Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change Relating Alternative Primary Market Makers, 74826-74828 [2015-30244]
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74826
Federal Register / Vol. 80, No. 229 / Monday, November 30, 2015 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76508; File No. SR–ISE–
2015–42]
1. Purpose
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing of Proposed Rule
Change Relating Alternative Primary
Market Makers
November 23, 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 November
16, 2015, 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, II,
and III 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 purpose of this proposed rule
change is to permit any Competitive
Market Maker (‘‘CMM’’) that is
appointed to act as an Alternative
Primary Market Maker (‘‘Alternative
PMM’’) to voluntarily act as a Back-Up
Primary Market Maker (‘‘Back-Up
PMM’’). 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.
jstallworth on DSK7TPTVN1PROD with NOTICES
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.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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The Exchange proposes to permit any
CMM that is approved to act as an
Alternative PMM to voluntarily act as a
Back-Up PMM in options series in
which it is quoting when the appointed
PMM fails to have a quote in the
System. In doing so, the Exchange
would further enhance its markets by
having additional Back-Up PMMs to
take over a PMM’s responsibilities when
the appointed PMM faces operational
difficulties or ceases operations. The
Exchange also proposes to amend the
process by which a Back-Up PMM is
chosen to replace a PMM that fails to
have a quote in the System, when more
than one CMM is quoting in the series.
Background
Currently, CMMs that are also PMMs
on the Exchange may voluntarily act as
Back-Up PMMs when the appointed
PMM has technical difficulties that
interrupt its participation in the
market.3 These CMMs/PMMs are
permitted to be Back-Up PMMs because
they already have systems built to
undertake the responsibilities of a PMM
on the Exchange.4 Back-Up PMMs
reduce volatility that occurs during, and
the duration of, non-firm or ‘‘fast
market’’ states disseminated by the ISE
and facilitate uninterrupted trading
even when a PMM experiences
difficulties that cause it to remove its
quotes from the market. In these
situations, the Back-Up PMM assumes
most of the responsibilities and
privileges of a PMM under the Rules
with respect to any series in which the
appointed PMM fails to have a quote in
the System.5 The system automatically
switches back to the appointed PMM
when it re-establishes its quotes in the
series, but the Back-Up PMM continues
to be responsible for any outstanding
unexecuted orders it is handling.
The Exchange’s Rules also allow the
Exchange to appoint a CMM as an
Alternative PMM when a PMM does not
3 Securities Exchange Act Release No. 34–53419
(March 6, 2006), 71 FR 12758 (March 13, 2006) (SR–
ISE–2005–50).
4 If there is more than one eligible member
quoting in the series, the System will automatically
switch to the member with the largest offer in the
series.
5 A CMM does not become subject to the
requirement in Rule 804(e)(1) to enter continuous
quotations in all of the series of all of the options
classes to which it is appointed, as opposed to only
60% of the options classes under Rule 804(e)(2), by
acting as a Back-Up PMM.
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wish to trade in an option class.6 These
CMMs are permitted to be Alternative
PMMs because they have appropriate
systems and procedures in place to
undertake the responsibilities of a PMM.
Alternative PMMs enable the Exchange
to list and retain options classes that
PMMs do not wish to trade.7
Specifically, when no PMMs want the
allocation of an option class, the
Alternative PMMs are offered the
opportunity to serve as PMM in the
option class in accordance with the
Exchange’s regular allocation
procedures. In these situations, the
Alternative PMM has all of the
responsibilities and privileges of a PMM
with respect to all appointed options
classes.8 Additionally, if an Alternative
PMM ceases trading in an option class,
that option class would be reallocated
by the Exchange.
Proposed Rule Change
The Exchange now proposes to permit
an Alternative PMM to voluntarily act
as a Back-Up PMM in options series in
which it is quoting 9 and assume most
of the responsibilities and privileges of
a PMM under the Rules with respect to
any option series in which the
appointed PMM fails to have a quote in
the System.10 This may occur when, for
example, the appointed PMM has
technical difficulties that interrupt its
participation in the market or a PMM
exits the options market making
business. Under the proposal, an
Alternative PMM is eligible to act as a
Back-Up PMM because it already has in
place written procedures and systems
built to assume the responsibilities of a
6 Securities Exchange Act Release No. 34–59250
(January 14, 2009), 74 FR 4062 (January 22, 2009)
(SR–ISE–2008–90).
