule change would codify 
certain existing functionality within the trading system that was not 
previously described in the Exchange's rule and would provide new 
procedures for initiation of the opening rotation at the Exchange's 
opening and reopening after a trading halt. A more detailed

[[Page 13661]]

description of the initiation procedure is available in the Notice.\6\
---------------------------------------------------------------------------

    \6\ See Notice, supra note 3 at 73355.
---------------------------------------------------------------------------

    The Exchange also proposes to amend its opening rotation process. 
The Exchange believes that there are issues with its current opening 
process. Namely, because its opening process does not provide away 
market price protection, the Exchange believes that order flow 
providers are sending fewer pre-open orders to ISE. In addition, the 
Exchange states that ``the opening of options series can be delayed by 
imbalances that prevent ISE from determining an opening price in a 
timely manner'' and that ``such delays exacerbate the problem of not 
providing price protection at the opening.'' \7\
---------------------------------------------------------------------------

    \7\ See Notice, supra note 3 at 73356.
---------------------------------------------------------------------------

    To address its concerns, ISE proposes an iterative opening process. 
As described in the Notice, in the first iteration, the trading system 
will attempt to derive the first opening price to be at or better than 
the ISE Market Maker quotes and away best bid or offer (``ABBO'') 
prices. When there is executable interest, the trading system will 
first calculate a range of prices within which to open the options 
series (``Boundary Prices''). As is the case today, the trading system 
will use quotes provided by the Primary Market Maker (``PMM'') for the 
series in question to set the first Boundary Prices. If the PMM is not 
present on either side of the market, then the best quotes from the 
Competitive Market Makers (``CMMs'') will be used on the corresponding 
side. If there are no PMM or CMM quotes on the bid side, the lowest 
minimum trading increment for the option class will be used on the bid 
side. If there are no PMM or CMM quotes on the offer side, the options 
class will not open because in the absence of an offer there is no 
limit as to the price at which an opening trade can occur. If the 
options class is open on another exchange, the Boundary Prices will be 
determined to be the higher of the ISE Market Maker's bid in that 
options class and the national best bid, and the lower of the ISE 
Market Maker's offer in that options class and the national best offer.
    Once the trading system has determined the Boundary Prices, as 
appropriate, it then will determine the price at which the maximum 
number of contracts can trade at or within the appropriate Boundary 
Prices (the ``execution price'').\8\ Once the trading system determines 
the execution price, orders and quotes will be processed as follows--
market orders will be given priority before limit orders and quotes, 
and limit orders and quotes will be given priority by price. For limit 
orders and quotes with the same price, priority will be accorded first 
to Priority Customer Orders \9\ over Professional Orders \10\ and 
quotes. Priority Customer Orders with the same limit price will be 
executed in random \11\ while Professional Orders and quotes with the 
same limit price will be executed pro-rata based on size. If the 
Boundary Prices are calculated using the national best bid or offer 
(``NBBO''), any remaining Public Customer Orders \12\ after this 
iteration that would lock or cross a bid or offer from another exchange 
will be processed in accordance with Supplementary Material .02 to ISE 
Rule 1901.\13\ Any remaining Non-Customer Orders \14\ that would lock 
or cross a bid or offer from another exchange may trade outside the 
Boundary Prices by up to two trading increments as further described 
under the third iteration below.
---------------------------------------------------------------------------

    \8\ See Notice, supra note 3, at 73356, for an example showing 
the calculation of the execution price following the first 
iteration.
    \9\ Pursuant to ISE Rules 100(a)(37A) and 100(a)(37B), a 
Priority Customer Order is an order for the account of a person or 
entity that (i) is not a broker or dealer in securities, and (ii) 
does not place more than 390 orders in listed options per day on 
average during a calendar month for its own beneficial account(s).
    \10\ Pursuant to ISE Rule 100(a)(37C), a Professional Order is 
an order that is for the account of a person or entity that is not a 
Priority Customer.
    \11\ Priority Customer orders with the same limit price in the 
regular order book are currently executed in time priority during 
the opening. The Exchange believes executing these orders on a 
random basis is a fairer approach because the current time priority 
is dependent on when such orders are communicated to the Exchange by 
a Priority Customer's broker before the market, not the time the 
Priority Customer expressed interest in doing the trade. Executing 
these orders in random will provide Priority Customer orders an 
equal opportunity to participate at the open.
    \12\ Pursuant to ISE Rules 100(a)(38) and 100(a)(39), a Public 
Customer means a person or entity that is not a broker or dealer in 
securities and a Public Customer Order means an order for the 
account of a Public Customer.
    \13\ Under the Options Order Protection and Locked/Crossed 
Market Plan (``Options Linkage Plan''), the Exchange cannot execute 
orders at a price that is inferior to the NBBO, nor can the Exchange 
place an order on its book that would cause the ISE best bid or 
offer to lock or cross another exchange's quote. In compliance with 
this requirement, Non-Customer Orders and Public Customer Orders are 
exposed to all ISE Members for up to one second to give them an 
opportunity to execute orders at the NBBO price or better before 
orders are rejected (in the case of Non-Customer Orders) or routed 
out to other exchanges (in the case of Public Customer Orders). See 
Supplementary Material .02 to Rule 1901.
    \14\ Pursuant to ISE Rules 100(a)(27) and (28), a Non-Customer 
means a person or entity that is a broker or dealer in securities 
and a Non-Customer Order means an order for the account of a Non-
Customer.
---------------------------------------------------------------------------

