Self-Regulatory Organizations; ISE Gemini, LLC; Order Approving Proposed Rule Change Related to Market Wide Risk Protection, 33565-33567 [2016-12389]

Download as PDF Federal Register / Vol. 81, No. 102 / Thursday, May 26, 2016 / Notices executed according to price, with the highest bid price and the lowest offer price receiving highest priority and, within each price, according to the time of order entry. For Timed Orders, priority within each price is determined based on the effective time of the order, as provided in proposed Rule 86(b)(2)(B)(vi)(3)(a)–(c). Timed Orders submitted with an Effective Time become effective at the time designated on the order (i.e., at the Effective Time), whereas Timed Orders submitted with an Expire Time become effective at the time such order is submitted. Additionally, Timed Orders submitted with a designated trading session alone or with a designated trading session and either an Effective Time or an Expire Time become effective at the time the designated trading session begins, whereas Timed Orders submitted during a designated trading session become effective at the time such order is received. The Exchange proposes to reflect these differences with an amendment to Rule 86(j)(A)(ii).20 Finally, the Exchange proposes to make non-substantive organizational changes to the rule text in order to make the rule easier to read and understand. Specifically, the Exchange is proposing to renumber each of paragraphs (C), (D), and (E) to (B)(ii), (B)(iii), and (B)(iv) and to renumber each of paragraphs (F) through (O) to (C) through (K). sradovich on DSK3TPTVN1PROD with NOTICES III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.21 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,22 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 foster cooperation and coordination with persons engaged in facilitating transactions in securities, 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; and are not designed to 20 See id. approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 22 15 U.S.C. 78f(b)(5). 21 In VerDate Sep<11>2014 18:47 May 25, 2016 Jkt 238001 permit unfair discrimination between customers, issuers, brokers, or dealers. The Commission notes that the Exchange believes that the proposed rule change would protect investors and remove impediments to, and perfect the mechanisms of, a free and open market and a national market system by offering its Users additional order types and therefore affording them greater opportunities to execute their bond orders on the Exchange.23 The Exchange further states that its proposal to adopt new order types on NYSE Bonds, including All-or-None, Fill-or-Kill, and Minimum Quantity orders, is consistent with order types available on other ATSs and exchanges.24 The Commission notes that, according to the Exchange, the proposal to codify Good ‘Til Date Orders and Timed Orders does not add any new functionality but instead provides additional clarity and transparency regarding current functionality offered by the Exchange.25 Finally, the Commission notes that the Exchange’s proposal relating to the calculation of the IMP is intended to provide additional detail, clarity, and transparency to the rule.26 The Commission believes that the proposed rules to adopt new order types on NYSE Bonds would provide Users with additional options for trading in fixed income securities on the Exchange. Based on the Exchange’s representations, the Commission believes that the proposed rules regarding Good ‘Til Date and Timed Orders do not raise any novel regulatory considerations and should provide greater specificity, clarity, and transparency with respect to the functionality available on the Exchange. The Commission similarly believes that the proposal relating to the IMP calculation and the organizational changes to the rule text should provide additional clarity and transparency to the Exchange’s rules. For these reasons, the Commission believes that the proposed rule change is consistent with the Act. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,27 that the 23 See Notice, supra note 4, at 19677. id. at 19672 & n.13, 19677. The Exchange states that, because fixed income securities are not subject to Regulation NMS, it proposes to display the All-or-None and Minimum Quantity and permit executions that bypass an All-or-None order or Minimum Quantity order if the terms of such orders cannot be met, unlike similar All-or-None and Minimum Quantity order types on equity exchanges. See id. at 19677. 25 See Notice, supra note 4, at 19677. 26 See id. at 19672, 77. 27 15 U.S.C. 78s(b)(2). 