Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Exchange Rules in Connection With Business Continuity and Disaster Recovery Plans Testing Requirements, 95216-95219 [2016-31117]

Download as PDF 95216 Federal Register / Vol. 81, No. 248 / Tuesday, December 27, 2016 / Notices forego the product altogether. This competition for customers provides another check on the price for short sale data. In summary, market forces constrain the price of short sale data through competition for order flow, competition from substitute products, and in the competition among distributors for customers. For these reasons, the Exchange has provided a substantial basis demonstrating that the fee is equitable, fair, reasonable, and not unreasonably discriminatory, and therefore consistent with and in furtherance of the purposes of the Exchange Act. 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 All submissions should refer to File Number SR–NASDAQ–2016–168. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NASDAQ–2016–168 and should be submitted on or before January 17, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Eduardo A. Aleman, Assistant Secretary. IV. Solicitation of Comments [FR Doc. 2016–31109 Filed 12–23–16; 8:45 am] Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: BILLING CODE 8011–01–P Electronic Comments asabaliauskas on DSK3SPTVN1PROD with NOTICES The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.10 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Exchange Rules in Connection With Business Continuity and Disaster Recovery Plans Testing Requirements • 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– NASDAQ–2016–168 on the subject line. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79626; File No. SR– ISEGemini–2016–24] December 20, 2016. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 11 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 10 15 U.S.C. 78s(b)(3)(A)(ii). VerDate Sep<11>2014 20:45 Dec 23, 2016 Jkt 241001 PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 notice is hereby given that on December 15, 2016, ISE Gemini, LLC (‘‘ISE Gemini’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III, 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 Substance of the Proposed Rule Change The Exchange proposes to amend ISE Gemini Rule 803 at Supplementary Material .02 in connection with business continuity and disaster recovery plans (‘‘BC/DR Plans’’) testing requirements for certain Members in connection with Regulation Systems Compliance and Integrity (‘‘Regulation SCI’’).3 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. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend ISE Gemini Rule 803 at Supplementary Material .02 to conform the current rule text regarding BC/DR Plans testing requirements with that of NASDAQ PHLX LLC (‘‘Phlx’’) Rule 926,4 The NASDAQ Stock Market LLC (‘‘Nasdaq’’) 3 See Securities Exchange Act Release No. 73639 (November 19, 2014), 79 FR 72252 (December 5, 2014) (‘‘SCI Adopting Release’’). 4 Phlx Rule 926 is titled ‘‘The Exchange’s Business Continuity and Disaster Recovery Plan Testing Requirements for Member Organizations and PSX Participants Pursuant to Regulation SCI.’’ E:\FR\FM\27DEN1.SGM 27DEN1 Federal Register / Vol. 81, No. 248 / Tuesday, December 27, 2016 / Notices Rule 1170 5 and NASDAQ BX, Inc. (‘‘BX’’) Rule 1170.6 Background asabaliauskas on DSK3SPTVN1PROD with NOTICES As adopted by the Commission, Regulation SCI applies to certain selfregulatory organizations (including the Exchange), alternative trading systems (‘‘ATSs’’), plan processors, and exempt clearing agencies (collectively, ‘‘SCI entities’’), and requires these SCI entities to comply with requirements with respect to the automated systems central to the performance of their regulated activities. Among the requirements of Regulation SCI is Rule 1001(a)(2)(v), which requires the Exchange and other SCI entities to maintain ‘‘[b]usiness continuity and disaster recovery plans that include maintaining backup and recovery capabilities sufficiently resilient and geographically diverse and that are reasonably designed to achieve next business day resumption of trading and two-hour resumption of critical SCI systems following a wide-scale disruption.’’ 7 The Exchange has put extensive time and resources toward planning for system failures and already maintains robust BC/DR Plans consistent with the Rule. With respect to an SCI entity’s BC/DR Plans, including its backup systems, paragraph (a) of Rule 1004 of Regulation SCI requires each SCI entity to: ‘‘[e]stablish standards for the designation of those members or participants that the SCI entity reasonably determines are, taken as a whole, the minimum necessary for the maintenance of fair and orderly markets in the event of the activation of such plans.’’ 8 Paragraph (b) of Rule 1004 of Regulation SCI further requires each SCI entity to ‘‘[d]esignate members or participants pursuant to the standards established in paragraph (a) of [Rule 1004] and require participation by such designated members or participants in scheduled functional and performance testing of the operation of such plans, in the manner and frequency specified by the SCI entity, provided that such frequency shall not be less than once every 12 months.’’ 