    If after the first iteration there remain unexecuted orders and 
quotes that lock or cross each other, the trading system will initiate 
a second iteration.\15\ In the second iteration, the trading system 
will use either the ISE Market Maker quotes or the ABBO prices,\16\ 
whichever was not used in the first iteration, to establish the 
Boundary Prices. For example, if the ISE Market Maker quotes were used 
in the first iteration, the second iteration will use ABBO prices and 
vice versa. If there were no ABBO prices for consideration for the 
first iteration, then this second iteration will not occur and the 
trading system will initiate the third iteration as described below.
---------------------------------------------------------------------------

    \15\ See Notice, supra note 3, at 73357, for an example showing 
the calculation of the execution price following the second 
iteration.
    \16\ The ABBO prices considered in the first iteration are also 
used during the second iteration.
---------------------------------------------------------------------------

    In the second iteration, the trading system will again determine 
the execution price at which the maximum number of contracts can trade 
at or within the widened Boundary Prices. Once the trading system 
determines the second execution price, orders and quotes will be 
processed as follows--market orders will be given priority before limit 
orders and quotes, and limit orders and quotes will be given priority 
by price. For limit orders and quotes with the same price, priority 
will be accorded first to Priority Customer Orders over Professional 
Orders and quotes. Priority Customer Orders with the same limit price 
will be executed in random order while Professional Orders and quotes 
with the same limit price will be executed pro-rata based on size. If 
the Boundary Prices in the second iteration are calculated using the 
NBBO, any remaining Public Customer Orders after this iteration that 
would lock or cross a bid or offer from another exchange will be 
processed in accordance with Supplementary Material .02 to ISE Rule 
1901. Any remaining Non-Customer Orders that would lock or cross a bid 
or offer from another exchange may trade outside the Boundary Prices by 
up to two trading increments as further described under the third 
iteration below.
    If after the second iteration there remain unexecuted orders and 
quotes that lock or cross each other, the trading system will initiate 
a third iteration.\17\ In the third iteration, the prior Boundary 
Prices, i.e., the prices used in the second iteration, and in the case 
where the second iteration does not occur, the prices used in the first 
iteration, will be widened by two trading increments. The trading 
system will then determine the

[[Page 13662]]

price at which the maximum number of contracts could trade at or within 
the widened Boundary Prices. Once the trading system determines the 
third execution price, orders and quotes will be processed as follows--
market orders will be given priority before limit orders and quotes, 
and limit orders and quotes will be given priority by price. For limit 
orders and quotes with the same price, priority will be accorded first 
to Priority Customer Orders over Professional Orders and quotes. 
Priority Customer Orders with the same limit price will be executed in 
random order while Professional Orders and quotes with the same limit 
price will be executed pro-rata based on size. Thereafter, any 
unexecuted Priority Customer Orders that lock or cross the Boundary 
Prices will be handled by the PMM \18\ and any unexecuted Professional 
Orders and Non-Customer Orders that lock or cross the Boundary Prices 
will be canceled.
---------------------------------------------------------------------------

    \17\ See Notice, supra note 3, at 73357, for an example showing 
the calculation of the execution price following the third 
iteration.
    \18\ The PMM has the obligation under existing Exchange rules to 
engage in dealings for its own account when, among other things, 
there is a temporary disparity between the supply of and demand for 
a particular options contract, and to act with due diligence in 
handling orders. See ISE Rule 803(c).
---------------------------------------------------------------------------

    If after the third iteration there remain unexecuted orders and 
quotes that lock or cross each other, the trading system will initiate 
a fourth and final iteration.\19\ In the fourth iteration, the trading 
system will not calculate new Boundary Prices. The trading system will 
simply trade any remaining interest. Thereafter, the trading system 
will open the options series by disseminating the Exchange's best bid 
and offer derived from the remaining orders and quotes.
---------------------------------------------------------------------------

    \19\ See Notice, supra note 3, at 73357-8, for an example 
showing the calculation of the execution price following the fourth 
and final iteration.
---------------------------------------------------------------------------

