Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt a Rule To Prohibit Disruptive Quoting and Trading Activity and Allow the Exchange To Take Prompt Action, 67038-67044 [2016-23498]
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Federal Register / Vol. 81, No. 189 / Thursday, September 29, 2016 / Notices
circumstances under which the
Exchange’s Chief Executive Officer
(‘‘CEO’’) may determine to have the
Exchange trade securities on its Disaster
Recovery Facility.23 Finally, the
Exchange proposes to amend Rule 431
to delete references to the terms
‘‘member,’’ ‘‘member organization,’’ and
‘‘designated market maker’’ and use the
term ‘‘ATP Holder’’ because Rule 431
would pertain only to options trading.
Additionally the Exchange proposes to
amend Rule 0 to remove the reference
to Rule 431 as being applicable to
equities trading.
III. Discussion and Commission
Findings
After careful review of the proposal,
as modified by Amendment Nos. 1 and
No. 2, 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.24 In particular, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,25 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.
Under amended Exchange Rule 49,
the Exchange would maintain its own
Disaster Recovery Facility to continue
Exchange operations when necessary
without substantial disruption to
member organizations. This Disaster
Recovery Facility would allow the
Exchange to no longer designate NYSE
Arca as its backup facility but instead
operate as a fully electronic exchange on
its own facilities, under its own trading
rules, with its own order book and with
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23 The
Exchange proposes to amend Exchange
Rule 51(b) to provide the Exchange’s CEO with the
authority to determine whether to use the
Exchange’s Disaster Recovery Facility. The
Exchange also proposes to make a conforming
amendment to Exchange Rule 51(c) to specify that
the CEO shall take any of the actions described in
Exchange Rule 51(b) only when such action is
deemed necessary or appropriate for the
maintenance of a fair and orderly market, or the
protection of investors of otherwise in the public
interest, due to extraordinary circumstances.
24 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).
25 15 U.S.C. 78f(b)(5).
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quotes and trades publicly reported
under the Exchange’s own reporting
symbol. The proposed rule change
would also require member
organizations to participate in
scheduled functional and performance
testing of the Exchange’s business
continuity and disaster recovery plans
in the manner and frequency specified
by the Exchange, which shall not be less
than once every 12 months.26
Under the proposal, the Exchange
CEO would be authorized to make a
determination for the Exchange to trade
securities on the Disaster Recovery
Facility only when the CEO deems such
action to be necessary or appropriate for
the maintenance of a fair and orderly
market, or for the protection of investors
or otherwise in the public interest, due
to extraordinary circumstances. The
Exchange CEO must notify the Exchange
board of directors as soon as feasible if
the CEO makes a determination to use
the Disaster Recovery Facility.
The Commission believes that the
proposal is reasonably designed to
permit the Exchange to continue to
operate in the event of an emergency by
using a secondary data center located in
a geographically diverse location to
open, trade, and close Exchange-listed
securities. Accordingly, the Commission
believes that the proposal is designed to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and to
protect investors and the public interest,
and the Commission therefore finds that
the proposed rule change is consistent
with the requirements of the Act.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,27 that the
proposed rule change (SR–NYSEMKT–
2016–68), as modified by Amendments
No. 1 and Partial Amendment No. 2, be,
and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Brent J. Fields,
Secretary.
[FR Doc. 2016–23495 Filed 9–28–16; 8:45 am]
BILLING CODE 8011–01–P
Proposed Exchange Rule 49(b)(N).
U.S.C. 78s(b)(2).
28 17 CFR 200.30–3(a)(12).
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78920; File No. SR–ISE–
2016–21]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change To Adopt a Rule To Prohibit
Disruptive Quoting and Trading
Activity and Allow the Exchange To
Take Prompt Action
September 23, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 15, 2016, the International
Securities Exchange, LLC (‘‘ISE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. 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 the Substance
of the Proposed Rule Change
The Exchange proposes to adopt a
new rule to clearly prohibit disruptive
quoting and trading activity on the
Exchange, as further described below.
Further the Exchange proposes to
amend Exchange Rules to permit the
Exchange to take prompt action to
suspend Members or their clients that
violate such rule.
The text of the proposed rule change
is available on the Exchange’s Web site
at 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
Exchange 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
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
26 See
27 15
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2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange is filing this proposal to
adopt a new rule to clearly prohibit
disruptive quoting and trading activity
on the Exchange and to amend
Exchange Rules to permit the Exchange
to take prompt action to suspend
Members or their clients that violate
such rule.
Background
As a national securities exchange
registered pursuant to Section 6 of the
Act, the Exchange is required to be
organized and to have the capacity to
enforce compliance by its members and
persons associated with its members,
with the Act, the rules and regulations
thereunder, and the Exchange’s Rules.
Further, the Exchange’s Rules are
required to be ‘‘designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade . . . and, in general,
to protect investors and the public
interest.’’ 3 In fulfilling these
requirements, the Exchange has
developed a comprehensive regulatory
program that includes automated
surveillance of trading activity that is
both operated directly by Exchange staff
and by staff of the Financial Industry
Regulatory Authority (‘‘FINRA’’)
pursuant to a Regulatory Services
Agreement (‘‘RSA’’). When disruptive
and potentially manipulative or
improper quoting and trading activity is
identified, the Exchange or FINRA
(acting as an agent of the Exchange)
conducts an investigation into the
activity, requesting additional
information from the Member or
Members involved. To the extent
violations of the Act, the rules and
regulations thereunder, or Exchange
Rules have been identified and
confirmed, the Exchange or FINRA as its
agent will commence the enforcement
process, which might result in, among
other things, a censure, a requirement to
take certain remedial actions, one or
more restrictions on future business
activities, a monetary fine, or even a
temporary or permanent ban from the
securities industry.
The process described above, from the
identification of disruptive and
potentially manipulative or improper
quoting and trading activity to a final
resolution of the matter, can often take
several years. The Exchange believes
that this time period is generally
3 15
U.S.C. 78f(b)(1).
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necessary and appropriate to afford the
subject Member adequate due process,
particularly in complex cases. However,
as described below, the Exchange
believes that there are certain obvious
and uncomplicated cases of disruptive
and manipulative behavior or cases
where the potential harm to investors is
so large that the Exchange should have
the authority to initiate an expedited
suspension proceeding in order to stop
the behavior from continuing on the
Exchange.
In recent years, several cases have
been brought and resolved by the
Exchange and other SROs that involved
allegations of wide-spread market
manipulation, much of which was
ultimately being conducted by foreign
persons and entities using relatively
rudimentary technology to access the
markets and over which the Exchange
and other SROs had no direct
jurisdiction. In each case, the conduct
involved a pattern of disruptive quoting
and trading activity indicative of
manipulative layering 4 or spoofing.5
The Exchange and other SROs were able
to identify the disruptive quoting and
trading activity in real-time or near realtime; nonetheless, in accordance with
Exchange Rules and the Act, the
Members responsible for such conduct
or responsible for their customers’
conduct were allowed to continue the
disruptive quoting and trading activity
on the Exchange and other exchanges
during the entirety of the subsequent
lengthy investigation and enforcement
process. The Exchange believes that it
should have the authority to initiate an
expedited suspension proceeding in
order to stop the behavior from
continuing on the Exchange if a Member
is engaging in or facilitating disruptive
quoting and trading activity and the
Member has received sufficient notice
with an opportunity to respond, but
such activity has not ceased.
The following two examples are
instructive on the Exchange’s rationale
for the proposed rule change.
In July 2012, Biremis Corp. (formerly
Swift Trade Securities USA, Inc.) (the
‘‘Firm’’) and its CEO were barred from
4 ‘‘Layering’’ is a form of market manipulation in
which multiple, non-bona fide limit orders are
entered on one side of the market at various price
levels in order to create the appearance of a change
in the levels of supply and demand, thereby
artificially moving the price of the security. An
order is then executed on the opposite side of the
market at the artificially created price, and the nonbona fide orders are cancelled.
5 ‘‘Spoofing’’ is a form of market manipulation
that involves the market manipulator placing nonbona fide orders that are intended to trigger some
type of market movement and/or response from
other market participants, from which the market
manipulator might benefit by trading bona fide
orders.