24 See PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 33565 proposed rule change (SR–NYSE–2016– 17), as modified by Amendment No. 1, be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.28 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–12388 Filed 5–25–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–77881; File No. SR– ISEGemini–2016–03] Self-Regulatory Organizations; ISE Gemini, LLC; Order Approving Proposed Rule Change Related to Market Wide Risk Protection May 20, 2016. I. Introduction On March 17, 2016, ISE Gemini, LLC (the ‘‘Exchange’’ or ‘‘ISE Gemini’’) 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 introduce new activity-based risk protection functionality. The proposed rule change was published for comment in the Federal Register on April 6, 2016.3 No comment letters were received in response to this proposal. This order approves the proposed rule change. II. Description of the Proposed Rule Change The Exchange proposed to introduce two activity-based risk protection measures that will be mandatory for all members: (1) The ‘‘Order Entry Rate Protection,’’ which prevents members from entering orders at a rate that exceeds predefined thresholds,4 and (2) the ‘‘Order Execution Rate Protection,’’ which prevents members from executing orders at a rate that exceeds their predefined risk settings (together, ‘‘Market Wide Risk Protection’’). The Exchange will announce the implementation date of the proposed 28 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 77488 (Mar. 31, 2016), 81 FR 20021 (‘‘Notice’’). 4 The Exchange stated that it will initiate the Order Entry Rate Protection pre-open, but in a manner that allows members time to load their orders without inadvertently triggering the protection. The Exchange further noted that it will establish and communicate the precise initiation time via circular and prior to implementation. See Notice, supra note 3, at 20022 n.4. 1 15 E:\FR\FM\26MYN1.SGM 26MYN1 33566 Federal Register / Vol. 81, No. 102 / Thursday, May 26, 2016 / Notices rule in a circular to be distributed to members prior to implementation.5 Pursuant to proposed Rule 714(d), ‘‘Market Wide Risk Protection,’’ the Exchange’s trading system (the ‘‘System’’) will maintain one or more counting programs on behalf of each member that will track the number of orders entered and the number of contracts traded on ISE Gemini or, if chosen by the member, across both ISE Gemini and its affiliate, International Securities Exchange, LLC (‘‘ISE’’).6 Members may also use multiple counting programs to separate risk protections for different groups established within the member.7 The counting programs will maintain separate counts, over rolling time periods specified by the member, for each count of: (1) The total number of orders entered; and (2) the total number of contracts traded.8 According to the Exchange, members will have the discretion to establish the applicable time period for each of the counts maintained under the Market Wide Risk Protection, provided that the selected period is within minimum and maximum time parameters that will be established by the Exchange and announced via circular.9 By contrast, the Exchange’s proposal does not establish minimum or maximum values for the order entry or execution parameters described in (1) and (2) above. Nevertheless, the Exchange will establish default values 10 for the time period, order entry, and contracts traded parameters in a circular to be distributed to members. The Exchange represented that such default values will apply only to members that do not submit their own parameters for the 5 See Notice, supra note 3, at 20022. may set different risk parameters for their trading activity on each exchange, or they may set risk parameters that apply to their trading across both ISE Gemini and ISE. See proposed Rule 714(d). 7 The Exchange stated that it will explain how members can go about setting up risk protections for different groups (e.g., business units) in a circular issued to members. See Notice, supra note 3, at 20022 n.7. 8 See proposed Rule 714(d). The Exchange clarified that a member’s allowable order rate for the Order Entry Rate Protection will be comprised of parameter (1), while the allowable contract execution rate for the Order Execution Rate Protection will be comprised of parameter (2). The Exchange further explained that contracts executed on the agency and contra-side of a two-sided crossing order will be counted separately for the Order Execution Rate Protection. See Notice, supra note 3, at 20022. 