Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Delay the Implementation of Simultaneous Complex Order Auctions, 20405-20408 [2017-08702]

Download as PDF Federal Register / Vol. 82, No. 82 / Monday, May 1, 2017 / Notices srobinson on DSK5SPTVN1PROD with NOTICES Notice’’) pursuant to Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, entitled the Payment, Clearing, and Settlement Supervision Act of 2010 (‘‘Clearing Supervision Act’’) 1 and Rule 19b–4(n)(1)(i) under the Securities Exchange Act of 1934 (‘‘Exchange Act’’).2 The Advance Notice was published for comment in the Federal Register on March 15, 2017.3 The Commission received one comment on the proposal contained in the Advance Notice.4 Section 806(e)(1)(G) of the Clearing Supervision Act provides that FICC may implement the changes if it has not received an objection to the proposed changes within 60 days of the later of (i) the date that the Commission receives the Advance Notice or (ii) the date that any additional information requested by the Commission is received,5 unless extended as described below. Pursuant to Section 806(e)(1)(H) of the Clearing Supervision Act, the Commission may extend the review period of an advance notice for an additional 60 days, if the changes proposed in the advance notice raise novel or complex issues, subject to the Commission providing the clearing agency with prompt written notice of the extension.6 1 12 U.S.C. 5465(e)(1). The Financial Stability Oversight Council designated FICC a systemically important financial market utility on July 18, 2012. See Financial Stability Oversight Council 2012 Annual Report, Appendix A, http:// www.treasury.gov/initiatives/fsoc/Documents/ 2012%20Annual%20Report.pdf. Therefore, FICC is required to comply with the Payment, Clearing and Settlement Supervision Act and file advance notices with the Commission. See 12 U.S.C. 5465(e). 2 17 CFR 240.19b–4(n)(1)(i). 3 Securities Exchange Act Release No. 80191 (March 9, 2017), 82 FR 13876 (March 15, 2017) (SR– FICC–2017–802). FICC also filed a related proposed rule change (SR–FICC–2017–002) with the Commission pursuant to Section 19(b)(1) of the Exchange Act and Rule 19b–4 thereunder, seeking approval of changes to its rules necessary to implement the Advance Notice (‘‘Proposed Rule Change’’). 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b– 4, respectively. The Proposed Rule Change was published in the Federal Register on March 20, 2017. Securities Exchange Act Release No. 80234 (March 14, 2017), 82 FR 14401 (March 20, 2017) (SR–FICC–2017–002). 4 See letter from Robert E. Pooler, Chief Financial Officer, Ronin Capital LLC, dated April 10, 2017, to Robert W. Errett, Deputy Secretary, Commission, available at https://www.sec.gov/comments/sr-ficc2017-002/ficc2017002-1694243-149787.pdf. Because the proposals contained in the Advance Notice and Proposed Rule Change raise the same substantive issues, supra note 3, the Commission is considering all public comments received on the proposal regardless of whether the comments were submitted to the Advance Notice or the Proposed Rule Change. 5 12 U.S.C. 5465(e)(1)(G). 6 12 U.S.C. 5465(e)(1)(H). VerDate Sep<11>2014 20:35 Apr 28, 2017 Jkt 241001 Here, as the Commission has not requested any additional information, the date that is 60 days after FICC filed the Advance Notice with the Commission is April 30, 2017. However, the Commission finds the Advance Notice complex because the material aspects of the proposal are detailed, substantial, and are interrelated with other risk management practices at FICC, and therefore finds it appropriate to extend the review period of the Advance Notice for an additional 60 days under Section 806(e)(1)(H) of the Clearing Supervision Act.7 Accordingly, the Commission, pursuant to Section 806(e)(1)(H) of the Clearing Supervision Act,8 extends the review period for an additional 60 days so that the Commission shall have until June 29, 2017 to issue an objection or non-objection to the Advance Notice (File No. SR–FICC–2017–802). By the Commission. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–08698 Filed 4–28–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80525; File No. SR–ISE– 2017–33] Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Delay the Implementation of Simultaneous Complex Order Auctions April 25, 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 April 17, 2017, Nasdaq ISE, LLC (‘‘ISE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to delay implementation of simultaneous complex order auctions in the same 7 Id. 8 Id. 1 15 2 17 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00093 Fmt 4703 Sfmt 4703 20405 complex strategy in connection with a system migration to Nasdaq INET technology. 