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the industry for, among other things,
supervisory violations related to a
failure by the Firm to detect and prevent
disruptive and allegedly manipulative
trading activities, including layering,
short sale violations, and anti-money
laundering violations.6 The Firm’s sole
business was to provide trade execution
services via a proprietary day trading
platform and order management system
to day traders located in foreign
jurisdictions. Thus, the disruptive and
allegedly manipulative trading activity
introduced by the Firm to U.S. markets
originated directly or indirectly from
foreign clients of the Firm. The pattern
of disruptive and allegedly
manipulative quoting and trading
activity was widespread across multiple
exchanges, and the Exchange, FINRA,
and other SROs identified clear patterns
of the behavior in 2007 and 2008.
Although the Firm and its principals
were on notice of the disruptive and
allegedly manipulative quoting and
trading activity that was occurring, the
Firm took little to no action to attempt
to supervise or prevent such quoting
and trading activity until at least 2009.
Even when it put some controls in
place, they were deficient and the
pattern of disruptive and allegedly
manipulative trading activity continued
to occur. As noted above, the final
resolution of the enforcement action to
bar the Firm and its CEO from the
industry was not concluded until 2012,
four years after the disruptive and
allegedly manipulative trading activity
was first identified.
In September of 2012, Hold Brothers
On-Line Investment Services, Inc. (the
‘‘Firm’’) settled a regulatory action in
connection with the Firm’s provision of
a trading platform, trade software and
trade execution, support and clearing
services for day traders.7 Many traders
using the Firm’s services were located
in foreign jurisdictions. The Firm
ultimately settled the action with
FINRA and several exchanges, including
the Exchange, for a total monetary fine
of $3.4 million. In a separate action, the
Firm settled with the Commission for a
monetary fine of $2.5 million.8 Among
the alleged violations in the case were
disruptive and allegedly manipulative
quoting and trading activity, including
spoofing, layering, wash trading, and
pre-arranged trading. Through its
6 See Biremis Corp. and Peter Beck, FINRA Letter
of Acceptance, Waiver and Consent No.
2010021162202, July 30, 2012.
7 See Hold Brothers On-Line Investment Services,
LLC, FINRA Letter of Acceptance, Waiver and
Consent No. 20100237710001, September 25, 2012.
8 In the Matter of Hold Brothers On-Line
Investment Services, LLC, Exchange Act Release No.
67924, September 25, 2012.
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conduct and insufficient procedures and
controls, the Firm also allegedly
committed anti-money laundering
violations by failing to detect and report
manipulative and suspicious trading
activity. The Firm was alleged to have
not only provided foreign traders with
access to the U.S. markets to engage in
such activities, but that its principals
also owned and funded foreign
subsidiaries that engaged in the
disruptive and allegedly manipulative
quoting and trading activity. Although
the pattern of disruptive and allegedly
manipulative quoting and trading
activity was identified in 2009, as noted
above, the enforcement action was not
concluded until 2012. Thus, although
disruptive and allegedly manipulative
quoting and trading was promptly
detected, it continued for several years.
The Exchange also notes the current
criminal proceedings that have
commenced against Navinder Singh
Sarao. Mr. Sarao’s allegedly
manipulative trading activity, which
included forms of layering and spoofing
in the futures markets, has been linked
as a contributing factor to the ‘‘Flash
Crash’’ of 2010, and yet continued
through 2015.
The Exchange believes that the
activities described in the cases above
provide justification for the proposed
rule change, which is described below.
In addition, while the examples
provided are related to the equities
market, the Exchange believes that this
type of conduct should be prohibited for
options as well. The Exchange believes
that these patterns of disruptive and
allegedly manipulative quoting and
trading activity need to be addressed
and the product should not limit the
action taken by the Exchange.
Rule 1616—Expedited Client
Suspension Proceeding
The Exchange proposes to adopt new
Rule 1616, titled ‘‘Expedited Client
Suspension Proceeding,’’ to set forth
procedures for issuing suspension
orders, immediately prohibiting a
Member from conducting continued
disruptive quoting and trading activity
on the Exchange. Importantly, these
procedures would also provide the
Exchange the authority to order a
Member to cease and desist from
providing access to the Exchange to a
client of the Member that is conducting
disruptive quoting and trading activity
in violation of proposed Rule 403,
which is currently reserved. New Rule
403 would be titled, ‘‘Disruptive
Quoting and Trading Activity
Prohibited.’’ Under proposed paragraph
(a) of Rule 1616, with the prior written
authorization of the Chief Regulatory
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Officer (‘‘CRO’’) or such other senior
officers as the CRO may designate, the
Office of General Counsel or Regulatory
Department of the Exchange (such
departments generally referred to as the
‘‘Exchange’’ for purposes of proposed
Rule 1616) may initiate an expedited
suspension proceeding with respect to
alleged violations of Rule 403, which is
proposed as part of this filing and
described in detail below. Proposed
paragraph (a) would also set forth the
requirements for notice and service of
such notice pursuant to the Rule,
including the required method of
service and the content of notice.
Proposed paragraph (b) of Rule 1616
would govern the appointment of a
Hearing Panel as well as potential
disqualification or recusal of Hearing
Officers. The proposed provision is
consistent with existing Exchange Rule
1606(a). The proposed rule provides for
a Hearing Officer to be recused in the
event he or she has a conflict of interest
or bias or other circumstances exist
where his or her fairness might
reasonably be questioned in accordance
with Rules 1616(b)(2). In addition to
recusal initiated by such a Hearing
Officer, a party to the proceeding will be
permitted to file a motion to disqualify
a Hearing Officer. However, due to the
compressed schedule pursuant to which
the process would operate under Rule
1616, the proposed rule would require
such motion to be filed no later than 5
days after the announcement of the
Hearing Panel and the Exchange’s brief
in opposition to such motion would be
required to be filed no later than 5 days
after service thereof. Pursuant to
existing Rule 1606(a)(3), any time a
person serving on a Panel has a conflict
of interest or bias or circumstances
otherwise exist where his fairness might
be reasonably questioned, the person
must withdraw from the Panel. The
applicable Hearing Officer shall remove
himself or herself and the Panel
Chairman may request the Chairman of
the Business Conduct Committee select
a replacement such that the Hearing
Panel still meets the compositional
requirements described in Rule 1616(a).
Under paragraph (c) of the proposed
Rule, the hearing would be held not
later than 15 days after service of the
notice initiating the suspension
proceeding, unless otherwise extended
by the Chairman of the Hearing Panel
with the consent of the Parties for good
cause shown. In the event of a recusal
or disqualification of a Hearing Officer,
the hearing shall be held not later than
five days after a replacement Hearing
Officer is appointed. Proposed
paragraph (c) would also govern how
the hearing is conducted, including the
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authority of Hearing Officers, witnesses,
additional information that may be
required by the Hearing Panel, the
requirement that a transcript of the
proceeding be created and details
related to such transcript, and details
regarding the creation and maintenance
of the record of the proceeding.
Proposed paragraph (c) would also state
that if a Respondent fails to appear at a
hearing for which it has notice, the
allegations in the notice and
accompanying declaration may be
deemed admitted, and the Hearing
Panel may issue a suspension order
without further proceedings. Finally, as
proposed, if the Exchange fails to appear
at a hearing for which it has notice, the
Hearing Panel may order that the
suspension proceeding be dismissed.
Under paragraph (d) of the proposed
Rule, the Hearing Panel would be
required to issue a written decision
stating whether a suspension order
would be imposed. The Hearing Panel
would be required to issue the decision
not later than 10 days after receipt of the
hearing transcript, unless otherwise
extended by the Chairman of the
Hearing Panel with the consent of the
Parties for good cause shown. The Rule
would state that a suspension order
shall be imposed if the Hearing Panel
finds by a preponderance of the
evidence that the alleged violation
specified in the notice has occurred and
that the violative conduct or
continuation thereof is likely to result in
significant market disruption or other
significant harm to investors.
Proposed paragraph (d) would also
describe the content, scope and form of
a suspension order. As proposed, a
suspension order shall be limited to
ordering a Respondent to cease and
desist from violating proposed Rule 403
and/or to ordering a Respondent to
cease and desist from providing access
to the Exchange to a client of
Respondent that is causing violations of
Rule 403. Under the proposed rule, a
suspension order shall also set forth the
alleged violation and the significant
market disruption or other significant
harm to investors that is likely to result
without the issuance of an order. The
order shall describe in reasonable detail
the act or acts the Respondent is to take
or refrain from taking, and suspend such
Respondent unless and until such
action is taken or refrained from.
