Self-Regulatory Organizations; ISE Mercury, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Harmonize Liability Caps and Related Reimbursement Requirements, 14072-14074 [2017-05218]

Download as PDF 14072 Federal Register / Vol. 82, No. 50 / Thursday, March 16, 2017 / Notices technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. Please direct your written comment to Pamela Dyson, Director/Chief Information Officer, Securities and Exchange Commission, c/o Remi PavlikSimon, 100 F Street NE., Washington, DC 20549 or send an email to: PRA_ Mailbox@sec.gov. Dated: March 13, 2017. Eduardo A. Aleman, Assistant Secretary. BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80211; File No. SR– ISEMercury–2017–04] Self-Regulatory Organizations; ISE Mercury, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Harmonize Liability Caps and Related Reimbursement Requirements March 10, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on February 27, 2017, ISE Mercury, LLC (‘‘ISE Mercury’’ 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. mstockstill on DSK3G9T082PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 705 (Limitation of Liability) to harmonize its liability caps and related reimbursement requirements with those of NASDAQ BX, Inc. (‘‘BX’’), NASDAQ PHLX LLC (‘‘Phlx’’) and NASDAQ Stock Market LLC (‘‘NSM’’ and together with BX and Phlx, the ‘‘Nasdaq Exchanges’’). The text of the proposed rule change is available on the Exchange’s Web site at www.ise.com, at the principal office 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Sep<11>2014 17:12 Mar 15, 2017 Jkt 241001 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 [FR Doc. 2017–05271 Filed 3–15–17; 8:45 am] 1 15 of the Exchange, and at the Commission’s Public Reference Room. 1. Purpose The purpose of this proposed rule change is to amend Rule 705 (Limitation of Liability) to harmonize the Exchange’s existing liability caps and related reimbursement requirements for claims under Rule 705(d) with the caps and requirements set forth in the rules of the Nasdaq Exchanges.3 The Exchange and its affiliates, International Securities Exchange, LLC and ISE Gemini, LLC (together, the ‘‘ISE Exchanges’’), were recently acquired (the ‘‘Acquisition’’) by Nasdaq, Inc. (‘‘HoldCo’’).4 In the context of the Acquisition, the ISE Exchanges are working to align certain rules with rules of the Nasdaq Exchanges in order to provide consistent standards across the six exchanges operated by HoldCo (the ‘‘HoldCo Affiliated Exchanges’’). As part of this effort, the proposal set forth below harmonizes the Exchange’s liability caps and the related reimbursement requirements with those of the Nasdaq Exchanges in order to provide uniform standards and requirements for users of the HoldCo Affiliated Exchanges.5 Rule 705 in its current form generally states that the Exchange is not liable for any losses due to the Exchange’s negligence or unintentional actions, but also provides in Rule 705(d) that notwithstanding this general limitation on liability, the Exchange may 3 See BX Rule 4626(b) and Phlx Rule 1015. See also NSM Rule 4626(b). 4 See Securities Exchange Act Release No. 78119 (June 21, 2016), 81 FR 41611 (June 27, 2016) (SR– ISE–2016–11; SR–ISEGemini–2016–05; SR– ISEMercury–2016–10). 5 International Securities Exchange, LLC and ISE Gemini, LLC will each file a proposed rule change with the Commission to adopt similar requirements. PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 compensate its members for losses resulting directly from the malfunction of the Exchange’s physical equipment, devices and/or programming. Subsections (d)(1)–(d)(3) of Rule 705 contains express conditions governing the voluntary payments made by the Exchange under these limited circumstances. Specifically, the Exchange’s payments for any and all system failures on a single trading day are capped at $250,000 under subsection (d)(1). The rule text states that for the aggregate of all claims made by all market participants related to the use of the Exchange on a single trading day, the Exchange’s payments shall not exceed $250,000. Subsection (d)(2) further provides that if the cumulative claims exceed the $250,000 cap, this amount would be proportionally allocated among all such claims. Finally, subsection (d)(3) specifies that in order for a member to be eligible to receive payment under this Rule, claims for payment must be made in writing and submitted no later than the opening of trading on the next business day after the loss. Once in receipt of a claim, the Exchange is required to verify that: (i) A valid order was accepted into the Exchange’s systems; and (ii) an Exchange system failure occurred during the execution or handling of that order. A system failure will be deemed to have occurred when there is a malfunction of the Exchange’s physical systems, devices or software. The Exchange now proposes to amend the existing rule text in Rule 705(d) to adopt the same liability caps and reimbursement requirements as the Nasdaq Exchanges.6 Proposed Rule 705(d) would provide that the Exchange may, notwithstanding the general limitations on liability contained in Rule 705(a), compensate users of the Exchange for losses directly resulting from the actual failure of the System,7 or any other Exchange quotation, transaction reporting, execution, order routing or other systems or facility to correctly process an order, quote, message, or other data, provided that the Exchange has acknowledged receipt of the order, quote, message, or data. This limited exception in proposed Rule 705(d) would be subject to certain conditions and requirements contained in proposed subsections (d)(1)–(3). Subsection (d)(1) proposes that the aggregate payments for all compensation claims made by all market participants 6 See note 4 above. means the electronic system operated by the Exchange that receives and disseminates quotes, executes orders and reports transactions. See the Constitution of ISE Mercury, Section 13.1(ee). 