9 Id. The Exchange stated that it anticipated setting these minimum and maximum time parameters at one second and a full trading day, respectively. See Notice, supra note 3, at 20022 n.9. 10 See proposed Rule 714(d); see also Notice, supra note 3, at 20022. sradovich on DSK3TPTVN1PROD with NOTICES 6 Members VerDate Sep<11>2014 18:47 May 25, 2016 Jkt 238001 Market Wide Risk Protection measures.11 Under proposed Rule 714(d), the System will trigger the Market Wide Risk Protection when it determines that the member has either (1) entered a number of orders exceeding its designated allowable order rate for the specified time period, or (2) executed a number of contracts exceeding its designated allowable contract execution rate for the specified time period.12 If the member’s thresholds have been exceeded, the Market Wide Risk Protection will be triggered and the System will automatically reject all subsequent incoming orders entered by the member on ISE Gemini or, if set by the member, across both ISE Gemini and ISE.13 In addition, if the member has opted in to this functionality, the System will automatically cancel all of the member’s existing orders.14 The Market Wide Risk Protection will remain engaged until the member manually (e.g., via email) notifies the Exchange to enable the acceptance of new orders.15 III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of Section 6 of the Act 16 and rules and regulations thereunder applicable to a national securities exchange.17 In particular, the Commission finds that the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act, which requires, among other things, that the rules of a national securities exchange be designed to 11 Id. 12 Id.; see also proposed Rule 714(d)(1). Specifically, after a member enters or executes an order, the System will look back over the specified time period to determine whether the member has exceeded the relevant thresholds. See Notice, supra note 3, at 20022. In the Notice, the Exchange provided examples illustrating how the Market Wide Risk Protection functionality would work both for order entry and order execution protections. See Notice, supra note 3, at 20022–23. 13 According to the Exchange, members that set different risk parameters for ISE Gemini and ISE will only have their orders rejected on the exchange whose threshold was exceeded. See Notice, supra note 3, at 20022 n.10. 14 Proposed Rule 714(d)(2). 15 Proposed Rule 714(d)(3). Members who have not opted to cancel all existing orders under proposed Rule 714(d)(2), however, will still be able to interact with their existing orders entered before the Market Wide Risk Protection was triggered. For instance, such members may send cancel order messages and/or receive trade executions for those orders. Id.; see also Notice, supra note 3, at 20022. 16 15 U.S.C. 78f(b). 17 In approving these proposed rule changes, the Commission has considered the proposed rules’ impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 promote just and equitable principles of trade, to remove impediments to and perfect the mechanisms of a free and open market and a national market system, and, in general, to protect investors and the public interest.18 The Commission believes that the Exchange’s proposed activity-based order protections will provide an additional tool to members to assist them in managing their risk exposure.19 Specifically, the Commission believes that the Market Wide Risk Protection functionality may help members to mitigate the potential risks associated with entering and/or executing a level of orders that exceeds their risk management thresholds that may result from, for example, technology issues with electronic trading systems. Further, the Commission notes that other exchanges have established risk protection mechanisms for members and market makers that are similar in many respects to ISE Gemini’s proposal.20 Proposed Rule 714(d) imposes a mandatory obligation on ISE Gemini members to utilize the Market Wide Risk Protection functionality. The Commission notes that, although the Exchange will establish minimum and maximum permissible parameters for the time period values, members will have discretion to set the threshold values for the order entry and order execution parameters.21 If members do not independently set such parameters, they will be subject to the default parameters established by ISE Gemini.22 While the Commission believes that the Exchange’s proposed rule provides members flexibility to tailor the Market Wide Risk Protection to their respective risk management needs, the Commission reminds members to be mindful of their obligations to, among other things, seek best execution of orders they handle on an agency basis and consider their best execution obligations when establishing parameters for the Market Wide Risk Protection or utilizing the default 18 15 U.S.C. 78f(b)(5). Exchange currently provides members with limit order price protections that reject orders priced too far outside of the Exchange’s best bid or offer. See ISE Gemini Rule 714(b)(2). 