III. Proceedings To Determine Whether To Approve or Disapprove SR-ISE-
2014-24 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \20\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change, as discussed below. 
Institution of proceedings does not indicate that the Commission has 
reached any conclusions with respect to any of the issues involved. 
Rather, as described in greater detail below, the Commission seeks and 
encourages interested persons to provide additional comment on the 
proposed rule change.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(2)(B). Id. Section 19(b)(2) of the 
Exchange Act also provides that proceedings to determine whether to 
disapprove a proposed rule change must be concluded within 180 days 
of the date of publication of notice of the filing of the proposed 
rule change. See id. The time for conclusion of the proceedings may 
be extended for up to 60 days if the Commission finds good cause for 
such extension and publishes its reasons for so finding. See id.
---------------------------------------------------------------------------

    The Exchange believes that ``each iteration of the proposed 
iterative process complies with Section 5(a) of the [Options] Linkage 
Plan, or qualifies as an exception under Section 5(b)(ii) of the 
[Options] Linkage Plan.'' \21\ Section 5(a)--Order Protection--of the 
Options Linkage Plan requires that each participant exchange establish 
written policies and procedures that are reasonably designed to prevent 
trade-throughs and to conduct surveillance to ascertain the 
effectiveness of such policies and procedures.\22\ Section 5(b) 
provides a number of exceptions to the order protection 
requirements.\23\ Section 5(b)(ii), in particular, provides an 
exception for a ``transaction traded through a Protected Quotation 
being disseminated by an Eligible Exchange during a trading rotation.'' 
\24\
---------------------------------------------------------------------------

    \21\ See Notice, supra note 3, at 73358.
    \22\ Section 5(a) of the Options Linkage Plan.
    \23\ Section 5(b) of the Options Linkage Plan.
    \24\ Section 5(b)(ii) of the Options Linkage Plan.
---------------------------------------------------------------------------

    In the Commission's Order approving the Options Linkage Plan,\25\ 
the Commission stated that the Section 5(b)(ii) exception from trade-
throughs was carried over from the previous linkage plan and is similar 
to an exception available for NMS stocks under Regulation NMS.\26\ The 
Commission further noted that the ``trading rotation'' in the Options 
Linkage Plan is ``effectively a single price auction to price the 
option.'' \27\
---------------------------------------------------------------------------

    \25\ See Securities Exchange Act Release No. 60405 (July 30, 
2009), 74 FR 39362 (August 6, 2009) (``Options Linkage Plan Approval 
Order).
    \26\ See Options Linkage Plan Approval Order, id. at 39366.
    \27\ Id.
---------------------------------------------------------------------------

    The Commission believes that ISE's proposal raises interpretive 
issues that warrant further public comment and Commission 
consideration. Namely, the Commission believes that proceedings are 
appropriate to consider whether the Exchange's proposed opening 
process, which would undertake potentially four separate iterations, 
each with its own execution price, is consistent with the Options 
Linkage Plan and with Section 6 of the Act, particularly Section 
6(b)(5),\28\ which requires, among other things, that the rules of a 
national securities exchange be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system and, in general, 
to protect investors and the public interest.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data and arguments with respect to the 
concerns identified above, as well as any other concerns they may have 
with the proposed rule change. In particular, the Commission invites 
the written views of interested persons concerning whether the proposal 
is inconsistent with Section 6(b)(5) \29\ or any other provision of the 
Act, or the rules and regulation thereunder. Although there do not 
appear to be any issues relevant to approval or disapproval which would 
be facilitated by an oral presentation of views, data, and arguments, 
the Commission will consider, pursuant to Rule 19b-4, any request for 
an opportunity to make an oral presentation.\30\
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78f(b)(5).
    \30\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Pub. L. 94-29 (June 4, 1975), grants to the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
---------------------------------------------------------------------------

    In addition to any other facets of the proposal on which persons 
may seek to comment, the Commission is soliciting the views of 
interested persons regarding provisions of the proposed rule change 
concerning compliance with Section 5(a) of the Options Linkage Plan or 
qualification as an exception under Section 5(b)(ii) of the Options 
Linkage Plan.
    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by April 6, 2015. Any person who wishes to file a rebuttal 
to any other person's submission must file that rebuttal by April 20, 
2015. The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the proposed rule 
change, in addition to any other comments they may wish to submit about 
the proposed rule change. In particular, the Commission seeks comment 
on the statements of the Exchange contained in the Notice,\31\ 
including the statements made with

[[Page 13663]]

respect to compliance with the Options Linkage Plan, and any other 
issues raised by the proposed rule change.
---------------------------------------------------------------------------

    \31\ See Notice, supra note 3.
---------------------------------------------------------------------------

    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-2014-24 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-2014-24. 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 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-2014-24 and should be 
submitted by April 6, 2015. Rebuttal comments should be submitted by 
April 20, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
---------------------------------------------------------------------------

    \32\ 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2015-05861 Filed 3-13-15; 8:45 am]
 BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.