7 ‘‘System’’ E:\FR\FM\16MRN1.SGM 16MRN1 Federal Register / Vol. 82, No. 50 / Thursday, March 16, 2017 / Notices mstockstill on DSK3G9T082PROD with NOTICES related to the use of the Exchange during a single calendar month would not exceed the larger of $500,000, or the amount of the recovery obtained by the Exchange under any applicable insurance policy.8 Under this proposal, the Exchange will eliminate the existing $250,000 daily cap on liability and consider all such claims on a monthly basis, subject to proposed $500,000 monthly liability cap. Each Nasdaq Exchange currently analyzes total eligible liability claims on a per-month look-back basis. The Exchange’s proposal to adopt an identical claims process, in effect, would allow ISE Mercury an increased capability to compensate a market participant up to the monthly cap of $500,000 even though the losses occurred on a single day or were across multiple days for a single participant. Proposed subsection (d)(2) specifies how the reimbursement funds would be allocated in the event all of the compensation claims submitted during a single calendar month exceed the $500,000 monthly cap. Specifically, if all of the claims arising out of the use of the Exchange cannot be fully satisfied because in the aggregate they exceed the limitations provided for in the Rule ($500,000), then the maximum permitted amount would be proportionally allocated among all such claims arising during a single calendar month.9 This is substantially similar to the existing process where the maximum amount is proportionally allocated among all such claims, except it would be for all claims arising during a one-month period under the proposed rule change rather than during a single trading day under the existing Rule. Finally, proposed subsection (d)(3) specifies the requirements and procedures applicable to the submission of reimbursement claims. Specifically, all claims for compensation must be submitted in writing no later than 12:00 p.m. ET on the next business day following the day on which the use of the Exchange gave rise to such claims.10 As such, the Exchange is proposing to extend the deadline to submit compensation claims from the opening of trading on the next business day to 12:00 p.m. ET. The Exchange believes that the extension of time to make such compensation claims increases the 8 See BX Rule 4626(b)(1), Phlx Rule 1015(1), and NSM Rule 4626(b)(1) for substantially similar provisions. 9 See BX Rule 4626(b)(2), Phlx Rule 1015(2), and NSM Rule 4626(b)(5) for substantially similar provisions. 10 See BX Rule 4626(b)(3) and Phlx Rule 1015(3) for substantially similar provisions. See also NSM Rule 4626(b)(6). VerDate Sep<11>2014 17:12 Mar 15, 2017 Jkt 241001 ability of market participants to submit claims in a timely manner. Proposed subsection (d)(3) also states that nothing in the Rule obligates the Exchange to seek recovery under any applicable insurance policy. If the Exchange does seek and receive an insurance recovery that is larger than $500,000, the amount of that recovery would limit the reimbursement funds available for the incident supporting the recovery to the greater recovery amount.11 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,12 in general, and furthers the objectives of Section 6(b)(5) of the Act,13 in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest. The proposal supports this policy by establishing a fair and transparent process by which the Exchange can accommodate claims for reimbursement for the failure of specified systems in specified facilities and under specified conditions. The Exchange believes that its proposal to amend Rule 705(d) will continue to promote fairness in the marketplace in situations where one or more firm’s claim results from a problem in a function performed by the Exchange’s trading system that is solely the fault of the Exchange. As noted above, the proposal would allow the Exchange an increased capability to compensate a market participant up to the monthly cap of $500,000 even though the losses occurred on a single day or were across multiple days for a single participant. Furthermore, the proposed expansion of time to make such compensation claims would increase the ability of market participants to submit claims in a timely manner. Lastly, the proposed rule change is intended to align the liability caps and compensation claims requirements with the caps and requirements currently provided by the Nasdaq Exchanges in order to provide consistent rules across the six HoldCo Affiliated Exchanges.14 11 There are no other practical differences between the Exchange’s existing reimbursement rule and this proposal than as described above. Specifically these differences are: The liability caps (i.e. the greater of $500,000 or, if the Exchange opts to seek recovery, the recovery amount under any applicable insurance policy), the look-back analysis period of one month, and the later claims deadline of 12:00 p.m. ET. 12 15 U.S.C. 78f(b). 