9 5 Nasdaq Rule 1170 is titled ‘‘Nasdaq’s Business Continuity and Disaster Recovery Plan Testing Requirements for Members and Options Participants Pursuant to Regulation SCI.’’ 6 BX Rule 1170 is titled ‘‘The Exchange’s Business Continuity and Disaster Recovery Plan Testing Requirements for Members and Options Participants Pursuant to Regulation SCI.’’ 7 17 CFR 242.1001(a)(2)(v). 8 17 CFR 242.1004(a). 9 17 CFR 242.1004(b). VerDate Sep<11>2014 20:45 Dec 23, 2016 Jkt 241001 Proposal As set forth below, in connection with Regulation SCI, the Exchange is proposing to amend ISE Gemini Rule 803 at Supplementary Material .02 to conform with Phlx Rule 926, Nasdaq Rule 1170 and BX Rule 1170. Phlx Rule 926, Nasdaq Rule 1170 and BX Rule 1170 are similar to ISE Gemini Rule 803 at Supplementary Material .02, which incorporates the requirements of Rule 1004 of Regulation SCI as part of the Exchange’s rules, and sets forth the notice, selection criteria and obligations of Members with respect to BC/DR Plans testing. The Exchange proposes to adopt rule text from Phlx Rule 926(a), Nasdaq Rule 1170(a) and BX Rule 1170(a), which will set forth the Exchange’s obligations with respect to the selection of Members for testing. Specifically, the proposed rule will require the Exchange to ‘‘[e]stablish standards for the designation of those Members that the Exchange reasonably determines are, taken as a whole, the minimum necessary for the maintenance of fair and orderly markets in the event of the activation of such plans.’’ The proposed rule further provides that ‘‘[s]uch standards may include volume-based and/or market share-based criteria, and may be adjusted from time to time by the Exchange.’’ Lastly, the proposed rule will require the Exchange to provide public notice of the standards that it adopts. The Exchange is proposing to revise Rule 803 at Supplementary Material .02, which will set forth the obligations of the Exchange and its Members with respect to testing, similar to Phlx Rule 926(b), Nasdaq Rule 1170(b) and BX Rule 1170(b). Specifically, the proposed rule will require the Exchange to ‘‘designate Members pursuant to the standards established in paragraph (a) of this rule and require participation by such designated Members in scheduled functional and performance testing of the operation of such plans, in the manner and frequency specified by the Exchange, provided that such frequency shall not be less than once every 12 months.’’ Moreover, the proposed rule will require the Exchange to provide at least 6 months prior notice to Members that are designated for mandatory testing. Lastly, the proposed rule will provide notice that participation in testing is a condition of membership for Members that are designated for testing. Today, ISE Gemini’s Rule similarly sets forth the Exchange’s obligations with respect to the selection of Members for testing. Like the proposed rule change, these standards for the PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 95217 designation of those Members must be reasonably determined by the Exchange, when taken as a whole, to have the minimum necessary for the maintenance of fair and orderly markets in the event of the activation of such plans. ISE Gemini’s Rule requires the Exchange to provide public notice of the standards that it adopts. Further, ISE Gemini’s Rule requires Primary Market Makers (‘‘PMMs’’) to participate in scheduled functional and performance testing of the operation of such plans with a frequency of not less than once every 12 months. These standards remain substantially the same under the proposed rule change. Today, ISE Gemini’s Rule requires that at least 3 months prior to a scheduled functional and performance testing of the Exchange’s business continuity and disaster recovery plans, the Exchange publishes the criteria to be used by the Exchange to determine which PMMs will be required to participate in such testing, and notifies those PMMs that are required to participate based on such criteria. The Phlx, Nasdaq and BX rules require at least 6 months prior notice to Members that are designated for mandatory testing. This change would expand the notice period. Also, ISE Gemini has specific provisions for PMMs with respect to selection for testing. Today, ISE Gemini provides that PMMs that have been determined by the Exchange to contribute a meaningful percentage of the Exchange’s overall volume, measured on a quarterly or monthly basis, will be required to participate in scheduled functional and performance testing. The Exchange may also consider other factors in determining the PMMs that will be required to participate in scheduled functional and performance testing, including average daily volume traded on the Exchange measured on a quarterly or monthly basis, or PMMs who collectively account for a certain