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 ISE offers various complex order auctions that are designed to provide members an opportunity to trade and to potentially receive price improvement for complex orders that are entered on the Exchange, including an ‘‘Exposure’’ auction pursuant to Rule 722(b)(3)(iii), a Complex Price Improvement Mechanism (‘‘PIM’’) pursuant to Supplementary Material .09 to Rule 723, a Complex Facilitation Mechanism pursuant to Supplementary Material .08 to Rule 716, and Complex Solicited Order Mechanism also pursuant to Supplementary Material .08 to Rule 716. The purpose of the proposed rule change is to delay implementation of simultaneous complex order auctions in the same complex strategy in connection with a system migration to Nasdaq INET technology.3 No other changes to the complex order auction mechanisms are being proposed, and these auctions will continue to function as they do today, with the exception 3 See Securities Exchange Act Release No. 80432 (April 11, 2017 (SR–ISE–2017–03) (Order Approving Proposed Rule Change, as Modified by Amendment No. 1, to Amend Various Rules in Connection with a System Migration to Nasdaq INET Technology). INET is the proprietary core technology utilized across Nasdaq’s global markets and utilized on The NASDAQ Options Market LLC (‘‘NOM’’), NASDAQ PHLX LLC (‘‘Phlx’’), NASDAQ BX, Inc. (‘‘BX’’), and introduced recently on Nasdaq GEMX, LLC (‘‘GEMX’’). The migration of ISE to the INET architecture would result in higher performance, scalability, and more robust architecture. E:\FR\FM\01MYN1.SGM 01MYN1 20406 Federal Register / Vol. 82, No. 82 / Monday, May 1, 2017 / Notices that after the migration to the INET platform a member will not be permitted to initiate a complex order auction in a particular complex strategy if another complex order auction is already ongoing in that complex strategy. With this proposed change, the Exchange will handle multiple complex order auctions in the same complex strategy in a manner that is consistent with implementation on other options exchanges,4 and will reintroduce simultaneous complex order auctions in the same complex strategy at a later date within one year of this filing. Today, only one PIM may be ongoing at any given time in a series or complex strategy, and PIMs are not permitted to queue or overlap in any manner; 5 however, there are no similar restrictions for non-PIM auctions, and any such auctions may be processed concurrently, including in parallel with a PIM auction. For example, while the trading system would prohibit a member from entering a PIM auction when another PIM auction is already ongoing in a complex strategy, if there was an Exposure auction already running a member would be able to start a PIM, Facilitation, Solicitation, or even another Exposure auction in that strategy. This allows maximum ability of members to express their trading intent on the Exchange by permitting multiple complex order auctions in the same complex strategy to be ongoing at any particular time. Nevertheless, other options exchanges do not offer the same functionality for simultaneous complex order auctions in a complex strategy provided by the Exchange. The Exchange’s affiliate, Nasdaq Phlx, LLC (‘‘Phlx’’), for example, does not allow the initiation of a Complex Order Live Auction (‘‘COLA’’) when there is already a Price Improvement XL (‘‘PIXL’’) auction already ongoing in the strategy.6 Similarly, MIAX can limit the frequency of Complex Auctions by establishing a minimum time period between such auctions,7 and permits only one Complex Auction per strategy to be in progress at any particular time.8 In order to give the Exchange additional time to develop and test this functionality, the Exchange proposes to 4 See infra notes 6–8 and accompanying text. Supplementary Material .04 to Rule 723. 6 See Phlx Rule 1098(e)(2). Phlx would also similarly not allow a PIXL auction to be initiated if there is a COLA already ongoing in the complex strategy. 7 See MIAX Rule 518(d)(2). 8 See Securities Exchange Act Release Nos. 78620 (August 18, 2016), 81 FR 58769, 58799 (August 25, 2016) (Notice); 79072 (October 7, 2016), 81 FR 71131 (October 14, 2016)) (Approval) (SR–MIAX– 2016–26). srobinson on DSK5SPTVN1PROD with NOTICES 5 See VerDate Sep<11>2014 20:35 Apr 28, 2017 Jkt 241001 delay the implementation of simultaneous complex order auctions in the same complex strategy in connection with the migration of the trading system to the INET platform. With the proposed change, only one complex order auction may be ongoing at any given time in a complex strategy, and such auctions will not queue or overlap in any manner. For PIM, Facilitation, or Solicitation auctions, the Exchange will reject a complex order auction of the same or different auction type in a complex strategy that is initiated while another complex order auction is ongoing in that complex strategy.9 In the case where a complex order auction has already been initiated in a complex strategy, an Exposure auction for an order for that strategy will not be initiated and the order will be processed as a complex order that is not marked for price improvement,10 instead of rejecting the complex order. If the member requested the order to be cancelled after the exposure period, then the complex order will be cancelled back to the member. Simultaneous complex order auctions in the same complex strategy will be subsequently