13 15 U.S.C. 78f(b)(5). 14 See note 4 above. PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 14073 Consistent rules, in turn, would simplify the regulatory requirements for members of the Exchange that are also participants on the Nasdaq Exchanges. The Exchange believes that the proposed rule change would provide greater harmonization among similar rules of the HoldCo Affiliated Exchanges, resulting in greater uniformity and more efficient regulatory compliance. As such, the proposed rule change would foster cooperation and coordination with persons engaged in facilitating transactions in securities and would remove impediments to and perfect the mechanism of a free and open market and a national market system. 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 because all members would be subject to the same liability caps and reimbursement requirements. The proposed rule change is designed to provide greater harmonization among similar rules across the six HoldCo Affiliated Exchanges, resulting in more efficient regulatory compliance for common members. 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 15 and subparagraph (f)(6) of Rule 19b–4 thereunder.16 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may 15 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. 16 17 E:\FR\FM\16MRN1.SGM 16MRN1 14074 Federal Register / Vol. 82, No. 50 / Thursday, March 16, 2017 / Notices 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. 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: mstockstill on DSK3G9T082PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– ISEMercury–2017–04 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–ISEMercury–2017–04. 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 (http://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 VerDate Sep<11>2014 17:12 Mar 15, 2017 Jkt 241001 available publicly. All submissions should refer to File Number SR– ISEMercury-2017–04, and should be submitted on or before April 6, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–05218 Filed 3–15–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80216; File No. SR– NASDAQ–2017–028] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 4703 and Rule 4753 March 10, 2017. 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 March 8, 2017, The NASDAQ Stock Market LLC (‘‘Nasdaq’’ 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 Substance of the Proposed Rule Change The Exchange proposes to amend Rule 4703 (Order Attributes) to specify the behavior of locked or crossed Orders during the Nasdaq Opening or Closing Cross. Nasdaq also proposes to make a corresponding change to Rule 4753, which governs the Halt Cross. The text of the proposed rule change is available on the Exchange’s Web site at http://nasdaq.cchwallstreet.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 17 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 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 Nasdaq proposes to amend Rule 4703 (Order Attributes) to specify the behavior of locked or crossed Orders during the Nasdaq Opening or Closing Cross in light of recent changes to its Post-Only Order functionality. Nasdaq also proposes to make a corresponding change to Rule 4753, which governs the Halt Cross. Rule 4703(l) describes the application of the Nasdaq Opening and Closing Cross to Nasdaq Order Types. Rule 4703(l) states that all Order Types, except Supplemental Orders, Retail Orders, and RPI Orders participate in the Nasdaq Opening Cross and/or the Nasdaq Closing Cross if the Order has a Time-in-Force that would cause the Order to be in effect at the time of the Nasdaq Opening Cross and/or Nasdaq Closing Cross. Market on Open (‘‘MOO’’) Orders, Limit On Open (‘‘LOO’’) Orders, and IOI Orders participate in the Nasdaq Opening Cross in the manner specified in Rule 4752 (Opening Process). Other Order Types eligible to participate in the Nasdaq Opening Cross operate as ‘‘Market Hours Orders’’ or ‘‘Open Eligible Interest’’ as specified in Rule 4752. MOC Orders, LOC Orders and IO Orders participate in the Nasdaq Closing Cross in the manner specified in Rule 4754 (Nasdaq Closing Cross). Other Order Types eligible to participate in the Nasdaq Closing Cross operate as ‘‘Close Eligible Interest’’ in the manner specified in Rule 4754. Nasdaq proposes to add language to Rule 4703(l) to specify the treatment of Orders that are locked or crossed during the Opening or Closing Cross. Specifically, for purposes of selecting the Nasdaq Opening Cross or Closing Cross price, an Order to buy (sell) that is locked or crossed at its non-displayed price by a Post-Only Order on the Nasdaq Book shall be deemed to have a price at one minimum price increment below (above) the price of the Post-Only Order. This functionality will impact Non-Displayed Orders, Post-Only Orders, Price to Comply Orders and Midpoint Peg Post-Only Orders when E:\FR\FM\16MRN1.SGM 16MRN1