percentage of market share on the Exchange. The proposed rule text does not require a different treatment for PMMs as compared to other market participants. Today, Phlx, Nasdaq and BX select market participants based on volume and/or market share, regardless of market making activity. The proposed rule text would not specifically mandate PMMs however, given the importance of market makers on the Exchange and the volume they traditionally trade, they are likely to be required to participate in business continuity and disaster recovery plans under the proposed rule change as they are today. The Exchange would continue to encourage all Members to connect to the Exchange’s backup systems and to E:\FR\FM\27DEN1.SGM 27DEN1 95218 Federal Register / Vol. 81, No. 248 / Tuesday, December 27, 2016 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES participate in testing of such systems; 10 however, certain Members will be obligated to participate in BC/DR Plans testing. In adopting the rule text of Phlx Rule 926, Nasdaq Rule 1170 and BX Rule 1170, the Exchange will require mandatory participation in BC/DR Plans testing by those Members that the Exchange reasonably determines are, taken as a whole, the minimum necessary for the maintenance of fair and orderly markets in the event of the activation of such plans on the Exchange. The Exchange believes that using overall participation on its markets (by volume and/or market share) as a measure to select Members for mandatory participation in BC/DR Plans testing is a reasonable means by which it can determine which Members are necessary for the maintenance of fair and orderly markets in the event of the activation of such plans. For each BC/ DR Plans test cycle, the Exchange will select the top five Members on the Exchange based on the Exchange’s measure of overall participation. The Exchange notes that when considering volume, it will exclude contracts traded on PrecISE®.11 The Exchange has provided notice of the initial selection criteria and measurement period to its Members.12 All notices concerning BC/ DR Plans testing will be posted on the Exchange’s Web site. The Exchange is proposing to initially select Members with the highest levels of trading volume on the Exchange over four calendar months (‘‘Measurement Period’’) as mandatory testing for Members [sic].13 Specifically, the Measurement Period will be the four calendar months of trading immediately prior to the Exchange’s announcement of the next BC/DR Plans test date. The Measurement Period will always begin at a point after the Exchange announces the criteria to be used in the next BC/ DR Plans test. By way of example, if on October 6, 2017 the Exchange announced the BC/DR Plans test selection criteria and on March 2, 2018 the Exchange announced a BC/DR Plans 10 In this regard, the Exchange will allow any Member to participate in the testing of the Exchange’s BC/DR Plans, which is consistent with the BC/DR Plans. See SCI Adopting Release, supra note 3 at 72350. The Exchange will provide instructions on how a Member must inform the Exchange of its interest in participating in an upcoming BC/DR Plans test via the announcement of the test date. A Member must provide the Exchange notice of its interest to participate at least a week prior to the test date and must have the appropriate connection for testing in place. 11 PrecISE is [sic] front-end order and execution management system for trading options and stockoption combinations. 12 See ISE Gemini Circular 2016–08. 13 The Exchange may change the total number of Members selected from time to time. VerDate Sep<11>2014 20:45 Dec 23, 2016 Jkt 241001 test date of September 8, 2018, the Measurement Period used to select Member subject to mandatory testing would be November 2017 through February 2018. Members not obligated to participate that wish to participate in this test must inform the Exchange no later than September 1, 2018, based on the aforementioned timeline.14 The proposed rule change is intended to provide consistency across the six options exchanges operated by Nasdaq, Inc. in regard to the standards established for the designation of Members that are required to participate in the Exchange’s business continuity and disaster recovery testing. In turn, participants that are Members on multiple exchanges operated by Nasdaq, Inc. will be provided greater uniformity and ease of testing with the establishment of consistent standards across the multiple Nasdaq exchanges. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6 of the Act,15 in general, and furthers the objectives of Section 6(b)(5) of the Act,16 in particular, in that it is 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 regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest; and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The proposal will ensure that the Members necessary to ensure the maintenance of fair and orderly markets are properly designated consistent with Rule 1004 of Regulation SCI. Specifically, the proposal will adopt clear and objective criteria with respect to the designation of Members that are required to participate in the testing of the Exchange’s BC/DR Plans, as well as appropriate notification regarding such designation. As set forth in the SCI Adopting Release, ‘‘SROs have the authority, and legal responsibility, under Section 6 of the Exchange Act, to adopt and enforce rules (including rules to comply with Regulation SCI’s requirements relating to BC/DR testing) applicable to their members or participants that are designed to, among 14 See supra note 10. U.S.C. 78f. 16 15 U.S.C. 78f(b)(5). 