20 See, e.g., Miami International Securities Exchange, LLC Rule 519A (‘‘Risk Protection Monitor’’); BATS BZX Exchange, Inc. Rule 21.16 (‘‘Risk Monitor Mechanism’’). 21 The Exchange has represented that it anticipates that the minimum and maximum values for the applicable time period will be initially set at one second and a full trading day, respectively, which the Commission believes gives members wide latitude in establishing the applicable time periods. See Notice, supra note 3, at 20022 n.9. 22 Proposed Rule 714(d). 19 The E:\FR\FM\26MYN1.SGM 26MYN1 Federal Register / Vol. 81, No. 102 / Thursday, May 26, 2016 / Notices sradovich on DSK3TPTVN1PROD with NOTICES parameters set by ISE.23 For example, an abnormally low order entry parameter, set over an abnormally long specified time period should be carefully scrutinized, particularly if a member’s order flow to ISE Gemini contains agency orders. To the extent that a member chooses sensitive parameters, a member should consider the effect of its chosen settings on its ability to receive a timely execution on marketable agency orders that it sends to ISE Gemini in various market conditions. The Commission cautions brokers considering their best execution obligations to be aware that the agency orders they represent may be rejected as a result of the Market Wide Risk Protection functionality. As discussed above, ISE Gemini determined not to establish minimum and maximum permissible settings for the order entry and order execution parameters in its rule and indicated its intent to set a minimum and maximum for the time period parameters that provide broad discretion to members (i.e., one second and a full trading day, respectively).24 In light of these broad limits, the Commission expects ISE Gemini to periodically assess whether the Market Wide Risk Protection measures are operating in a manner that is consistent with the promotion of fair and orderly markets, including whether the default values and minimum and maximum permissible parameters for the applicable time period established by ISE Gemini continue to be appropriate and operate in a manner consistent with the Act and the rules thereunder. Finally, the Commission believes that it is consistent with the Act for ISE Gemini to offer its Market Wide Risk Protection across both ISE Gemini and its affiliate, ISE, as such functionality could assist members in managing and reducing inadvertent exposure to excessive risk across both of these markets if the member desires to avail itself of that feature. Further, the Commission notes that it previously approved ISE Gemini’s proposal to offer cross-market risk protections for market maker quotes, and approval of the crossmarket application of the Market Wide Risk Protection functionality is consistent with that prior approval.25 23 See Securities Exchange Act Release No. 37619A (Sept. 6, 1996), 61 FR 48290, at 48323 (Sept. 12, 1996) (Order Execution Obligations adopting release); see also Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37537–8 (June 29, 2005) (Regulation NMS adopting release). 24 See Notice, supra note 3, at 20022 n.9; see also supra note 21. 25 See ISE Gemini Rule 804(g); see also Securities Exchange Act Release No. 73148 (Sept. 19, 2014), VerDate Sep<11>2014 18:47 May 25, 2016 Jkt 238001 IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,26 that the proposed rule change (SR–ISEGemini– 2016–03) be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.27 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–12389 Filed 5–25–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–77871; File No. SR–BATS– 2015–100] Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Designation of a Longer Period for Commission Action on Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendments Nos. 1, 3, and 4 Thereto, To Amend BATS Rule 14.11(i) To Adopt Generic Listing Standards for Managed Fund Shares May 20, 2016. On November 18, 2015, BATS Exchange, Inc. (now known as Bats BZX Exchange, Inc., ‘‘Exchange’’) 1 filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 2 and Rule 19b–4 thereunder,3 a proposed rule change to amend BATS Rule 14.11(i) by, among other things, adopting generic listing standards for Managed Fund Shares. The proposed rule change was published for comment in the Federal Register on November 25, 2015.4 On January 4, 2016, the Commission designated a longer 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.5 On February 9, 2016, the 79 FR 57626 (Sept. 25, 2014) (SR–ISEGemini-2014– 09) (approval order). 