7 Under Rule 802, allocations are voluntary, and
at times ISE was unable to list new products
because none of the PMMs were interested in
trading the class. As a result, the Exchange was
unable to list new products because existing PMMs
were not interested in trading the option class. At
other times, ISE delisted certain products due to
lack of PMM interest. ISE represents that this occurs
most frequently with respect to options on stocks
that have pending corporate actions and options
products that are not listed at any other options
exchange. ISE believes that despite the lack of PMM
interest, these products may be of interest to other
Members of the Exchange.
8 For example, Alternative PMMs would enjoy
privileges that include, among other things,
participation rights and small order execution
preference while accepting responsibilities that
include, among other things, the obligation to
provide continuous quotations in the option class
to which the Alternative PMM is appointed, and the
obligation to conduct the opening rotation on a
daily basis for as long as the Alternative PMM is
appointed to that option class.
9 The Exchange notes that under its current rules
it may only appoint PMMs (i.e. CMMs that are also
PMMs in other option classes) as Back-up PMMs.
10 See Supplementary Material .03(a) to ISE Rule
803.
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Federal Register / Vol. 80, No. 229 / Monday, November 30, 2015 / Notices
PMM on the Exchange. The Exchange
also proposes to further amend the
process by which a Back-Up PMM is
chosen to replace a PMM that fails to
have a quote in the System, when more
than one Back-Up PMM is quoting in
the series.
In situations where a PMM fails to
have a quote in the System, the System
will choose a Back-Up PMM, from the
available CMMs, to replace the PMM.
The System will choose the CMM with
the lowest offer price in the series at that
time. If there are two or more CMMs at
the same offer price, the CMM with the
highest bid price will be chosen. If there
are two or more CMMs at the same bid
and offer price, the CMM with the
largest offer quantity will be chosen. If
there are two or more CMMs with the
same offer quantity, the CMM with the
largest bid quantity will be chosen. If
there remains two or more CMMs with
the same bid and offer quantity and
prices, the one with the highest time
priority on the offer will be chosen as
the Back-Up PMM.11 Additionally,
when possible, the System will
automatically switch back to the
appointed PMM when it re-establishes
its quotes in the series, but the Back-Up
PMM will continue to be responsible for
any outstanding unexecuted orders it is
handling.
The proposed rule change enhances
ISE’s market because it ensures ISE has
an adequate number of willing Members
to act as Back-Up PMMs for PMMs that
are not participating in the market.
Ultimately, having more Back-Up PMMs
will further: (1) Reduce the volatility
that occurs during, and the duration of,
non-firm or ‘‘fast market’’ 12 states
disseminated by ISE and (2) allow for
virtually seamless trading even when
multiple PMMs experience difficulties
that cause PMMs to remove their quotes
from the market.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 13 in general, and furthers the
objectives of Section 6(b)(5) 14 in
11 See
Supplementary Material .03(b) to ISE Rule
803.
jstallworth on DSK7TPTVN1PROD with NOTICES
12 Fast
markets occur when there is rapid trading
in a security that causes a delay in the electronic
updating of its last sale. Trades can occur so rapidly
that market orders may be executed at a very
different price from the price at the time the order
was placed. This leads to investors being
disadvantaged because 1) quotes can be inaccurate
when PMMs are unable to keep up with the pace
of trading or 2) a broker may not be able to fill
orders when investors want or expect them to
because the PMM is not quoting the other side of
the market resulting in the purchase or sale of an
investor’s securities at undesirable price levels.
13 15 U.S.C. 78f(b).
14 15 U.S.C. 78f(b)(5).
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particular, in that it is 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.
The Exchange believes that the
proposed rule change would remove
impediments to and perfect the
mechanism of a free and open market by
enhancing the Exchange’s market by
reducing volatility that occurs during
and the duration of non-firm or ‘‘fast
market’’ states disseminated by the ISE
and allowing for virtually uninterrupted
trading even when multiple PMMs
experience difficulties that cause PMMs
to remove their quotes from the market.