15 15 PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 other things, foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and 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.’’ 17 The Exchange believes that this proposal is consistent with such authority and legal responsibility. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. To the contrary, the proposal is not a competitive proposal but rather is necessary for the Exchange’s compliance with Regulation SCI. 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 18 and subparagraph (f)(6) of Rule 19b–4 thereunder.19 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings 17 See SCI Adopting Release, supra note 3 at 72350. 18 15 U.S.C. 78s(b)(3)(A)(iii). 19 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. E:\FR\FM\27DEN1.SGM 27DEN1 Federal Register / Vol. 81, No. 248 / Tuesday, December 27, 2016 / Notices to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– ISEGemini–2016–24 on the subject line. Paper Comments asabaliauskas on DSK3SPTVN1PROD with NOTICES • 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–ISEGemini–2016–24. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– ISEGemini–2016–24 and should be submitted on or before January 17, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2016–31117 Filed 12–23–16; 8:45 am] CFR 200.30–3(a)(12). VerDate Sep<11>2014 20:45 Dec 23, 2016 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79610; File No. SR–CBOE– 2016–090] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Compression of S&P 500(R) Index Options Positions December 20, 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 December 15, 2016, Chicago Board Options Exchange, Incorporated (‘‘CBOE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘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 Substance of the Proposed Rule Change The Exchange proposes to adopt Rule 6.56 regarding ‘‘compression forums.’’ The text of the proposed rule change is available on the Exchange’s Web site (https://www.cboe.com/AboutCBOE/ CBOELegalRegulatoryHome.aspx), at the Exchange’s Office of the Secretary, 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 2 17 Jkt 241001 the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change BILLING CODE 8011–01–P 1 15 20 17 95219 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00122 Fmt 4703 Sfmt 4703 1. Purpose The Exchange proposes to adopt Rule 6.56 (Compression Forums) to describe the Exchange’s ‘‘compression forum’’ process. Under proposed Rule 6.56, the Exchange would facilitate closing-only transactions in series of S&P 500(R) Index (‘‘SPX’’) options on the final three trading days of each calendar month as described below. Background The Exchange’s proposal is intended to provide a procedure for Trading Permit Holders (‘‘TPHs’’) to efficiently reduce open positions in series of SPX options at the end of each calendar month in order to mitigate the effects of capital constraints on market participants and help ensure continued depth of liquidity in the SPX options market. SEC Rule 15c3–1 (Net Capital Requirements for Brokers or Dealers) (‘‘Net Capital Rules’’) requires that every registered broker-dealer maintain certain specified minimum levels of capital.3 The Net Capital Rules are designed to protect securities customers, counterparties, and creditors by requiring that broker-dealers have sufficient liquid resources on hand, at all times, to meet their financial obligations. Notably, hedged positions, including offsetting futures and options contract positions, result in certain net capital requirement reductions under the Net Capital Rules.4 All Options Clearing Corporation (‘‘OCC’’) clearing members are subject to the Net Capital Rules. However, a subset of clearing members are subsidiaries of U.S. bank holding companies, which, due to their affiliations with their parent U.S. bank holding companies, must comply with additional bank regulatory capital requirements pursuant to rulemaking required under the Dodd– Frank Wall Street Reform and Consumer Protection Act.5 Pursuant to this mandate, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation 3 17 CFR 240.15c3–1. addition, the Net Capital Rules permit various offsets under which a percentage of an option position’s gain at any one valuation point is allowed to offset another position’s loss at the same valuation point (e.g. vertical spreads). 5 H.R. 4173 (amending section 3(a) of the Act) (15 U.S.C. 78c(a))). 4 In E:\FR\FM\27DEN1.SGM 27DEN1

