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]
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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.
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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.
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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’’
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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).
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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.
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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
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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 (https://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 (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
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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 https://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
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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
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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]
-----------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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).
---------------------------------------------------------------------------
\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.
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\8\ See BX Rule 4626(b)(1), Phlx Rule 1015(1), and NSM Rule
4626(b)(1) for substantially similar provisions.
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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.
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\9\ See BX Rule 4626(b)(2), Phlx Rule 1015(2), and NSM Rule
4626(b)(5) for substantially similar provisions.
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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\
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\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.
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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.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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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 (https://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 (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-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