26 15 U.S.C. 78s(b)(2). 27 17 CFR 200.30–3(a)(12). 1 In March 2016, BATS changed its name from ‘‘BATS Exchange, Inc.’’ to ‘‘Bats BZX Exchange, Inc.’’ See Securities Act Release No. 77307 (Mar. 7, 2016), 81 FR 12996 (Mar. 11, 2016) (SR–BATS– 2016–25) (publishing notice of the name change to Bats BZX Exchange, Inc.). 2 15 U.S.C. 78s(b)(1). 3 17 CFR 240.19b–4. 4 See Securities Exchange Act Release No. 76478 (Nov. 19, 2015), 80 FR 73841 (‘‘Notice’’). 5 See Securities Exchange Act Release No. 76820, 81 FR 989 (Jan. 8, 2016). The Commission designated February 23, 2016 as the date by which the Commission shall either approve or disapprove, PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 33567 Exchange filed Amendment No. 1 to the proposed rule change,6 which replaced the originally filed proposed rule change in its entirety.7 On February 11, 2016, the Exchange both filed and withdrew Amendment No. 2 to the proposed rule change. On February 11, 2016, the Exchange filed Amendment No. 3 to the proposed rule change.8 On February 17, 2016, the Exchange filed Amendment No. 4 to the proposed rule change.9 On February 22, 2016, the Commission issued notice of filing of Amendment Nos. 1, 3, and 4 to the proposed rule change and instituted proceedings under Section 19(b)(2)(B) of or institute proceedings to determine whether to disapprove, the proposed rule change. See id. 6 Amendment No. 1: (1) Clarifies the proposed treatment of convertible securities under the proposed generic listing criteria; (2) modifies the proposed criterion regarding American Depositary Receipts (‘‘ADRs’’) to provide that no more than 10% of the equity weight of the portfolio shall consist of non-exchange traded (rather than unsponsored) ADRs; (3) modifies the proposed portfolio limit on listed derivatives to require that at least 90% of the weight of such holdings invested in futures, exchange-traded options, and listed swaps shall, on both an initial and continuing basis, consist of futures, options, and swaps for which the Exchange may obtain information via the Intermarket Surveillance Group (‘‘ISG’’) from other members or affiliates of the ISG or for which the principal market is a market with which the Exchange has a comprehensive surveillance sharing agreement (‘‘CSSA’’); (4) provides that a portfolio’s investments in listed and over-the-counter derivatives will be calculated for purposes the proposed limits on such holdings as the total absolute notional value of the derivatives; (5) makes certain other conforming and clarifying changes. The amendments to the proposed rule change are available at: http://www.sec.gov/comments/sr-bats2015-100/bats2015100.shtml. 7 See Amendment No. 1, supra note 6, at 4. 8 Amendment No. 3 deletes from the proposal the following two sentences: (1) ‘‘Such limitation will not apply to listed swaps because swaps are listed on swap execution facilities (‘‘SEFs’’), the majority of which are not members of ISG.’’ and (2) ‘‘Such limitation would not apply to listed swaps because swaps are listed on SEFs, the majority of which are not members of ISG.’’ Amendment No. 3 also corrects an erroneous statement in Item 11 to indicate that an Exhibit 4 was included in Amendment No. 1. 9 Amendment No. 4 deletes from the proposal the following sentence: ‘‘Thus, if the limitation applied to swaps, there would effectively be a cap of 10% of the portfolio invested in listed swaps.’’ Amendment No. 4 also amends two representations as follows (added language in brackets): The Exchange or FINRA, on behalf of the Exchange, will communicate as needed regarding trading in Managed Fund Shares [and their underlying components] with other markets that are members of the ISG, including all U.S. securities exchanges and futures exchanges on which the components are traded[, or with which the Exchange has in place a CSSA.] In addition, the Exchange or FINRA[,] on behalf of the Exchange[,] may obtain information regarding trading in Managed Fund Shares [and their underlying components] from other markets that are members of the ISG, including all U.S. securities exchanges and futures exchanges on which the components are traded, or with which the Exchange has in place a CSSA.’’ E:\FR\FM\26MYN1.SGM 26MYN1

