Self-Regulatory Organizations; ISE Gemini, LLC; Order Approving Proposed Rule Change Related to Market Wide Risk Protection, 33565-33567 [2016-12389]
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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).
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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 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
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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
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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
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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.
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6 Members
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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).
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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
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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),
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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.
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,
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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: https://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.’’
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]]>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'').
---------------------------------------------------------------------------
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\
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\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.
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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\
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\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.
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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\
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\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\
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\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).
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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\
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\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'').
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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