Uninterrupted trading is possible
because 1) Back-Up PMMs have
appropriate systems and procedures in
place to undertake the responsibilities
of a PMM when necessary and 2) having
an adequate amount of Back-Up PMMs
means a Back-Up PMM will be available
to take over for a PMM, and post firm
and accurate quotes when a situation
causes a PMM to fail to have a quote in
the System. The Exchange believes that
the proposed rule change is consistent
with the protection of investors and the
public interest because it enhances the
Exchange’s ability to disseminate firm
markets. Additionally, by amending and
explaining the detailed steps for
choosing Back-Up PMMs, members will
have additional clarity on the process by
which a Back-Up PMM is chosen in
certain situations.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
This proposed rule change does not
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the
Exchange Act because ISE is enhancing
its market by allowing additional
Members, which have systems built to
assume the responsibilities of a PMM on
the Exchange to be Backup-PMMs when
appointed PMMs face operational
difficulties or cease market making
operations.
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.
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74827
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not significantly affect the
protection of investors or the public
interest, does not impose any significant
burden on competition, and, by its
terms, does not become operative for 30
days from the date on which it was
filed, or such shorter time as the
Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 15 and Rule 19b–
4(f)(6) thereunder.16 The Exchange
provided the Commission with written
notice of its intent to file the proposed
rule change, along with a brief
description and text of the proposed
rule change, at least five business days
prior to the date of filing the proposed
rule change, or such shorter time as
designated by the Commission, as
required by Rule 19b-4(f)(6).
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File No. SR–ISE–
2015–42 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–ISE–2015–42. 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
15 15
16 17
E:\FR\FM\30NON1.SGM
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
30NON1
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Federal Register / Vol. 80, No. 229 / Monday, November 30, 2015 / Notices
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–
2015–42 and should be submitted
byDecember 21, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–30244 Filed 11–27–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76513; File No. SR–Phlx–
2015–79]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Order
Approving a Proposed Rule Change
Relating to the Active Specialized
Quote Feed Port Fee
jstallworth on DSK7TPTVN1PROD with NOTICES
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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CFR 240.19b–4(f)(2).
‘‘Specialist’’ is an Exchange member who is
registered as an options specialist pursuant to
Exchange Rule 1020(a).
7 ‘‘Market Makers’’ include Registered Options
Traders (Exchange Rule 1014(b)(i) and (ii)), which
include Streaming Quote Traders (Exchange Rule
1014(b)(ii)(A)) and Remote Streaming Quote
Traders (Exchange Rule 1014(b)(ii)(B)).
8 See SR–Phlx–2015–33, available at https://
nasdaqomxphlx.cchwallstreet.com/
NASDAQOMXPHLX/pdf/phlx-filings/2015/SRPhlx-2015-33.pdf.
9 See Notice, supra note 3, at 61538.
10 See id. at 61537. See also Securities Exchange
Act Release No. 73687 (November 25, 2014), 79 FR
71485 (December 2, 2014) (SR–Phlx–2014–73)
(implementing the Variable Active SQF Port Fees
with a delayed operative date of April 1, 2015).
11 See Notice, supra note 3, at 61538 (referencing
note 26 in Section VII.B. of the Phlx Pricing
Schedule).
6A
I. Introduction
On September 23, 2015, NASDAQ
OMX PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
pay eligible Specialists and Market
1 15
Fees with a monthly Fixed Active SQF
Port Fee was rejected.12 As a result, the
Exchange assessed Specialists and
Market Makers the applicable Variable
Active SQF Port Fees that were in effect
from April 1, 2015—April 30, 2015
(‘‘April 2015 Billing Period’’) and not
the comparably lower Fixed Active SQF
Port Fee.13 The Exchange subsequently
refiled another proposed rule change for
immediate effectiveness pursuant to
Section 19(b)(3)(A) 14 of the Act and
Rule 19b–4(f)(2) 15 thereunder to replace
the monthly Variable Active SQF Port
II. Description of the Proposal
Fees with the monthly Fixed Active
On April 2, 2015, the Exchange
SQF Port Fee.16 This proposal became
submitted a proposed rule change for
operative May 1, 2015.
immediate effectiveness pursuant to
According to the Exchange, because
Section 19(b)(3)(A) 4 of the Act and Rule the April 2015 submission to replace the
19b–4(f)(2) 5 thereunder to, among other Variable Active SQF Port Fees with the
things, replace monthly Variable Active Fixed Active SQF Port Fee was rejected,
SQF Port Fees applicable to Specialists 6 the Exchange is proposing to pay a
and Market Makers 7 with a monthly
refund to eligible Specialists and Market
fixed Active SQF Port Fee (‘‘Fixed
Makers for a portion of the Variable
Active SQF Port Fee’’).8 According to
Active SQF Port Fees that the Exchange
the Exchange, all Specialists and Market assessed during the month of April 2015
Makers on the Exchange were subject to and that these eligible Specialists and
the following Variable Active SQF Port
Market Makers paid to the Exchange.17
Fees beginning in April 2015: 9
The Exchange states that it did not
intend to impose the Variable Active
Monthly
SQF Port Fees in April 2015, but rather
Number of active SQF port
fee per port
the Exchange intended to charge the less
1 ............................................