Agencies

[Federal Register Volume 81, Number 248 (Tuesday, December 27, 2016)]
[Notices]
[Pages 95216-95219]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31117]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79626; File No. SR-ISEGemini-2016-24]


Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Exchange 
Rules in Connection With Business Continuity and Disaster Recovery 
Plans Testing Requirements

December 20, 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 December 15, 2016, ISE Gemini, LLC (``ISE Gemini'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III, 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend ISE Gemini Rule 803 at Supplementary 
Material .02 in connection with business continuity and disaster 
recovery plans (``BC/DR Plans'') testing requirements for certain 
Members in connection with Regulation Systems Compliance and Integrity 
(``Regulation SCI'').\3\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 73639 (November 19, 
2014), 79 FR 72252 (December 5, 2014) (``SCI Adopting Release'').
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    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.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend ISE Gemini Rule 803 at Supplementary 
Material .02 to conform the current rule text regarding BC/DR Plans 
testing requirements with that of NASDAQ PHLX LLC (``Phlx'') Rule 
926,\4\ The NASDAQ Stock Market LLC (``Nasdaq'')

[[Page 95217]]

Rule 1170 \5\ and NASDAQ BX, Inc. (``BX'') Rule 1170.\6\
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    \4\ Phlx Rule 926 is titled ``The Exchange's Business Continuity 
and Disaster Recovery Plan Testing Requirements for Member 
Organizations and PSX Participants Pursuant to Regulation SCI.''
    \5\ Nasdaq Rule 1170 is titled ``Nasdaq's Business Continuity 
and Disaster Recovery Plan Testing Requirements for Members and 
Options Participants Pursuant to Regulation SCI.''
    \6\ BX Rule 1170 is titled ``The Exchange's Business Continuity 
and Disaster Recovery Plan Testing Requirements for Members and 
Options Participants Pursuant to Regulation SCI.''
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Background
    As adopted by the Commission, Regulation SCI applies to certain 
self-regulatory organizations (including the Exchange), alternative 
trading systems (``ATSs''), plan processors, and exempt clearing 
agencies (collectively, ``SCI entities''), and requires these SCI 
entities to comply with requirements with respect to the automated 
systems central to the performance of their regulated activities. Among 
the requirements of Regulation SCI is Rule 1001(a)(2)(v), which 
requires the Exchange and other SCI entities to maintain ``[b]usiness 
continuity and disaster recovery plans that include maintaining backup 
and recovery capabilities sufficiently resilient and geographically 
diverse and that are reasonably designed to achieve next business day 
resumption of trading and two-hour resumption of critical SCI systems 
following a wide-scale disruption.'' \7\ The Exchange has put extensive 
time and resources toward planning for system failures and already 
maintains robust BC/DR Plans consistent with the Rule.
---------------------------------------------------------------------------

    \7\ 17 CFR 242.1001(a)(2)(v).
---------------------------------------------------------------------------