Finally, the order shall include the date
and hour of its issuance. As proposed,
a suspension order would remain
effective and enforceable unless
modified, set aside, limited, or revoked
pursuant to proposed paragraph (e), as
described below. Finally, paragraph (d)
would require service of the Hearing
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Panel’s decision and any suspension
order consistent with other portions of
the proposed rule related to service.
Proposed paragraph (e) of Rule 1616
would state that at any time after the
Hearing Officers served the Respondent
with a suspension order, a Party could
apply to the Hearing Panel to have the
order modified, set aside, limited, or
revoked. If any part of a suspension
order is modified, set aside, limited, or
revoked, proposed paragraph (e) of Rule
1616 provides the Hearing Panel
discretion to leave the cease and desist
part of the order in place. For example,
if a suspension order suspends
Respondent unless and until
Respondent ceases and desists
providing access to the Exchange to a
client of Respondent, and after the order
is entered the Respondent complies, the
Hearing Panel is permitted to modify
the order to lift the suspension portion
of the order while keeping in place the
cease and desist portion of the order.
With its broad modification powers, the
Hearing Panel also maintains the
discretion to impose conditions upon
the removal of a suspension—for
example, the Hearing Panel could
modify an order to lift the suspension
portion of the order in the event a
Respondent complies with the cease
and desist portion of the order but
additionally order that the suspension
will be re-imposed if Respondent
violates the cease and desist provisions
modified order in the future. The
Hearing Panel generally would be
required to respond to the request in
writing within 10 days after receipt of
the request. An application to modify,
set aside, limit or revoke a suspension
order would not stay the effectiveness of
the suspension order.
Finally, proposed paragraph (f) would
provide that sanctions issued under the
proposed Rule 1616 would constitute
final and immediately effective
disciplinary sanctions imposed by the
Exchange, and that the right to have any
action under the Rule reviewed by the
Commission would be governed by
Section 19 of the Act. The filing of an
application for review would not stay
the effectiveness of a suspension order
unless the Commission otherwise
ordered.
Rule 403—Disruptive Quoting and
Trading Activity Prohibited
The Exchange currently has authority
to prohibit and take action against
manipulative trading activity, including
disruptive quoting and trading activity,
pursuant to its general market
manipulation rules, including Rules 400
and 405. The Exchange proposes to
adopt new Rule 403, which would more
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specifically define and prohibit
disruptive quoting and trading activity
on the Exchange. As noted above, the
Exchange proposes to apply the
proposed suspension rules to proposed
Rule 403.
Proposed Rule 403 would prohibit
Members from engaging in or facilitating
disruptive quoting and trading activity
on the Exchange, as described in
proposed Rule 403(a)(i) and (ii),
including acting in concert with other
persons to effect such activity. The
Exchange believes that it is necessary to
extend the prohibition to situations
when persons are acting in concert to
avoid a potential loophole where
disruptive quoting and trading activity
is simply split between several brokers
or customers. The Exchange believes,
that with respect to persons acting in
concert perpetrating an abusive scheme,
it is important that the Exchange have
authority to act against the parties
perpetrating the abusive scheme,
whether it is one person or multiple
persons.
To provide proper context for the
situations in which the Exchange
proposes to utilize its proposed
authority, the Exchange believes it is
necessary to describe the types of
disruptive quoting and trading activity
that would cause the Exchange to use its
authority. Accordingly, the Exchange
proposes to adopt Rule 403(a)(i) and (ii)
providing additional details regarding
disruptive quoting and trading activity.
Proposed Rule 403(a)(i)(a) describes
disruptive quoting and trading activity
containing many of the elements
indicative of layering. It would describe
disruptive quoting and trading activity
as a frequent pattern in which the
following facts are present: (i) A party
enters multiple limit orders on one side
of the market at various price levels (the
‘‘Displayed Orders’’); and (ii) following
the entry of the Displayed Orders, the
level of supply and demand for the
security changes; and (iii) the party
enters one or more orders on the
opposite side of the market of the
Displayed Orders (the ‘‘Contra-Side
Orders’’) that are subsequently
executed; and (iv) following the
execution of the Contra-Side Orders, the
party cancels the Displayed Orders.
Proposed Rule 403(a)(i)(b) describes
disruptive quoting and trading activity
containing many of the elements
indicative of spoofing and would
describe disruptive quoting and trading
activity as a frequent pattern in which
the following facts are present: (i) A
party narrows the spread for a security
by placing an order inside the national
best bid or offer; and (ii) the party then
submits an order on the opposite side of
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the market that executes against another
market participant that joined the new
inside market established by the order
described in proposed 403(a)(i)(b)(i) that
narrowed the spread. The Exchange
believes that the proposed descriptions
of disruptive quoting and trading
activity articulated in the rule are
consistent with the activities that have
been identified and described in the
client access cases described above. The
Exchange further believes that the
proposed descriptions will provide
Members with clear descriptions of
disruptive quoting and trading activity
that will help them to avoid engaging in
such activities or allowing their clients
to engage in such activities.
The Exchange proposes to make clear
in proposed Rule 403(a)(ii), unless
otherwise indicated, the descriptions of
disruptive quoting and trading activity
do not require the facts to occur in a
specific order in order for the rule to
apply. For instance, with respect to the
pattern defined in proposed Rule
403(a)(i)(a) it is of no consequence
whether a party first enters Displayed
Orders and then Contra-side Orders or
vice-versa. However, as proposed, it is
required for supply and demand to
change following the entry of the
Displayed Orders. The Exchange also
proposes to make clear that disruptive
quoting and trading activity includes a
pattern or practice in which some
portion of the disruptive quoting and
trading activity is conducted on the
Exchange and the other portions of the
disruptive quoting and trading activity
are conducted on one or more other
exchanges. The Exchange believes that
this authority is necessary to address
market participants who would
otherwise seek to avoid the prohibitions
of the proposed Rule by spreading their
activity amongst various execution
venues. In sum, proposed Rule 403
coupled with proposed Rule 1616
would provide the Exchange with
authority to promptly act to prevent
disruptive quoting and trading activity
from continuing on the Exchange.
Below is an example of how the
proposed rule would operate.
Assume that through its surveillance
program, Exchange staff identifies a
pattern of potentially disruptive quoting
and trading activity. After an initial
investigation the Exchange would then
contact the Member responsible for the
orders that caused the activity to request
an explanation of the activity as well as
any additional relevant information,
including the source of the activity. If
the Exchange were to continue to see
the same pattern from the same Member
and the source of the activity is the
same or has been previously identified
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as a frequent source of disruptive
quoting and trading activity then the
Exchange could initiate an expedited
suspension proceeding by serving notice
on the Member that would include
details regarding the alleged violations
as well as the proposed sanction. In
such a case the proposed sanction
would likely be to order the Member to
cease and desist providing access to the
Exchange to the client that is
responsible for the disruptive quoting
and trading activity and to suspend
such Member unless and until such
action is taken.
The Member would have the
opportunity to be heard in front of a
Hearing Panel at a hearing to be
conducted within 15 days of the notice.
If the Hearing Panel determined that the
violation alleged in the notice did not
occur or that the conduct or its
continuation would not have the
potential to result in significant market
disruption or other significant harm to
investors, then the Hearing Panel would
dismiss the suspension order
proceeding.
If the Hearing Panel determined that
the violation alleged in the notice did
occur and that the conduct or its
continuation is likely to result in
significant market disruption or other
significant harm to investors, then the
Hearing Panel would issue the order
including the proposed sanction,
ordering the Member to cease providing
access to the client at issue and
suspending such Member unless and
until such action is taken. If such
Member wished for the suspension to be
lifted because the client ultimately
responsible for the activity no longer
would be provided access to the
Exchange, then such Member could
apply to the Hearing Panel to have the
order modified, set aside, limited or
revoked. The Exchange notes that the
issuance of a suspension order would
not alter the Exchange’s ability to
further investigate the matter and/or
later sanction the Member pursuant to
the Exchange’s standard disciplinary
process for supervisory violations or
other violations of Exchange rules or the
Act.
The Exchange reiterates that it already
has broad authority to take action
against a Member in the event that such
Member is engaging in or facilitating
disruptive or manipulative trading
activity on the Exchange. For the
reasons described above, and in light of
recent cases like the client access cases
described above, as well as other cases
currently under investigation, the
Exchange believes that it is equally
important for the Exchange to have the
authority to promptly initiate expedited
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suspension proceedings against any
Member who has demonstrated a clear
pattern or practice of disruptive quoting
and trading activity, as described above,
and to take action including ordering
such Member to terminate access to the
Exchange to one or more of such
Member’s clients if such clients are
responsible for the activity.