Agencies

[Federal Register Volume 81, Number 102 (Thursday, May 26, 2016)]
[Notices]
[Pages 33565-33567]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-12389]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77881; File No. SR-ISEGemini-2016-03]


Self-Regulatory Organizations; ISE Gemini, LLC; Order Approving 
Proposed Rule Change Related to Market Wide Risk Protection

May 20, 2016.

I. Introduction

    On March 17, 2016, ISE Gemini, LLC (the ``Exchange'' or ``ISE 
Gemini'') 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 introduce new activity-based risk protection 
functionality. The proposed rule change was published for comment in 
the Federal Register on April 6, 2016.\3\ No comment letters were 
received in response to this proposal. This order approves 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. 77488 (Mar. 31, 
2016), 81 FR 20021 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposed to introduce two activity-based risk 
protection measures that will be mandatory for all members: (1) The 
``Order Entry Rate Protection,'' which prevents members from entering 
orders at a rate that exceeds predefined thresholds,\4\ and (2) the 
``Order Execution Rate Protection,'' which prevents members from 
executing orders at a rate that exceeds their predefined risk settings 
(together, ``Market Wide Risk Protection''). The Exchange will announce 
the implementation date of the proposed

[[Page 33566]]

rule in a circular to be distributed to members prior to 
implementation.\5\
---------------------------------------------------------------------------

    \4\ The Exchange stated that it will initiate the Order Entry 
Rate Protection pre-open, but in a manner that allows members time 
to load their orders without inadvertently triggering the 
protection. The Exchange further noted that it will establish and 
communicate the precise initiation time via circular and prior to 
implementation. See Notice, supra note 3, at 20022 n.4.
    \5\ See Notice, supra note 3, at 20022.
---------------------------------------------------------------------------

    Pursuant to proposed Rule 714(d), ``Market Wide Risk Protection,'' 
the Exchange's trading system (the ``System'') will maintain one or 
more counting programs on behalf of each member that will track the 
number of orders entered and the number of contracts traded on ISE 
Gemini or, if chosen by the member, across both ISE Gemini and its 
affiliate, International Securities Exchange, LLC (``ISE'').\6\ Members 
may also use multiple counting programs to separate risk protections 
for different groups established within the member.\7\ The counting 
programs will maintain separate counts, over rolling time periods 
specified by the member, for each count of: (1) The total number of 
orders entered; and (2) the total number of contracts traded.\8\
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    \6\ Members may set different risk parameters for their trading 
activity on each exchange, or they may set risk parameters that 
apply to their trading across both ISE Gemini and ISE. See proposed 
Rule 714(d).
    \7\ The Exchange stated that it will explain how members can go 
about setting up risk protections for different groups (e.g., 
business units) in a circular issued to members. See Notice, supra 
note 3, at 20022 n.7.
    \8\ See proposed Rule 714(d). The Exchange clarified that a 
member's allowable order rate for the Order Entry Rate Protection 
will be comprised of parameter (1), while the allowable contract 
execution rate for the Order Execution Rate Protection will be 
comprised of parameter (2). The Exchange further explained that 
contracts executed on the agency and contra-side of a two-sided 
crossing order will be counted separately for the Order Execution 
Rate Protection. See Notice, supra note 3, at 20022.
---------------------------------------------------------------------------

    According to the Exchange, members will have the discretion to 
establish the applicable time period for each of the counts maintained 
under the Market Wide Risk Protection, provided that the selected 
period is within minimum and maximum time parameters that will be 
established by the Exchange and announced via circular.\9\ By contrast, 
the Exchange's proposal does not establish minimum or maximum values 
for the order entry or execution parameters described in (1) and (2) 
above. Nevertheless, the Exchange will establish default values \10\ 
for the time period, order entry, and contracts traded parameters in a 
circular to be distributed to members. The Exchange represented that 
such default values will apply only to members that do not submit their 
own parameters for the Market Wide Risk Protection measures.\11\
---------------------------------------------------------------------------