$2,500 expensive Fixed Active SQF Port Fee for
18
2–6 ........................................
$4,000 the April 2015 Billing Period. The
7 and over ............................
$15,000 Exchange notes that, because the Fixed
Active SQF Port Fee did not become
The Variable Active SQF Port Fees
operative until May 1, 2015, and the fee
were capped at $42,000 per month.10
reduction resulting from the Fixed
Under the Fixed Active SQF Port Fees,
Active SQF Port Fee did not occur as
Specialists and Market Makers would
intended on April 1, 2015, Specialists
pay $1,250 per port per month and this
and Market Makers were not able to take
fee would also be capped at $42,000 per advantage of the cheaper Fixed Active
month.11
SQF Port Fee for April 2015 and had to
The Exchange notes that the April
pay the more expensive Variable Active
2015 submission proposing to replace
SQF Port Fees for the April 2015 Billing
the monthly Variable Active SQF Port
Period. The Exchange also states that
Specialists and Market Makers paid
3 See Securities Exchange Act Release No. 76083
more in April 2015 than was anticipated
(October 6, 2015), 80 FR 61537 (SR–Phlx–2015–79)
by the Exchange and the Specialists and
(‘‘Notice’’).
Market Makers.19
4 15 U.S.C. 78s(b)(3)(A).
5 17
November 24, 2015.
17 17
Makers a refund for a portion of the
monthly variable Active Specialized
Quote Feed (‘‘SQF’’) Port Fees
(‘‘Variable Active SQF Port Fees’’) that
were in effect under Section VII.B. of
the Phlx Pricing Schedule during the
month of April 2015. The proposed rule
change was published for comment in
the Federal Register on October 13,
2015.3 The Commission did not receive
any comments on the proposal. This
order approves the proposed rule
change.
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Fmt 4703
Sfmt 4703
12 See
id. at 61537.
id.
14 15 U.S.C. 78s(b)(3)(A).
15 17 CFR 240.19b–4(f)(2).
16 See Securities Exchange Act Release No. 74833
(April 29, 2015), 80 FR 25749 (May 5, 2015) (SR–
Phlx–2015–36) (proposed rule change that, among
other things, instituted the Fixed Active SQF Port
Fee in lieu of the Variable Active SQF Port Fees as
of May 1, 2015).
17 See Notice, supra note 3, at 61537.
18 See id.
19 See Nasdaq Equity Trader Alert No. 2015–37
(March 25, 2015), available at https://
nasdaqtrader.com/TraderNews.aspx?id=ETA201537; and Nasdaq Options Trader Alert No. 2015–9
(April 14, 2015), available at https://www.phlx.com/
TraderNews.aspx?id=OTA2015-9 (the ‘‘Alerts’’).
The Exchange notes that the Alerts show how some
Exchange members may have anticipated the
proposed lower Fixed Active SQF Port Fee in April
13 See
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Agencies
[Federal Register Volume 80, Number 229 (Monday, November 30, 2015)]
[Notices]
[Pages 74826-74828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-30244]
[[Page 74826]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76508; File No. SR-ISE-2015-42]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing of Proposed Rule Change Relating Alternative
Primary Market Makers
November 23, 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 November 16, 2015, 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,
II, and III 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 purpose of this proposed rule change is to permit any
Competitive Market Maker (``CMM'') that is appointed to act as an
Alternative Primary Market Maker (``Alternative PMM'') to voluntarily
act as a Back-Up Primary Market Maker (``Back-Up PMM''). 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 Exchange proposes to permit any CMM that is approved to act as
an Alternative PMM to voluntarily act as a Back-Up PMM in options
series in which it is quoting when the appointed PMM fails to have a
quote in the System. In doing so, the Exchange would further enhance
its markets by having additional Back-Up PMMs to take over a PMM's
responsibilities when the appointed PMM faces operational difficulties
or ceases operations. The Exchange also proposes to amend the process
by which a Back-Up PMM is chosen to replace a PMM that fails to have a
quote in the System, when more than one CMM is quoting in the series.