The Exchange recognizes that its
proposed authority to issue a
suspension order is a powerful measure
that should be used very cautiously.
Consequently, the proposed rules have
been designed to ensure that the
proceedings are used to address only the
most clear and serious types of
disruptive quoting and trading activity
and that the interests of Respondents are
protected. For example, to ensure that
proceedings are used appropriately and
that the decision to initiate a proceeding
is made only at the highest staff levels,
the proposed rules require the CRO or
another senior officer of the Exchange to
issue written authorization before the
Exchange can institute an expedited
suspension proceeding. In addition, the
rule by its terms is limited to violations
of Rules 403, when necessary to protect
investors, other Members and the
Exchange. The Exchange will initiate
disciplinary action for violations of Rule
403, pursuant to Rule 1616. Further, the
Exchange believes that the proposed
expedited suspension provisions
described above that provide the
opportunity to respond as well as a
Hearing Panel determination prior to
taking action will ensure that the
Exchange would not utilize its authority
in the absence of a clear pattern or
practice of disruptive quoting and
trading activity.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 9 in general, and furthers the
objectives of Section 6(b)(5) of the Act 10
in particular, in that it is designed 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. Pursuant to the
proposal, the Exchange will have a
mechanism to promptly initiate
expedited suspension proceedings in
the event the Exchange believes that it
has sufficient proof that a violation of
Rule 403 has occurred and is ongoing.
Further, the Exchange believes that
the proposal is consistent with Sections
6(b)(1) and 6(b)(6) of the Act,11 which
require that the rules of an exchange
enforce compliance with, and provide
appropriate discipline for, violations of
the Commission and Exchange rules.
The Exchange also believes that the
proposal is consistent with the public
interest, the protection of investors, or
otherwise in furtherance of the purposes
of the Act because the proposal helps to
strengthen the Exchange’s ability to
carry out its oversight and enforcement
responsibilities as a self-regulatory
organization in cases where awaiting the
conclusion of a full disciplinary
proceeding is unsuitable in view of the
potential harm to other Members and
their customers. Also, the Exchange
notes that if this type of conduct is
allowed to continue on the Exchange,
the Exchange’s reputation could be
harmed because it may appear to the
public that the Exchange is not acting to
address the behavior. The expedited
process would enable the Exchange to
address the behavior with greater speed.
As explained above, the Exchange
notes that it has defined the prohibited
disruptive quoting and trading activity
by modifying the traditional definitions
of layering and spoofing 12 to eliminate
an express intent element that would
not be proven on an expedited basis and
would instead require a thorough
investigation into the activity. As noted
throughout this filing, the Exchange
believes it is necessary for the
protection of investors to make such
modifications in order to adopt an
expedited process rather than allowing
disruptive quoting and trading activity
to occur for several years.
Through this proposal, the Exchange
does not intend to modify the
definitions of spoofing and layering that
have generally been used by the
Exchange and other regulators in
connection with actions like those cited
above. The Exchange believes that the
pattern of disruptive and allegedly
manipulative quoting and trading
activity was widespread across multiple
exchanges, and the Exchange, FINRA,
and other SROs identified clear patterns
of the behavior in 2007 and 2008 in the
equities markets.13 The Exchange
believes that this proposal will provide
the Exchange with the necessary means
to enforce against such behavior in an
expedited manner while providing
11 15
U.S.C. 78f(b)(1) and 78f(b)(6).
supra, notes 4 and 5.
13 See Section 3 herein, the Purpose section, for
examples of conduct referred to herein.
12 See
9 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
10 15
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Federal Register / Vol. 81, No. 189 / Thursday, September 29, 2016 / Notices
Members with the necessary due
process. The Exchange believes that its
proposal is consistent with the Act
because it provides the Exchange with
the ability 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 from
such ongoing behavior.
Further, the Exchange believes that
adopting a rule applicable to Options
Participants is consistent with the Act
because the Exchange believes that this
type of behavior should be prohibited
for all Members. The type of product
should not be the determining factor,
rather the behavior which challenges
the market structure is the primary
concern for the Exchange. While this
behavior may not be as prevalent on the
options market today, the Exchange
does not believe that the possibility of
such behavior in the future would not
have the same market impact and
thereby warrant an expedited process.
The Exchange further believes that the
proposal is consistent with Section
6(b)(7) of the Act,14 which requires that
the rules of an exchange ‘‘provide a fair
procedure for the disciplining of
members and persons associated with
members . . . and the prohibition or
limitation by the exchange of any
person with respect to access to services
offered by the exchange or a member
thereof.’’ Finally, the Exchange also
believes the proposal is consistent with
Sections 6(d)(1) and 6(d)(2) of the Act,15
which require that the rules of an
exchange with respect to a disciplinary
proceeding or proceeding that would
limit or prohibit access to or
membership in the exchange require the
exchange to: Provide adequate and
specific notice of the charges brought
against a member or person associated
with a member, provide an opportunity
to defend against such charges, keep a
record, and provide details regarding
the findings and applicable sanctions in
the event a determination to impose a
disciplinary sanction is made. The
Exchange believes that each of these
requirements is addressed by the notice
and due process provisions included
within Rule 1616. Importantly, as noted
above, the Exchange will use the
authority only in clear and egregious
cases when necessary to protect
investors, other Members and the
Exchange, and in such cases, the
Respondent will be afforded due
process in connection with the
suspension proceedings.
14 15
U.S.C. 78f(b)(7).
78f(d)(1).
15 U.S.C.
VerDate Sep<11>2014
18:51 Sep 28, 2016
Jkt 238001
Further, the Exchange believes that
adopting a rule applicable to options is
consistent with the Act because the
Exchange believes that this type of
behavior should be prohibited for all
Members. The type of product should
not be the determining factor, rather the
behavior which challenges the market
structure is the primary concern for the
Exchange. While this behavior may not
be as prevalent on the options market
today, the Exchange does not believe
that the possibility of such behavior in
the future would not have the same
market impact and thereby warrant an
expedited process.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. To the
contrary, the Exchange believes that
each self-regulatory organization should
be empowered to regulate trading
occurring on its market consistent with
the Act and without regard to
competitive issues. The Exchange is
requesting authority to take appropriate
action if necessary for the protection of
investors, other Members and the
Exchange. The Exchange also believes
that it is important for all exchanges to
be able to take similar action to enforce
their rules against manipulative conduct
thereby leaving no exchange prey to
such conduct.
The Exchange does not believe that
the proposed rule change imposes an
undue burden on competition, rather
this process will provide the Exchange
with the necessary means to enforce
against violations of manipulative
quoting and trading activity in an
expedited manner, while providing
Members with the necessary due
process. The Exchange’s proposal would
treat all Members in a uniform manner
with respect to the type of disciplinary
action that would be taken for violations
of manipulative quoting and trading
activity.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
PO 00000
Frm 00125
Fmt 4703
Sfmt 4703
67043
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 16 and
subparagraph (f)(6) of Rule 19b–4
thereunder.17
A proposed rule change filed under
Rule 19b–4(f)(6) normally does not
become operative for 30 days after the
date of its filing. However, Rule 19b–
4(f)(6)(iii) 18 permits the Commission to
designate a shorter time if such action
is consistent with the protection of
investors and the public interest. The
Exchange has requested that the
Commission waive the 30-day operative
delay so that the proposed rule change
will become operative on filing. The
Exchange stated that the proposed rule
change would allow the Exchange to
regulate its market in a manner similar
to other options exchanges. The
Exchange also believes that it is
important to prohibit Members from
engaging in the manipulative conduct
described above in a uniform manner on
all exchanges. For these reasons, the
Commission believes that waiver of the
30-day operative delay is consistent
with the protection of investors and the
public interest. Therefore, the
Commission designates the proposed
rule change to be operative upon
filing.19
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
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
16 15
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
18 17 CFR 240.19b–4(f)(6)(iii).
19 For purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
17 17
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Federal Register / Vol. 81, No. 189 / Thursday, September 29, 2016 / Notices
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 Number SR–
ISE–2016–21 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.
mstockstill on DSK3G9T082PROD with NOTICES
All submissions should refer to File
Number SR–ISE–2016–21. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of 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–
2016–21, and should be submitted on or
before October 20, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Brent J. Fields,
Secretary.