Agencies

[Federal Register Volume 82, Number 50 (Thursday, March 16, 2017)]
[Notices]
[Pages 14072-14074]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-05218]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80211; File No. SR-ISEMercury-2017-04]


Self-Regulatory Organizations; ISE Mercury, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Harmonize 
Liability Caps and Related Reimbursement Requirements

March 10, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 27, 2017, ISE Mercury, LLC (``ISE Mercury'' 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 Rule 705 (Limitation of Liability) 
to harmonize its liability caps and related reimbursement requirements 
with those of NASDAQ BX, Inc. (``BX''), NASDAQ PHLX LLC (``Phlx'') and 
NASDAQ Stock Market LLC (``NSM'' and together with BX and Phlx, the 
``Nasdaq Exchanges'').
    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 purpose of this proposed rule change is to amend Rule 705 
(Limitation of Liability) to harmonize the Exchange's existing 
liability caps and related reimbursement requirements for claims under 
Rule 705(d) with the caps and requirements set forth in the rules of 
the Nasdaq Exchanges.\3\ The Exchange and its affiliates, International 
Securities Exchange, LLC and ISE Gemini, LLC (together, the ``ISE 
Exchanges''), were recently acquired (the ``Acquisition'') by Nasdaq, 
Inc. (``HoldCo'').\4\ In the context of the Acquisition, the ISE 
Exchanges are working to align certain rules with rules of the Nasdaq 
Exchanges in order to provide consistent standards across the six 
exchanges operated by HoldCo (the ``HoldCo Affiliated Exchanges''). As 
part of this effort, the proposal set forth below harmonizes the 
Exchange's liability caps and the related reimbursement requirements 
with those of the Nasdaq Exchanges in order to provide uniform 
standards and requirements for users of the HoldCo Affiliated 
Exchanges.\5\
---------------------------------------------------------------------------

    \3\ See BX Rule 4626(b) and Phlx Rule 1015. See also NSM Rule 
4626(b).
    \4\ See Securities Exchange Act Release No. 78119 (June 21, 
2016), 81 FR 41611 (June 27, 2016) (SR-ISE-2016-11; SR-ISEGemini-
2016-05; SR-ISEMercury-2016-10).
    \5\ International Securities Exchange, LLC and ISE Gemini, LLC 
will each file a proposed rule change with the Commission to adopt 
similar requirements.
---------------------------------------------------------------------------