    \9\ Id. The Exchange stated that it anticipated setting these 
minimum and maximum time parameters at one second and a full trading 
day, respectively. See Notice, supra note 3, at 20022 n.9.
    \10\ See proposed Rule 714(d); see also Notice, supra note 3, at 
20022.
    \11\ Id.
---------------------------------------------------------------------------

    Under proposed Rule 714(d), the System will trigger the Market Wide 
Risk Protection when it determines that the member has either (1) 
entered a number of orders exceeding its designated allowable order 
rate for the specified time period, or (2) executed a number of 
contracts exceeding its designated allowable contract execution rate 
for the specified time period.\12\ If the member's thresholds have been 
exceeded, the Market Wide Risk Protection will be triggered and the 
System will automatically reject all subsequent incoming orders entered 
by the member on ISE Gemini or, if set by the member, across both ISE 
Gemini and ISE.\13\ In addition, if the member has opted in to this 
functionality, the System will automatically cancel all of the member's 
existing orders.\14\ The Market Wide Risk Protection will remain 
engaged until the member manually (e.g., via email) notifies the 
Exchange to enable the acceptance of new orders.\15\
---------------------------------------------------------------------------

    \12\ Id.; see also proposed Rule 714(d)(1). Specifically, after 
a member enters or executes an order, the System will look back over 
the specified time period to determine whether the member has 
exceeded the relevant thresholds. See Notice, supra note 3, at 
20022. In the Notice, the Exchange provided examples illustrating 
how the Market Wide Risk Protection functionality would work both 
for order entry and order execution protections. See Notice, supra 
note 3, at 20022-23.
    \13\ According to the Exchange, members that set different risk 
parameters for ISE Gemini and ISE will only have their orders 
rejected on the exchange whose threshold was exceeded. See Notice, 
supra note 3, at 20022 n.10.
    \14\ Proposed Rule 714(d)(2).
    \15\ Proposed Rule 714(d)(3). Members who have not opted to 
cancel all existing orders under proposed Rule 714(d)(2), however, 
will still be able to interact with their existing orders entered 
before the Market Wide Risk Protection was triggered. For instance, 
such members may send cancel order messages and/or receive trade 
executions for those orders. Id.; see also Notice, supra note 3, at 
20022.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \16\ 
and rules and regulations thereunder applicable to a national 
securities exchange.\17\ In particular, the Commission finds that the 
proposed rule change is consistent with the requirements of Section 
6(b)(5) of the Act, which requires, among other things, that the rules 
of a national securities exchange be designed to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanisms of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.\18\
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b).
    \17\ In approving these proposed rule changes, the Commission 
has considered the proposed rules' impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that the Exchange's proposed activity-based 
order protections will provide an additional tool to members to assist 
them in managing their risk exposure.\19\ Specifically, the Commission 
believes that the Market Wide Risk Protection functionality may help 
members to mitigate the potential risks associated with entering and/or 
executing a level of orders that exceeds their risk management 
thresholds that may result from, for example, technology issues with 
electronic trading systems. Further, the Commission notes that other 
exchanges have established risk protection mechanisms for members and 
market makers that are similar in many respects to ISE Gemini's 
proposal.\20\
---------------------------------------------------------------------------

    \19\ The Exchange currently provides members with limit order 
price protections that reject orders priced too far outside of the 
Exchange's best bid or offer. See ISE Gemini Rule 714(b)(2).
    \20\ See, e.g., Miami International Securities Exchange, LLC 
Rule 519A (``Risk Protection Monitor''); BATS BZX Exchange, Inc. 
Rule 21.16 (``Risk Monitor Mechanism'').
---------------------------------------------------------------------------