Background
Currently, CMMs that are also PMMs on the Exchange may voluntarily
act as Back-Up PMMs when the appointed PMM has technical difficulties
that interrupt its participation in the market.\3\ These CMMs/PMMs are
permitted to be Back-Up PMMs because they already have systems built to
undertake the responsibilities of a PMM on the Exchange.\4\ Back-Up
PMMs reduce volatility that occurs during, and the duration of, non-
firm or ``fast market'' states disseminated by the ISE and facilitate
uninterrupted trading even when a PMM experiences difficulties that
cause it to remove its quotes from the market. In these situations, the
Back-Up PMM assumes most of the responsibilities and privileges of a
PMM under the Rules with respect to any series in which the appointed
PMM fails to have a quote in the System.\5\ The system automatically
switches back to the appointed PMM when it re-establishes its quotes in
the series, but the Back-Up PMM continues to be responsible for any
outstanding unexecuted orders it is handling.
---------------------------------------------------------------------------
\3\ Securities Exchange Act Release No. 34-53419 (March 6,
2006), 71 FR 12758 (March 13, 2006) (SR-ISE-2005-50).
\4\ If there is more than one eligible member quoting in the
series, the System will automatically switch to the member with the
largest offer in the series.
\5\ A CMM does not become subject to the requirement in Rule
804(e)(1) to enter continuous quotations in all of the series of all
of the options classes to which it is appointed, as opposed to only
60% of the options classes under Rule 804(e)(2), by acting as a
Back-Up PMM.
---------------------------------------------------------------------------
The Exchange's Rules also allow the Exchange to appoint a CMM as an
Alternative PMM when a PMM does not wish to trade in an option
class.\6\ These CMMs are permitted to be Alternative PMMs because they
have appropriate systems and procedures in place to undertake the
responsibilities of a PMM. Alternative PMMs enable the Exchange to list
and retain options classes that PMMs do not wish to trade.\7\
Specifically, when no PMMs want the allocation of an option class, the
Alternative PMMs are offered the opportunity to serve as PMM in the
option class in accordance with the Exchange's regular allocation
procedures. In these situations, the Alternative PMM has all of the
responsibilities and privileges of a PMM with respect to all appointed
options classes.\8\ Additionally, if an Alternative PMM ceases trading
in an option class, that option class would be reallocated by the
Exchange.
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\6\ Securities Exchange Act Release No. 34-59250 (January 14,
2009), 74 FR 4062 (January 22, 2009) (SR-ISE-2008-90).
\7\ Under Rule 802, allocations are voluntary, and at times ISE
was unable to list new products because none of the PMMs were
interested in trading the class. As a result, the Exchange was
unable to list new products because existing PMMs were not
interested in trading the option class. At other times, ISE delisted
certain products due to lack of PMM interest. ISE represents that
this occurs most frequently with respect to options on stocks that
have pending corporate actions and options products that are not
listed at any other options exchange. ISE believes that despite the
lack of PMM interest, these products may be of interest to other
Members of the Exchange.
\8\ For example, Alternative PMMs would enjoy privileges that
include, among other things, participation rights and small order
execution preference while accepting responsibilities that include,
among other things, the obligation to provide continuous quotations
in the option class to which the Alternative PMM is appointed, and
the obligation to conduct the opening rotation on a daily basis for
as long as the Alternative PMM is appointed to that option class.
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Proposed Rule Change
The Exchange now proposes to permit an Alternative PMM to
voluntarily act as a Back-Up PMM in options series in which it is
quoting \9\ and assume most of the responsibilities and privileges of a
PMM under the Rules with respect to any option series in which the
appointed PMM fails to have a quote in the System.\10\ This may occur
when, for example, the appointed PMM has technical difficulties that
interrupt its participation in the market or a PMM exits the options
market making business. Under the proposal, an Alternative PMM is
eligible to act as a Back-Up PMM because it already has in place
written procedures and systems built to assume the responsibilities of
a
[[Page 74827]]
PMM on the Exchange. The Exchange also proposes to further amend the
process by which a Back-Up PMM is chosen to replace a PMM that fails to
have a quote in the System, when more than one Back-Up PMM is quoting
in the series.