    With respect to an SCI entity's BC/DR Plans, including its backup 
systems, paragraph (a) of Rule 1004 of Regulation SCI requires each SCI 
entity to: ``[e]stablish standards for the designation of those members 
or participants that the SCI entity reasonably determines are, taken as 
a whole, the minimum necessary for the maintenance of fair and orderly 
markets in the event of the activation of such plans.'' \8\ Paragraph 
(b) of Rule 1004 of Regulation SCI further requires each SCI entity to 
``[d]esignate members or participants pursuant to the standards 
established in paragraph (a) of [Rule 1004] and require participation 
by such designated members or participants in scheduled functional and 
performance testing of the operation of such plans, in the manner and 
frequency specified by the SCI entity, provided that such frequency 
shall not be less than once every 12 months.'' \9\
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    \8\ 17 CFR 242.1004(a).
    \9\ 17 CFR 242.1004(b).
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Proposal
    As set forth below, in connection with Regulation SCI, the Exchange 
is proposing to amend ISE Gemini Rule 803 at Supplementary Material .02 
to conform with Phlx Rule 926, Nasdaq Rule 1170 and BX Rule 1170. Phlx 
Rule 926, Nasdaq Rule 1170 and BX Rule 1170 are similar to ISE Gemini 
Rule 803 at Supplementary Material .02, which incorporates the 
requirements of Rule 1004 of Regulation SCI as part of the Exchange's 
rules, and sets forth the notice, selection criteria and obligations of 
Members with respect to BC/DR Plans testing.
    The Exchange proposes to adopt rule text from Phlx Rule 926(a), 
Nasdaq Rule 1170(a) and BX Rule 1170(a), which will set forth the 
Exchange's obligations with respect to the selection of Members for 
testing. Specifically, the proposed rule will require the Exchange to 
``[e]stablish standards for the designation of those Members that the 
Exchange reasonably determines are, taken as a whole, the minimum 
necessary for the maintenance of fair and orderly markets in the event 
of the activation of such plans.'' The proposed rule further provides 
that ``[s]uch standards may include volume-based and/or market share-
based criteria, and may be adjusted from time to time by the 
Exchange.'' Lastly, the proposed rule will require the Exchange to 
provide public notice of the standards that it adopts.
    The Exchange is proposing to revise Rule 803 at Supplementary 
Material .02, which will set forth the obligations of the Exchange and 
its Members with respect to testing, similar to Phlx Rule 926(b), 
Nasdaq Rule 1170(b) and BX Rule 1170(b). Specifically, the proposed 
rule will require the Exchange to ``designate Members pursuant to the 
standards established in paragraph (a) of this rule and require 
participation by such designated Members in scheduled functional and 
performance testing of the operation of such plans, in the manner and 
frequency specified by the Exchange, provided that such frequency shall 
not be less than once every 12 months.'' Moreover, the proposed rule 
will require the Exchange to provide at least 6 months prior notice to 
Members that are designated for mandatory testing. Lastly, the proposed 
rule will provide notice that participation in testing is a condition 
of membership for Members that are designated for testing.
    Today, ISE Gemini's Rule similarly sets forth the Exchange's 
obligations with respect to the selection of Members for testing. Like 
the proposed rule change, these standards for the designation of those 
Members must be reasonably determined by the Exchange, when taken as a 
whole, to have the minimum necessary for the maintenance of fair and 
orderly markets in the event of the activation of such plans. ISE 
Gemini's Rule requires the Exchange to provide public notice of the 
standards that it adopts. Further, ISE Gemini's Rule requires Primary 
Market Makers (``PMMs'') to participate in scheduled functional and 
performance testing of the operation of such plans with a frequency of 
not less than once every 12 months. These standards remain 
substantially the same under the proposed rule change.
    Today, ISE Gemini's Rule requires that at least 3 months prior to a 
scheduled functional and performance testing of the Exchange's business 
continuity and disaster recovery plans, the Exchange publishes the 
criteria to be used by the Exchange to determine which PMMs will be 
required to participate in such testing, and notifies those PMMs that 
are required to participate based on such criteria. The Phlx, Nasdaq 
and BX rules require at least 6 months prior notice to Members that are 
designated for mandatory testing. This change would expand the notice 
period. Also, ISE Gemini has specific provisions for PMMs with respect 
to selection for testing. Today, ISE Gemini provides that PMMs that 
have been determined by the Exchange to contribute a meaningful 
percentage of the Exchange's overall volume, measured on a quarterly or 
monthly basis, will be required to participate in scheduled functional 
and performance testing. The Exchange may also consider other factors 
in determining the PMMs that will be required to participate in 
scheduled functional and performance testing, including average daily 
volume traded on the Exchange measured on a quarterly or monthly basis, 
or PMMs who collectively account for a certain percentage of market 
share on the Exchange. The proposed rule text does not require a 
different treatment for PMMs as compared to other market participants. 
Today, Phlx, Nasdaq and BX select market participants based on volume 
and/or market share, regardless of market making activity. The proposed 
rule text would not specifically mandate PMMs however, given the 
importance of market makers on the Exchange and the volume they 
traditionally trade, they are likely to be required to participate in 
business continuity and disaster recovery plans under the proposed rule 
change as they are today.
    The Exchange would continue to encourage all Members to connect to 
the Exchange's backup systems and to