    Rule 705 in its current form generally states that the Exchange is 
not liable for any losses due to the Exchange's negligence or 
unintentional actions, but also provides in Rule 705(d) that 
notwithstanding this general limitation on liability, the Exchange may 
compensate its members for losses resulting directly from the 
malfunction of the Exchange's physical equipment, devices and/or 
programming. Subsections (d)(1)-(d)(3) of Rule 705 contains express 
conditions governing the voluntary payments made by the Exchange under 
these limited circumstances. Specifically, the Exchange's payments for 
any and all system failures on a single trading day are capped at 
$250,000 under subsection (d)(1). The rule text states that for the 
aggregate of all claims made by all market participants related to the 
use of the Exchange on a single trading day, the Exchange's payments 
shall not exceed $250,000. Subsection (d)(2) further provides that if 
the cumulative claims exceed the $250,000 cap, this amount would be 
proportionally allocated among all such claims. Finally, subsection 
(d)(3) specifies that in order for a member to be eligible to receive 
payment under this Rule, claims for payment must be made in writing and 
submitted no later than the opening of trading on the next business day 
after the loss. Once in receipt of a claim, the Exchange is required to 
verify that: (i) A valid order was accepted into the Exchange's 
systems; and (ii) an Exchange system failure occurred during the 
execution or handling of that order. A system failure will be deemed to 
have occurred when there is a malfunction of the Exchange's physical 
systems, devices or software.
    The Exchange now proposes to amend the existing rule text in Rule 
705(d) to adopt the same liability caps and reimbursement requirements 
as the Nasdaq Exchanges.\6\ Proposed Rule 705(d) would provide that the 
Exchange may, notwithstanding the general limitations on liability 
contained in Rule 705(a), compensate users of the Exchange for losses 
directly resulting from the actual failure of the System,\7\ or any 
other Exchange quotation, transaction reporting, execution, order 
routing or other systems or facility to correctly process an order, 
quote, message, or other data, provided that the Exchange has 
acknowledged receipt of the order, quote, message, or data. This 
limited exception in proposed Rule 705(d) would be subject to certain 
conditions and requirements contained in proposed subsections (d)(1)-
(3).
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    \6\ See note 4 above.
    \7\ ``System'' means the electronic system operated by the 
Exchange that receives and disseminates quotes, executes orders and 
reports transactions. See the Constitution of ISE Mercury, Section 
13.1(ee).
---------------------------------------------------------------------------

    Subsection (d)(1) proposes that the aggregate payments for all 
compensation claims made by all market participants

[[Page 14073]]

related to the use of the Exchange during a single calendar month would 
not exceed the larger of $500,000, or the amount of the recovery 
obtained by the Exchange under any applicable insurance policy.\8\ 
Under this proposal, the Exchange will eliminate the existing $250,000 
daily cap on liability and consider all such claims on a monthly basis, 
subject to proposed $500,000 monthly liability cap. Each Nasdaq 
Exchange currently analyzes total eligible liability claims on a per-
month look-back basis. The Exchange's proposal to adopt an identical 
claims process, in effect, would allow ISE Mercury an increased 
capability to compensate a market participant up to the monthly cap of 
$500,000 even though the losses occurred on a single day or were across 
multiple days for a single participant.
---------------------------------------------------------------------------

    \8\ See BX Rule 4626(b)(1), Phlx Rule 1015(1), and NSM Rule 
4626(b)(1) for substantially similar provisions.
---------------------------------------------------------------------------

    Proposed subsection (d)(2) specifies how the reimbursement funds 
would be allocated in the event all of the compensation claims 
submitted during a single calendar month exceed the $500,000 monthly 
cap. Specifically, if all of the claims arising out of the use of the 
Exchange cannot be fully satisfied because in the aggregate they exceed 
the limitations provided for in the Rule ($500,000), then the maximum 
permitted amount would be proportionally allocated among all such 
claims arising during a single calendar month.\9\ This is substantially 
similar to the existing process where the maximum amount is 
proportionally allocated among all such claims, except it would be for 
all claims arising during a one-month period under the proposed rule 
change rather than during a single trading day under the existing Rule.
---------------------------------------------------------------------------