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\9\ The Exchange notes that under its current rules it may only
appoint PMMs (i.e. CMMs that are also PMMs in other option classes)
as Back-up PMMs.
\10\ See Supplementary Material .03(a) to ISE Rule 803.
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In situations where a PMM fails to have a quote in the System, the
System will choose a Back-Up PMM, from the available CMMs, to replace
the PMM. The System will choose the CMM with the lowest offer price in
the series at that time. If there are two or more CMMs at the same
offer price, the CMM with the highest bid price will be chosen. If
there are two or more CMMs at the same bid and offer price, the CMM
with the largest offer quantity will be chosen. If there are two or
more CMMs with the same offer quantity, the CMM with the largest bid
quantity will be chosen. If there remains two or more CMMs with the
same bid and offer quantity and prices, the one with the highest time
priority on the offer will be chosen as the Back-Up PMM.\11\
Additionally, when possible, the System will automatically switch back
to the appointed PMM when it re-establishes its quotes in the series,
but the Back-Up PMM will continue to be responsible for any outstanding
unexecuted orders it is handling.
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\11\ See Supplementary Material .03(b) to ISE Rule 803.
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The proposed rule change enhances ISE's market because it ensures
ISE has an adequate number of willing Members to act as Back-Up PMMs
for PMMs that are not participating in the market. Ultimately, having
more Back-Up PMMs will further: (1) Reduce the volatility that occurs
during, and the duration of, non-firm or ``fast market'' \12\ states
disseminated by ISE and (2) allow for virtually seamless trading even
when multiple PMMs experience difficulties that cause PMMs to remove
their quotes from the market.
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\12\ Fast markets occur when there is rapid trading in a
security that causes a delay in the electronic updating of its last
sale. Trades can occur so rapidly that market orders may be executed
at a very different price from the price at the time the order was
placed. This leads to investors being disadvantaged because 1)
quotes can be inaccurate when PMMs are unable to keep up with the
pace of trading or 2) a broker may not be able to fill orders when
investors want or expect them to because the PMM is not quoting the
other side of the market resulting in the purchase or sale of an
investor's securities at undesirable price levels.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \13\ in general, and furthers the objectives of Section
6(b)(5) \14\ in particular, in that it is 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.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change would remove
impediments to and perfect the mechanism of a free and open market by
enhancing the Exchange's market by reducing volatility that occurs
during and the duration of non-firm or ``fast market'' states
disseminated by the ISE and allowing for virtually uninterrupted
trading even when multiple PMMs experience difficulties that cause PMMs
to remove their quotes from the market. Uninterrupted trading is
possible because 1) Back-Up PMMs have appropriate systems and
procedures in place to undertake the responsibilities of a PMM when
necessary and 2) having an adequate amount of Back-Up PMMs means a
Back-Up PMM will be available to take over for a PMM, and post firm and
accurate quotes when a situation causes a PMM to fail to have a quote
in the System. The Exchange believes that the proposed rule change is
consistent with the protection of investors and the public interest
because it enhances the Exchange's ability to disseminate firm markets.
Additionally, by amending and explaining the detailed steps for
choosing Back-Up PMMs, members will have additional clarity on the
process by which a Back-Up PMM is chosen in certain situations.
B. Self-Regulatory Organization's Statement on Burden on Competition
This proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Exchange Act because ISE is enhancing its market by allowing
additional Members, which have systems built to assume the
responsibilities of a PMM on the Exchange to be Backup-PMMs when
appointed PMMs face operational difficulties or cease market making
operations.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not significantly
affect the protection of investors or the public interest, does not
impose any significant burden on competition, and, by its terms, does
not become operative for 30 days from the date on which it was filed,
or such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\ The Exchange provided the Commission with
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at least
five business days prior to the date of filing the proposed rule
change, or such shorter time as designated by the Commission, as
required by Rule 19b-4(f)(6).
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File No. SR-ISE-2015-42 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-ISE-2015-42. 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
[[Page 74828]]
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-2015-42 and should be
submitted by December 21, 2015.
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\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-30244 Filed 11-27-15; 8:45 am]
BILLING CODE 8011-01-P