[FR Doc. 2016–23498 Filed 9–28–16; 8:45 am]
BILLING CODE 8011–01–P
20 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
18:51 Sep 28, 2016
Jkt 238001
SMALL BUSINESS ADMINISTRATION
[License No. 05/05–0315]
Northcreek Mezzanine Fund II, L.P.;
Notice Seeking Exemption Under
Section 312 of the Small Business
Investment Act, Conflicts of Interest
Notice is hereby given that Northcreek
Mezzanine Fund II, L.P., 312 Walnut
Street, Suite 2310 Cincinnati, OH 45202,
a Federal Licensee under the Small
Business Investment Act of 1958, as
amended (‘‘the Act’’), in connection
with the financing of a small concern,
has sought an exemption under Section
312 of the Act and Section 107.730,
Financings which Constitute Conflicts
of Interest of the Small Business
Administration (‘‘SBA’’) Rules and
Regulations (13 CFR 107.730).
Northcreek Mezzanine Fund I, L.P. and
Northcreek Mezzanine Fund II, L.P.
propose to provide debt and equity
financing to Alpha Sintered Metals,
LLC, 95 Mason Run Road, Ridgway, PA
15853.
The financing is brought within the
purview of § 107.730(a)(2) of the
Regulations because Northcreek
Mezzanine Fund I, L.P. is currently
invested in Alpha Sintered Metals, LLC
and because of its level of ownership,
Alpha Sintered Metals, LLC is an
Associate. Northcreek Mezzanine Fund
I, L.P. and Northcreek Mezzanine Fund
II, L.P. are also Associates and are
seeking to co-invest in Alpha Sintered
Metals, LLC. Therefore this transaction
is considered financing an Associate,
requiring prior SBA exemption.
Notice is hereby given that any
interested person may submit written
comments on the transaction, within
fifteen days of the date of this
publication, to the Associate
Administrator for Investment, U.S.
Small Business Administration, 409
Third Street SW., Washington, DC
20416.
Dated: September 14, 2016.
Mark L. Walsh,
Associate Administrator for Office of
Investment and Innovation.
[FR Doc. 2016–23485 Filed 9–28–16; 8:45 am]
BILLING CODE P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #14871 and #14872]
Kentucky Disaster #KY–00061
U.S. Small Business
Administration.
ACTION: Notice.
AGENCY:
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This is a notice of an
Administrative declaration of a disaster
for the Commonwealth of Kentucky
dated 09/22/2016.
Incident: Severe Storms, Torrential
Rains, Tornadoes, Severe Wind, Hail
and Flooding.
Incident Period: 07/03/2016 through
07/09/2016.
Effective Date: 09/22/2016.
Physical Loan Application Deadline
Date: 11/21/2016.
Economic Injury (EIDL) Loan
Application Deadline Date: 06/22/2017.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street SW., Suite 6050,
Washington, DC 20416.
SUPPLEMENTARY INFORMATION: Notice is
hereby given that as a result of the
Administrator’s disaster declaration,
applications for disaster loans may be
filed at the address listed above or other
locally announced locations.
The following areas have been
determined to be adversely affected by
the disaster:
Primary Counties: Marshall, Todd
Contiguous Counties:
Kentucky: Calloway, Christian,
Graves, Livingston, Logan, Lyon,
McCracken, Muhlenberg, Trigg
Tennessee: Montgomery, Robertson
The Interest Rates are:
SUMMARY:
Percent
For Physical Damage:
Homeowners With Credit Available Elsewhere ......................
Homeowners Without Credit
Available Elsewhere ..............
Businesses With Credit Available Elsewhere ......................
Businesses
Without
Credit
Available Elsewhere ..............
Non-Profit Organizations With
Credit Available Elsewhere ...
Non-Profit Organizations Without Credit Available Elsewhere .....................................
For Economic Injury:
Businesses & Small Agricultural
Cooperatives Without Credit
Available Elsewhere ..............
Non-Profit Organizations Without Credit Available Elsewhere .....................................
3.250
1.625
6.250
4.000
2.625
2.625
4.000
2.625
The number assigned to this disaster
for physical damage is 14871 B and for
economic injury is 14872 0.
The States which received an EIDL
Declaration # are Kentucky, Tennessee.
E:\FR\FM\29SEN1.SGM
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]]>Agencies
[Federal Register Volume 81, Number 189 (Thursday, September 29, 2016)]
[Notices]
[Pages 67038-67044]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-23498]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78920; File No. SR-ISE-2016-21]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Adopt a Rule To Prohibit Disruptive Quoting and Trading
Activity and Allow the Exchange To Take Prompt Action
September 23, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 15, 2016, the International Securities Exchange, LLC
(``ISE'' or ``Exchange'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I and II below, which Items have been prepared by
the Exchange. 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 the
Substance of the Proposed Rule Change
The Exchange proposes to adopt a new rule to clearly prohibit
disruptive quoting and trading activity on the Exchange, as further
described below. Further the Exchange proposes to amend Exchange Rules
to permit the Exchange to take prompt action to suspend Members or
their clients that violate such rule.
The text of the proposed rule change is available on the Exchange's
Web site at 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 Exchange 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 Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
[[Page 67039]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is filing this proposal to adopt a new rule to clearly
prohibit disruptive quoting and trading activity on the Exchange and to
amend Exchange Rules to permit the Exchange to take prompt action to
suspend Members or their clients that violate such rule.
Background
As a national securities exchange registered pursuant to Section 6
of the Act, the Exchange is required to be organized and to have the
capacity to enforce compliance by its members and persons associated
with its members, with the Act, the rules and regulations thereunder,
and the Exchange's Rules. Further, the Exchange's Rules are required to
be ``designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade . . . and,
in general, to protect investors and the public interest.'' \3\ In
fulfilling these requirements, the Exchange has developed a
comprehensive regulatory program that includes automated surveillance
of trading activity that is both operated directly by Exchange staff
and by staff of the Financial Industry Regulatory Authority (``FINRA'')
pursuant to a Regulatory Services Agreement (``RSA''). When disruptive
and potentially manipulative or improper quoting and trading activity
is identified, the Exchange or FINRA (acting as an agent of the
Exchange) conducts an investigation into the activity, requesting
additional information from the Member or Members involved. To the
extent violations of the Act, the rules and regulations thereunder, or
Exchange Rules have been identified and confirmed, the Exchange or
FINRA as its agent will commence the enforcement process, which might
result in, among other things, a censure, a requirement to take certain
remedial actions, one or more restrictions on future business
activities, a monetary fine, or even a temporary or permanent ban from
the securities industry.
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78f(b)(1).
---------------------------------------------------------------------------
The process described above, from the identification of disruptive
and potentially manipulative or improper quoting and trading activity
to a final resolution of the matter, can often take several years. The
Exchange believes that this time period is generally necessary and
appropriate to afford the subject Member adequate due process,
particularly in complex cases. However, as described below, the
Exchange believes that there are certain obvious and uncomplicated
cases of disruptive and manipulative behavior or cases where the
potential harm to investors is so large that the Exchange should have
the authority to initiate an expedited suspension proceeding in order
to stop the behavior from continuing on the Exchange.
In recent years, several cases have been brought and resolved by
the Exchange and other SROs that involved allegations of wide-spread
market manipulation, much of which was ultimately being conducted by
foreign persons and entities using relatively rudimentary technology to
access the markets and over which the Exchange and other SROs had no
direct jurisdiction. In each case, the conduct involved a pattern of
disruptive quoting and trading activity indicative of manipulative
layering \4\ or spoofing.\5\ The Exchange and other SROs were able to
identify the disruptive quoting and trading activity in real-time or
near real-time; nonetheless, in accordance with Exchange Rules and the
Act, the Members responsible for such conduct or responsible for their
customers' conduct were allowed to continue the disruptive quoting and
trading activity on the Exchange and other exchanges during the
entirety of the subsequent lengthy investigation and enforcement
process. The Exchange believes that it should have the authority to
initiate an expedited suspension proceeding in order to stop the
behavior from continuing on the Exchange if a Member is engaging in or
facilitating disruptive quoting and trading activity and the Member has
received sufficient notice with an opportunity to respond, but such
activity has not ceased.