    \9\ See BX Rule 4626(b)(2), Phlx Rule 1015(2), and NSM Rule 
4626(b)(5) for substantially similar provisions.
---------------------------------------------------------------------------

    Finally, proposed subsection (d)(3) specifies the requirements and 
procedures applicable to the submission of reimbursement claims. 
Specifically, all claims for compensation must be submitted in writing 
no later than 12:00 p.m. ET on the next business day following the day 
on which the use of the Exchange gave rise to such claims.\10\ As such, 
the Exchange is proposing to extend the deadline to submit compensation 
claims from the opening of trading on the next business day to 12:00 
p.m. ET. The Exchange believes that the extension of time to make such 
compensation claims increases the ability of market participants to 
submit claims in a timely manner. Proposed subsection (d)(3) also 
states that nothing in the Rule obligates the Exchange to seek recovery 
under any applicable insurance policy. If the Exchange does seek and 
receive an insurance recovery that is larger than $500,000, the amount 
of that recovery would limit the reimbursement funds available for the 
incident supporting the recovery to the greater recovery amount.\11\
---------------------------------------------------------------------------

    \10\ See BX Rule 4626(b)(3) and Phlx Rule 1015(3) for 
substantially similar provisions. See also NSM Rule 4626(b)(6).
    \11\ There are no other practical differences between the 
Exchange's existing reimbursement rule and this proposal than as 
described above. Specifically these differences are: The liability 
caps (i.e. the greater of $500,000 or, if the Exchange opts to seek 
recovery, the recovery amount under any applicable insurance 
policy), the look-back analysis period of one month, and the later 
claims deadline of 12:00 p.m. ET.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\12\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\13\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest. The proposal supports this policy by establishing a fair and 
transparent process by which the Exchange can accommodate claims for 
reimbursement for the failure of specified systems in specified 
facilities and under specified conditions. The Exchange believes that 
its proposal to amend Rule 705(d) will continue to promote fairness in 
the marketplace in situations where one or more firm's claim results 
from a problem in a function performed by the Exchange's trading system 
that is solely the fault of the Exchange. As noted above, the proposal 
would allow the Exchange an increased capability to compensate a market 
participant up to the monthly cap of $500,000 even though the losses 
occurred on a single day or were across multiple days for a single 
participant. Furthermore, the proposed expansion of time to make such 
compensation claims would increase the ability of market participants 
to submit claims in a timely manner.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Lastly, the proposed rule change is intended to align the liability 
caps and compensation claims requirements with the caps and 
requirements currently provided by the Nasdaq Exchanges in order to 
provide consistent rules across the six HoldCo Affiliated 
Exchanges.\14\ Consistent rules, in turn, would simplify the regulatory 
requirements for members of the Exchange that are also participants on 
the Nasdaq Exchanges. The Exchange believes that the proposed rule 
change would provide greater harmonization among similar rules of the 
HoldCo Affiliated Exchanges, resulting in greater uniformity and more 
efficient regulatory compliance. As such, the proposed rule change 
would foster cooperation and coordination with persons engaged in 
facilitating transactions in securities and would remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system.
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    \14\ See note 4 above.
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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 because all members would be 
subject to the same liability caps and reimbursement requirements. The 
proposed rule change is designed to provide greater harmonization among 
similar rules across the six HoldCo Affiliated Exchanges, resulting in 
more efficient regulatory compliance for common members.

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 \15\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \16\ 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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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may

[[Page 14074]]

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.

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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-ISEMercury-2017-04 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISEMercury-2017-04. 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 (http://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-ISEMercury-2017-04, and 
should be submitted on or before April 6, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-05218 Filed 3-15-17; 8:45 am]
BILLING CODE 8011-01-P