[[Page 95218]]

participate in testing of such systems; \10\ however, certain Members 
will be obligated to participate in BC/DR Plans testing. In adopting 
the rule text of Phlx Rule 926, Nasdaq Rule 1170 and BX Rule 1170, the 
Exchange will require mandatory participation in BC/DR Plans testing by 
those Members that the Exchange reasonably determines are, taken as a 
whole, the minimum necessary for the maintenance of fair and orderly 
markets in the event of the activation of such plans on the Exchange. 
The Exchange believes that using overall participation on its markets 
(by volume and/or market share) as a measure to select Members for 
mandatory participation in BC/DR Plans testing is a reasonable means by 
which it can determine which Members are necessary for the maintenance 
of fair and orderly markets in the event of the activation of such 
plans. For each BC/DR Plans test cycle, the Exchange will select the 
top five Members on the Exchange based on the Exchange's measure of 
overall participation. The Exchange notes that when considering volume, 
it will exclude contracts traded on PrecISE[supreg].\11\ The Exchange 
has provided notice of the initial selection criteria and measurement 
period to its Members.\12\ All notices concerning BC/DR Plans testing 
will be posted on the Exchange's Web site.
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    \10\ In this regard, the Exchange will allow any Member to 
participate in the testing of the Exchange's BC/DR Plans, which is 
consistent with the BC/DR Plans. See SCI Adopting Release, supra 
note 3 at 72350. The Exchange will provide instructions on how a 
Member must inform the Exchange of its interest in participating in 
an upcoming BC/DR Plans test via the announcement of the test date. 
A Member must provide the Exchange notice of its interest to 
participate at least a week prior to the test date and must have the 
appropriate connection for testing in place.
    \11\ PrecISE is [sic] front-end order and execution management 
system for trading options and stock-option combinations.
    \12\ See ISE Gemini Circular 2016-08.
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    The Exchange is proposing to initially select Members with the 
highest levels of trading volume on the Exchange over four calendar 
months (``Measurement Period'') as mandatory testing for Members 
[sic].\13\ Specifically, the Measurement Period will be the four 
calendar months of trading immediately prior to the Exchange's 
announcement of the next BC/DR Plans test date. The Measurement Period 
will always begin at a point after the Exchange announces the criteria 
to be used in the next BC/DR Plans test. By way of example, if on 
October 6, 2017 the Exchange announced the BC/DR Plans test selection 
criteria and on March 2, 2018 the Exchange announced a BC/DR Plans test 
date of September 8, 2018, the Measurement Period used to select Member 
subject to mandatory testing would be November 2017 through February 
2018. Members not obligated to participate that wish to participate in 
this test must inform the Exchange no later than September 1, 2018, 
based on the aforementioned timeline.\14\
---------------------------------------------------------------------------

    \13\ The Exchange may change the total number of Members 
selected from time to time.
    \14\ See supra note 10.
---------------------------------------------------------------------------

    The proposed rule change is intended to provide consistency across 
the six options exchanges operated by Nasdaq, Inc. in regard to the 
standards established for the designation of Members that are required 
to participate in the Exchange's business continuity and disaster 
recovery testing. In turn, participants that are Members on multiple 
exchanges operated by Nasdaq, Inc. will be provided greater uniformity 
and ease of testing with the establishment of consistent standards 
across the multiple Nasdaq exchanges.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\15\ in general, and furthers the objectives 
of Section 6(b)(5) of the Act,\16\ in particular, in that it is 
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 regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest; and is not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The proposal will ensure that the Members 
necessary to ensure the maintenance of fair and orderly markets are 
properly designated consistent with Rule 1004 of Regulation SCI. 
Specifically, the proposal will adopt clear and objective criteria with 
respect to the designation of Members that are required to participate 
in the testing of the Exchange's BC/DR Plans, as well as appropriate 
notification regarding such designation. As set forth in the SCI 
Adopting Release, ``SROs have the authority, and legal responsibility, 
under Section 6 of the Exchange Act, to adopt and enforce rules 
(including rules to comply with Regulation SCI's requirements relating 
to BC/DR testing) applicable to their members or participants that are 
designed to, among other things, foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and 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.'' \17\ The Exchange believes 
that this proposal is consistent with such authority and legal 
responsibility.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f.
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ See SCI Adopting Release, supra note 3 at 72350.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. To 
the contrary, the proposal is not a competitive proposal but rather is 
necessary for the Exchange's compliance with Regulation SCI.

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 \18\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \19\ 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.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings

[[Page 95219]]

to determine whether the proposed rule should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ISEGemini-2016-24 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-ISEGemini-2016-24. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ISEGemini-2016-24 and should 
be submitted on or before January 17, 2017.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31117 Filed 12-23-16; 8:45 am]
 BILLING CODE 8011-01-P
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