---------------------------------------------------------------------------
\4\ ``Layering'' is a form of market manipulation in which
multiple, non-bona fide limit orders are entered on one side of the
market at various price levels in order to create the appearance of
a change in the levels of supply and demand, thereby artificially
moving the price of the security. An order is then executed on the
opposite side of the market at the artificially created price, and
the non-bona fide orders are cancelled.
\5\ ``Spoofing'' is a form of market manipulation that involves
the market manipulator placing non-bona fide orders that are
intended to trigger some type of market movement and/or response
from other market participants, from which the market manipulator
might benefit by trading bona fide orders.
---------------------------------------------------------------------------
The following two examples are instructive on the Exchange's
rationale for the proposed rule change.
In July 2012, Biremis Corp. (formerly Swift Trade Securities USA,
Inc.) (the ``Firm'') and its CEO were barred from the industry for,
among other things, supervisory violations related to a failure by the
Firm to detect and prevent disruptive and allegedly manipulative
trading activities, including layering, short sale violations, and
anti-money laundering violations.\6\ The Firm's sole business was to
provide trade execution services via a proprietary day trading platform
and order management system to day traders located in foreign
jurisdictions. Thus, the disruptive and allegedly manipulative trading
activity introduced by the Firm to U.S. markets originated directly or
indirectly from foreign clients of the Firm. The pattern of disruptive
and allegedly manipulative quoting and trading activity was widespread
across multiple exchanges, and the Exchange, FINRA, and other SROs
identified clear patterns of the behavior in 2007 and 2008. Although
the Firm and its principals were on notice of the disruptive and
allegedly manipulative quoting and trading activity that was occurring,
the Firm took little to no action to attempt to supervise or prevent
such quoting and trading activity until at least 2009. Even when it put
some controls in place, they were deficient and the pattern of
disruptive and allegedly manipulative trading activity continued to
occur. As noted above, the final resolution of the enforcement action
to bar the Firm and its CEO from the industry was not concluded until
2012, four years after the disruptive and allegedly manipulative
trading activity was first identified.
---------------------------------------------------------------------------
\6\ See Biremis Corp. and Peter Beck, FINRA Letter of
Acceptance, Waiver and Consent No. 2010021162202, July 30, 2012.
---------------------------------------------------------------------------
In September of 2012, Hold Brothers On-Line Investment Services,
Inc. (the ``Firm'') settled a regulatory action in connection with the
Firm's provision of a trading platform, trade software and trade
execution, support and clearing services for day traders.\7\ Many
traders using the Firm's services were located in foreign
jurisdictions. The Firm ultimately settled the action with FINRA and
several exchanges, including the Exchange, for a total monetary fine of
$3.4 million. In a separate action, the Firm settled with the
Commission for a monetary fine of $2.5 million.\8\ Among the alleged
violations in the case were disruptive and allegedly manipulative
quoting and trading activity, including spoofing, layering, wash
trading, and pre-arranged trading. Through its
[[Page 67040]]
conduct and insufficient procedures and controls, the Firm also
allegedly committed anti-money laundering violations by failing to
detect and report manipulative and suspicious trading activity. The
Firm was alleged to have not only provided foreign traders with access
to the U.S. markets to engage in such activities, but that its
principals also owned and funded foreign subsidiaries that engaged in
the disruptive and allegedly manipulative quoting and trading activity.
Although the pattern of disruptive and allegedly manipulative quoting
and trading activity was identified in 2009, as noted above, the
enforcement action was not concluded until 2012. Thus, although
disruptive and allegedly manipulative quoting and trading was promptly
detected, it continued for several years.
---------------------------------------------------------------------------
\7\ See Hold Brothers On-Line Investment Services, LLC, FINRA
Letter of Acceptance, Waiver and Consent No. 20100237710001,
September 25, 2012.
\8\ In the Matter of Hold Brothers On-Line Investment Services,
LLC, Exchange Act Release No. 67924, September 25, 2012.
---------------------------------------------------------------------------
The Exchange also notes the current criminal proceedings that have
commenced against Navinder Singh Sarao. Mr. Sarao's allegedly
manipulative trading activity, which included forms of layering and
spoofing in the futures markets, has been linked as a contributing
factor to the ``Flash Crash'' of 2010, and yet continued through 2015.
The Exchange believes that the activities described in the cases
above provide justification for the proposed rule change, which is
described below. In addition, while the examples provided are related
to the equities market, the Exchange believes that this type of conduct
should be prohibited for options as well. The Exchange believes that
these patterns of disruptive and allegedly manipulative quoting and
trading activity need to be addressed and the product should not limit
the action taken by the Exchange.
Rule 1616--Expedited Client Suspension Proceeding
The Exchange proposes to adopt new Rule 1616, titled ``Expedited
Client Suspension Proceeding,'' to set forth procedures for issuing
suspension orders, immediately prohibiting a Member from conducting
continued disruptive quoting and trading activity on the Exchange.
Importantly, these procedures would also provide the Exchange the
authority to order a Member to cease and desist from providing access
to the Exchange to a client of the Member that is conducting disruptive
quoting and trading activity in violation of proposed Rule 403, which
is currently reserved. New Rule 403 would be titled, ``Disruptive
Quoting and Trading Activity Prohibited.'' Under proposed paragraph (a)
of Rule 1616, with the prior written authorization of the Chief
Regulatory Officer (``CRO'') or such other senior officers as the CRO
may designate, the Office of General Counsel or Regulatory Department
of the Exchange (such departments generally referred to as the
``Exchange'' for purposes of proposed Rule 1616) may initiate an
expedited suspension proceeding with respect to alleged violations of
Rule 403, which is proposed as part of this filing and described in
detail below. Proposed paragraph (a) would also set forth the
requirements for notice and service of such notice pursuant to the
Rule, including the required method of service and the content of
notice.
Proposed paragraph (b) of Rule 1616 would govern the appointment of
a Hearing Panel as well as potential disqualification or recusal of
Hearing Officers. The proposed provision is consistent with existing
Exchange Rule 1606(a). The proposed rule provides for a Hearing Officer
to be recused in the event he or she has a conflict of interest or bias
or other circumstances exist where his or her fairness might reasonably
be questioned in accordance with Rules 1616(b)(2). In addition to
recusal initiated by such a Hearing Officer, a party to the proceeding
will be permitted to file a motion to disqualify a Hearing Officer.
However, due to the compressed schedule pursuant to which the process
would operate under Rule 1616, the proposed rule would require such
motion to be filed no later than 5 days after the announcement of the
Hearing Panel and the Exchange's brief in opposition to such motion
would be required to be filed no later than 5 days after service
thereof. Pursuant to existing Rule 1606(a)(3), any time a person
serving on a Panel has a conflict of interest or bias or circumstances
otherwise exist where his fairness might be reasonably questioned, the
person must withdraw from the Panel. The applicable Hearing Officer
shall remove himself or herself and the Panel Chairman may request the
Chairman of the Business Conduct Committee select a replacement such
that the Hearing Panel still meets the compositional requirements
described in Rule 1616(a).
Under paragraph (c) of the proposed Rule, the hearing would be held
not later than 15 days after service of the notice initiating the
suspension proceeding, unless otherwise extended by the Chairman of the
Hearing Panel with the consent of the Parties for good cause shown. In
the event of a recusal or disqualification of a Hearing Officer, the
hearing shall be held not later than five days after a replacement
Hearing Officer is appointed. Proposed paragraph (c) would also govern
how the hearing is conducted, including the authority of Hearing
Officers, witnesses, additional information that may be required by the
Hearing Panel, the requirement that a transcript of the proceeding be
created and details related to such transcript, and details regarding
the creation and maintenance of the record of the proceeding. Proposed
paragraph (c) would also state that if a Respondent fails to appear at
a hearing for which it has notice, the allegations in the notice and
accompanying declaration may be deemed admitted, and the Hearing Panel
may issue a suspension order without further proceedings. Finally, as
proposed, if the Exchange fails to appear at a hearing for which it has
notice, the Hearing Panel may order that the suspension proceeding be
dismissed.
Under paragraph (d) of the proposed Rule, the Hearing Panel would
be required to issue a written decision stating whether a suspension
order would be imposed. The Hearing Panel would be required to issue
the decision not later than 10 days after receipt of the hearing
transcript, unless otherwise extended by the Chairman of the Hearing
Panel with the consent of the Parties for good cause shown. The Rule
would state that a suspension order shall be imposed if the Hearing
Panel finds by a preponderance of the evidence that the alleged
violation specified in the notice has occurred and that the violative
conduct or continuation thereof is likely to result in significant
market disruption or other significant harm to investors.