    Proposed Rule 714(d) imposes a mandatory obligation on ISE Gemini 
members to utilize the Market Wide Risk Protection functionality. The 
Commission notes that, although the Exchange will establish minimum and 
maximum permissible parameters for the time period values, members will 
have discretion to set the threshold values for the order entry and 
order execution parameters.\21\ If members do not independently set 
such parameters, they will be subject to the default parameters 
established by ISE Gemini.\22\ While the Commission believes that the 
Exchange's proposed rule provides members flexibility to tailor the 
Market Wide Risk Protection to their respective risk management needs, 
the Commission reminds members to be mindful of their obligations to, 
among other things, seek best execution of orders they handle on an 
agency basis and consider their best execution obligations when 
establishing parameters for the Market Wide Risk Protection or 
utilizing the default

[[Page 33567]]

parameters set by ISE.\23\ For example, an abnormally low order entry 
parameter, set over an abnormally long specified time period should be 
carefully scrutinized, particularly if a member's order flow to ISE 
Gemini contains agency orders. To the extent that a member chooses 
sensitive parameters, a member should consider the effect of its chosen 
settings on its ability to receive a timely execution on marketable 
agency orders that it sends to ISE Gemini in various market conditions. 
The Commission cautions brokers considering their best execution 
obligations to be aware that the agency orders they represent may be 
rejected as a result of the Market Wide Risk Protection functionality.
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    \21\ The Exchange has represented that it anticipates that the 
minimum and maximum values for the applicable time period will be 
initially set at one second and a full trading day, respectively, 
which the Commission believes gives members wide latitude in 
establishing the applicable time periods. See Notice, supra note 3, 
at 20022 n.9.
    \22\ Proposed Rule 714(d).
    \23\ See Securities Exchange Act Release No. 37619A (Sept. 6, 
1996), 61 FR 48290, at 48323 (Sept. 12, 1996) (Order Execution 
Obligations adopting release); see also Securities Exchange Act 
Release No. 51808 (June 9, 2005), 70 FR 37496, 37537-8 (June 29, 
2005) (Regulation NMS adopting release).
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    As discussed above, ISE Gemini determined not to establish minimum 
and maximum permissible settings for the order entry and order 
execution parameters in its rule and indicated its intent to set a 
minimum and maximum for the time period parameters that provide broad 
discretion to members (i.e., one second and a full trading day, 
respectively).\24\ In light of these broad limits, the Commission 
expects ISE Gemini to periodically assess whether the Market Wide Risk 
Protection measures are operating in a manner that is consistent with 
the promotion of fair and orderly markets, including whether the 
default values and minimum and maximum permissible parameters for the 
applicable time period established by ISE Gemini continue to be 
appropriate and operate in a manner consistent with the Act and the 
rules thereunder.
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    \24\ See Notice, supra note 3, at 20022 n.9; see also supra note 
21.
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    Finally, the Commission believes that it is consistent with the Act 
for ISE Gemini to offer its Market Wide Risk Protection across both ISE 
Gemini and its affiliate, ISE, as such functionality could assist 
members in managing and reducing inadvertent exposure to excessive risk 
across both of these markets if the member desires to avail itself of 
that feature. Further, the Commission notes that it previously approved 
ISE Gemini's proposal to offer cross-market risk protections for market 
maker quotes, and approval of the cross-market application of the 
Market Wide Risk Protection functionality is consistent with that prior 
approval.\25\
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    \25\ See ISE Gemini Rule 804(g); see also Securities Exchange 
Act Release No. 73148 (Sept. 19, 2014), 79 FR 57626 (Sept. 25, 2014) 
(SR-ISEGemini-2014-09) (approval order).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\26\ that the proposed rule change (SR-ISEGemini-2016-03) be, and 
hereby is, approved.
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    \26\ 15 U.S.C. 78s(b)(2).
    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-12389 Filed 5-25-16; 8:45 am]
 BILLING CODE 8011-01-P