Proposed paragraph (d) would also describe the content, scope and
form of a suspension order. As proposed, a suspension order shall be
limited to ordering a Respondent to cease and desist from violating
proposed Rule 403 and/or to ordering a Respondent to cease and desist
from providing access to the Exchange to a client of Respondent that is
causing violations of Rule 403. Under the proposed rule, a suspension
order shall also set forth the alleged violation and the significant
market disruption or other significant harm to investors that is likely
to result without the issuance of an order. The order shall describe in
reasonable detail the act or acts the Respondent is to take or refrain
from taking, and suspend such Respondent unless and until such action
is taken or refrained from. Finally, the order shall include the date
and hour of its issuance. As proposed, a suspension order would remain
effective and enforceable unless modified, set aside, limited, or
revoked pursuant to proposed paragraph (e), as described below.
Finally, paragraph (d) would require service of the Hearing
[[Page 67041]]
Panel's decision and any suspension order consistent with other
portions of the proposed rule related to service.
Proposed paragraph (e) of Rule 1616 would state that at any time
after the Hearing Officers served the Respondent with a suspension
order, a Party could apply to the Hearing Panel to have the order
modified, set aside, limited, or revoked. If any part of a suspension
order is modified, set aside, limited, or revoked, proposed paragraph
(e) of Rule 1616 provides the Hearing Panel discretion to leave the
cease and desist part of the order in place. For example, if a
suspension order suspends Respondent unless and until Respondent ceases
and desists providing access to the Exchange to a client of Respondent,
and after the order is entered the Respondent complies, the Hearing
Panel is permitted to modify the order to lift the suspension portion
of the order while keeping in place the cease and desist portion of the
order. With its broad modification powers, the Hearing Panel also
maintains the discretion to impose conditions upon the removal of a
suspension--for example, the Hearing Panel could modify an order to
lift the suspension portion of the order in the event a Respondent
complies with the cease and desist portion of the order but
additionally order that the suspension will be re-imposed if Respondent
violates the cease and desist provisions modified order in the future.
The Hearing Panel generally would be required to respond to the request
in writing within 10 days after receipt of the request. An application
to modify, set aside, limit or revoke a suspension order would not stay
the effectiveness of the suspension order.
Finally, proposed paragraph (f) would provide that sanctions issued
under the proposed Rule 1616 would constitute final and immediately
effective disciplinary sanctions imposed by the Exchange, and that the
right to have any action under the Rule reviewed by the Commission
would be governed by Section 19 of the Act. The filing of an
application for review would not stay the effectiveness of a suspension
order unless the Commission otherwise ordered.
Rule 403--Disruptive Quoting and Trading Activity Prohibited
The Exchange currently has authority to prohibit and take action
against manipulative trading activity, including disruptive quoting and
trading activity, pursuant to its general market manipulation rules,
including Rules 400 and 405. The Exchange proposes to adopt new Rule
403, which would more specifically define and prohibit disruptive
quoting and trading activity on the Exchange. As noted above, the
Exchange proposes to apply the proposed suspension rules to proposed
Rule 403.
Proposed Rule 403 would prohibit Members from engaging in or
facilitating disruptive quoting and trading activity on the Exchange,
as described in proposed Rule 403(a)(i) and (ii), including acting in
concert with other persons to effect such activity. The Exchange
believes that it is necessary to extend the prohibition to situations
when persons are acting in concert to avoid a potential loophole where
disruptive quoting and trading activity is simply split between several
brokers or customers. The Exchange believes, that with respect to
persons acting in concert perpetrating an abusive scheme, it is
important that the Exchange have authority to act against the parties
perpetrating the abusive scheme, whether it is one person or multiple
persons.
To provide proper context for the situations in which the Exchange
proposes to utilize its proposed authority, the Exchange believes it is
necessary to describe the types of disruptive quoting and trading
activity that would cause the Exchange to use its authority.
Accordingly, the Exchange proposes to adopt Rule 403(a)(i) and (ii)
providing additional details regarding disruptive quoting and trading
activity. Proposed Rule 403(a)(i)(a) describes disruptive quoting and
trading activity containing many of the elements indicative of
layering. It would describe disruptive quoting and trading activity as
a frequent pattern in which the following facts are present: (i) A
party enters multiple limit orders on one side of the market at various
price levels (the ``Displayed Orders''); and (ii) following the entry
of the Displayed Orders, the level of supply and demand for the
security changes; and (iii) the party enters one or more orders on the
opposite side of the market of the Displayed Orders (the ``Contra-Side
Orders'') that are subsequently executed; and (iv) following the
execution of the Contra-Side Orders, the party cancels the Displayed
Orders.
Proposed Rule 403(a)(i)(b) describes disruptive quoting and trading
activity containing many of the elements indicative of spoofing and
would describe disruptive quoting and trading activity as a frequent
pattern in which the following facts are present: (i) A party narrows
the spread for a security by placing an order inside the national best
bid or offer; and (ii) the party then submits an order on the opposite
side of the market that executes against another market participant
that joined the new inside market established by the order described in
proposed 403(a)(i)(b)(i) that narrowed the spread. The Exchange
believes that the proposed descriptions of disruptive quoting and
trading activity articulated in the rule are consistent with the
activities that have been identified and described in the client access
cases described above. The Exchange further believes that the proposed
descriptions will provide Members with clear descriptions of disruptive
quoting and trading activity that will help them to avoid engaging in
such activities or allowing their clients to engage in such activities.
The Exchange proposes to make clear in proposed Rule 403(a)(ii),
unless otherwise indicated, the descriptions of disruptive quoting and
trading activity do not require the facts to occur in a specific order
in order for the rule to apply. For instance, with respect to the
pattern defined in proposed Rule 403(a)(i)(a) it is of no consequence
whether a party first enters Displayed Orders and then Contra-side
Orders or vice-versa. However, as proposed, it is required for supply
and demand to change following the entry of the Displayed Orders. The
Exchange also proposes to make clear that disruptive quoting and
trading activity includes a pattern or practice in which some portion
of the disruptive quoting and trading activity is conducted on the
Exchange and the other portions of the disruptive quoting and trading
activity are conducted on one or more other exchanges. The Exchange
believes that this authority is necessary to address market
participants who would otherwise seek to avoid the prohibitions of the
proposed Rule by spreading their activity amongst various execution
venues. In sum, proposed Rule 403 coupled with proposed Rule 1616 would
provide the Exchange with authority to promptly act to prevent
disruptive quoting and trading activity from continuing on the
Exchange.
Below is an example of how the proposed rule would operate.
Assume that through its surveillance program, Exchange staff
identifies a pattern of potentially disruptive quoting and trading
activity. After an initial investigation the Exchange would then
contact the Member responsible for the orders that caused the activity
to request an explanation of the activity as well as any additional
relevant information, including the source of the activity. If the
Exchange were to continue to see the same pattern from the same Member
and the source of the activity is the same or has been previously
identified
[[Page 67042]]
as a frequent source of disruptive quoting and trading activity then
the Exchange could initiate an expedited suspension proceeding by
serving notice on the Member that would include details regarding the
alleged violations as well as the proposed sanction. In such a case the
proposed sanction would likely be to order the Member to cease and
desist providing access to the Exchange to the client that is
responsible for the disruptive quoting and trading activity and to
suspend such Member unless and until such action is taken.
The Member would have the opportunity to be heard in front of a
Hearing Panel at a hearing to be conducted within 15 days of the
notice. If the Hearing Panel determined that the violation alleged in
the notice did not occur or that the conduct or its continuation would
not have the potential to result in significant market disruption or
other significant harm to investors, then the Hearing Panel would
dismiss the suspension order proceeding.
If the Hearing Panel determined that the violation alleged in the
notice did occur and that the conduct or its continuation is likely to
result in significant market disruption or other significant harm to
investors, then the Hearing Panel would issue the order including the
proposed sanction, ordering the Member to cease providing access to the
client at issue and suspending such Member unless and until such action
is taken. If such Member wished for the suspension to be lifted because
the client ultimately responsible for the activity no longer would be
provided access to the Exchange, then such Member could apply to the
Hearing Panel to have the order modified, set aside, limited or
revoked. The Exchange notes that the issuance of a suspension order
would not alter the Exchange's ability to further investigate the
matter and/or later sanction the Member pursuant to the Exchange's
standard disciplinary process for supervisory violations or other
violations of Exchange rules or the Act.
The Exchange reiterates that it already has broad authority to take
action against a Member in the event that such Member is engaging in or
facilitating disruptive or manipulative trading activity on the
Exchange. For the reasons described above, and in light of recent cases
like the client access cases described above, as well as other cases
currently under investigation, the Exchange believes that it is equally
important for the Exchange to have the authority to promptly initiate
expedited suspension proceedings against any Member who has
demonstrated a clear pattern or practice of disruptive quoting and
trading activity, as described above, and to take action including
ordering such Member to terminate access to the Exchange to one or more
of such Member's clients if such clients are responsible for the
activity.
The Exchange recognizes that its proposed authority to issue a
suspension order is a powerful measure that should be used very
cautiously. Consequently, the proposed rules have been designed to
ensure that the proceedings are used to address only the most clear and
serious types of disruptive quoting and trading activity and that the
interests of Respondents are protected. For example, to ensure that
proceedings are used appropriately and that the decision to initiate a
proceeding is made only at the highest staff levels, the proposed rules
require the CRO or another senior officer of the Exchange to issue
written authorization before the Exchange can institute an expedited
suspension proceeding. In addition, the rule by its terms is limited to
violations of Rules 403, when necessary to protect investors, other
Members and the Exchange. The Exchange will initiate disciplinary
action for violations of Rule 403, pursuant to Rule 1616. Further, the
Exchange believes that the proposed expedited suspension provisions
described above that provide the opportunity to respond as well as a
Hearing Panel determination prior to taking action will ensure that the
Exchange would not utilize its authority in the absence of a clear
pattern or practice of disruptive quoting and trading activity.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \9\ in general, and furthers the objectives of Section
6(b)(5) of the Act \10\ in particular, in that it is designed 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. Pursuant to the proposal,
the Exchange will have a mechanism to promptly initiate expedited
suspension proceedings in the event the Exchange believes that it has
sufficient proof that a violation of Rule 403 has occurred and is
ongoing.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Further, the Exchange believes that the proposal is consistent with
Sections 6(b)(1) and 6(b)(6) of the Act,\11\ which require that the
rules of an exchange enforce compliance with, and provide appropriate
discipline for, violations of the Commission and Exchange rules. The
Exchange also believes that the proposal is consistent with the public
interest, the protection of investors, or otherwise in furtherance of
the purposes of the Act because the proposal helps to strengthen the
Exchange's ability to carry out its oversight and enforcement
responsibilities as a self-regulatory organization in cases where
awaiting the conclusion of a full disciplinary proceeding is unsuitable
in view of the potential harm to other Members and their customers.
Also, the Exchange notes that if this type of conduct is allowed to
continue on the Exchange, the Exchange's reputation could be harmed
because it may appear to the public that the Exchange is not acting to
address the behavior. The expedited process would enable the Exchange
to address the behavior with greater speed.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
---------------------------------------------------------------------------
As explained above, the Exchange notes that it has defined the
prohibited disruptive quoting and trading activity by modifying the
traditional definitions of layering and spoofing \12\ to eliminate an
express intent element that would not be proven on an expedited basis
and would instead require a thorough investigation into the activity.
As noted throughout this filing, the Exchange believes it is necessary
for the protection of investors to make such modifications in order to
adopt an expedited process rather than allowing disruptive quoting and
trading activity to occur for several years.
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\12\ See supra, notes 4 and 5.
---------------------------------------------------------------------------
Through this proposal, the Exchange does not intend to modify the
definitions of spoofing and layering that have generally been used by
the Exchange and other regulators in connection with actions like those
cited above. The Exchange believes that the pattern of disruptive and
allegedly manipulative quoting and trading activity was widespread
across multiple exchanges, and the Exchange, FINRA, and other SROs
identified clear patterns of the behavior in 2007 and 2008 in the
equities markets.\13\ The Exchange believes that this proposal will
provide the Exchange with the necessary means to enforce against such
behavior in an expedited manner while providing
[[Page 67043]]
Members with the necessary due process. The Exchange believes that its
proposal is consistent with the Act because it provides the Exchange
with the ability 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 from such ongoing behavior.
---------------------------------------------------------------------------
\13\ See Section 3 herein, the Purpose section, for examples of
conduct referred to herein.
---------------------------------------------------------------------------
Further, the Exchange believes that adopting a rule applicable to
Options Participants is consistent with the Act because the Exchange
believes that this type of behavior should be prohibited for all
Members. The type of product should not be the determining factor,
rather the behavior which challenges the market structure is the
primary concern for the Exchange. While this behavior may not be as
prevalent on the options market today, the Exchange does not believe
that the possibility of such behavior in the future would not have the
same market impact and thereby warrant an expedited process.
The Exchange further believes that the proposal is consistent with
Section 6(b)(7) of the Act,\14\ which requires that the rules of an
exchange ``provide a fair procedure for the disciplining of members and
persons associated with members . . . and the prohibition or limitation
by the exchange of any person with respect to access to services
offered by the exchange or a member thereof.'' Finally, the Exchange
also believes the proposal is consistent with Sections 6(d)(1) and
6(d)(2) of the Act,\15\ which require that the rules of an exchange
with respect to a disciplinary proceeding or proceeding that would
limit or prohibit access to or membership in the exchange require the
exchange to: Provide adequate and specific notice of the charges
brought against a member or person associated with a member, provide an
opportunity to defend against such charges, keep a record, and provide
details regarding the findings and applicable sanctions in the event a
determination to impose a disciplinary sanction is made. The Exchange
believes that each of these requirements is addressed by the notice and
due process provisions included within Rule 1616. Importantly, as noted
above, the Exchange will use the authority only in clear and egregious
cases when necessary to protect investors, other Members and the
Exchange, and in such cases, the Respondent will be afforded due
process in connection with the suspension proceedings.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78f(b)(7).
\15\ U.S.C. 78f(d)(1).
---------------------------------------------------------------------------
Further, the Exchange believes that adopting a rule applicable to
options is consistent with the Act because the Exchange believes that
this type of behavior should be prohibited for all Members. The type of
product should not be the determining factor, rather the behavior which
challenges the market structure is the primary concern for the
Exchange. While this behavior may not be as prevalent on the options
market today, the Exchange does not believe that the possibility of
such behavior in the future would not have the same market impact and
thereby warrant an expedited process.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. To the contrary, the Exchange
believes that each self-regulatory organization should be empowered to
regulate trading occurring on its market consistent with the Act and
without regard to competitive issues. The Exchange is requesting
authority to take appropriate action if necessary for the protection of
investors, other Members and the Exchange. The Exchange also believes
that it is important for all exchanges to be able to take similar
action to enforce their rules against manipulative conduct thereby
leaving no exchange prey to such conduct.
The Exchange does not believe that the proposed rule change imposes
an undue burden on competition, rather this process will provide the
Exchange with the necessary means to enforce against violations of
manipulative quoting and trading activity in an expedited manner, while
providing Members with the necessary due process. The Exchange's
proposal would treat all Members in a uniform manner with respect to
the type of disciplinary action that would be taken for violations of
manipulative quoting and trading activity.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \16\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\17\
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\16\ 15 U.S.C. 78s(b)(3)(A)(iii).
\17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of its filing. However,
Rule 19b-4(f)(6)(iii) \18\ permits the Commission to designate a
shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange has requested that the
Commission waive the 30-day operative delay so that the proposed rule
change will become operative on filing. The Exchange stated that the
proposed rule change would allow the Exchange to regulate its market in
a manner similar to other options exchanges. The Exchange also believes
that it is important to prohibit Members from engaging in the
manipulative conduct described above in a uniform manner on all
exchanges. For these reasons, the Commission believes that waiver of
the 30-day operative delay is consistent with the protection of
investors and the public interest. Therefore, the Commission designates
the proposed rule change to be operative upon filing.\19\
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\18\ 17 CFR 240.19b-4(f)(6)(iii).
\19\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
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 change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing,
[[Page 67044]]
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 Number SR-ISE-2016-21 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-2016-21. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of 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-2016-21, and should be
submitted on or before October 20, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-23498 Filed 9-28-16; 8:45 am]
BILLING CODE 8011-01-P