rolled out on the INET trading system within one year of the date of filing of this proposed rule change. The Exchange is staging the replatform of its trading system to provide maximum benefit to its members while also ensuring a successful rollout. This delay in implementing simultaneous complex order auctions in the same complex strategy will provide the Exchange additional time to test and implement this functionality on the INET platform. The Exchange believes that implementing simultaneous complex order auctions in the same complex strategy at a later date will not have a significant impact on members as it is rare for multiple complex order auctions in a complex strategy to be ongoing at a particular time. This is particularly the case today due to the recent decrease in the Exchange’s auction timers to 100 9 The rejection message sent to the member will contain an appropriate reason code indicating that the auction was rejected due to another ongoing complex order auction in the same complex strategy. 10 Currently, an Exposure order auction is automatically initiated when a member submits an eligible complex order that is marked for price improvement. See Rule 722(b)(3)(iii). Pursuant to Rule 722(b)(3)(iii), complex orders may be marked for price improvement, and if so marked, the complex order may be exposed on the complex order book for a period of up to one-second before being automatically executed. Members can also request that their complex orders be cancelled after the exposure period. PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 milliseconds.11 The Exchange notes that simultaneous complex order auctions in a strategy only occur approximately 0.5% of the time that an auction runs on the Exchange. The Exchange therefore believes that the impact on members will be insignificant, and if a member does have auction eligible interest to execute when another complex order auction is ongoing, the member can either re-submit that order to the Exchange, after the auction has concluded, or submit it to another options market that provides similar auction functionality. In this regard, the Exchange notes that its market data feeds provide information to members about when a complex order auction is ongoing, and members can therefore use this information to make appropriate routing decisions based on applicable market conditions. Implementation The proposed rule change will be implemented on the Exchange’s new INET trading system, which is scheduled to launch in Q2 2017.12 The INET migration will take place on a symbol by symbol basis 13 as specified by the Exchange in a notice to be provided to Members.14 The Exchange is proposing to implement this rule change on the INET platform as the symbols migrate to that platform. As such, the proposed change will be rolled out in symbols as they migrate to the INET platform, at which point only one complex order auction will be permitted to be ongoing in a complex strategy. Members will still be able to use all of the Exchange’s complex order auctions, provided that there is not another auction already ongoing in the complex strategy. The Exchange will issue an Options Trader Alert to all members notifying them that simultaneous complex order auctions will no longer be available with the symbol migration to INET. The Exchange proposes to launch the simultaneous complex order auction functionality on the INET platform within one year from the date 11 See Securities Exchange Act Release No. 79733 (January 4, 2017), 82 FR 3055 (January 10, 2017) (SR–ISE–2016–26) (permitting the Exchange to determine auction timers for PIM, Facilitation, and Solicitation within a range of 100 milliseconds and one second). Each of these auction timers are currently set to 100 milliseconds—i.e., the bottom of the range approved in the filing. Exposure auctions can be any duration up to one second (See Rule 722(b)(3)), and are also currently set to 100 milliseconds. 12 See supra note 3. 13 When a symbol is migrated to INET, all strikes and strategies will migrate with that symbol. 14 The Exchange will issue an Options Trader Alert prior to the migration and will specify the dates that symbols will migrate to the INET platform. E:\FR\FM\01MYN1.SGM 01MYN1 Federal Register / Vol. 82, No. 82 / Monday, May 1, 2017 / Notices srobinson on DSK5SPTVN1PROD with NOTICES of filing of this rule change to be announced in an Options Trader Alert. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6(b) of the Act.15 In particular, the proposal is consistent with Section 6(b)(5) of the Act,16 because it is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest. The Exchange believes that the proposed rule change is consistent with the Act as it will provide additional time for the Exchange to rebuild this technology on the INET platform. By delaying the implementation of simultaneous complex order auctions in a complex strategy, the Exchange will have additional time to test and implement this functionality. The Exchange will provide members with ample notice of the delayed implementation of this functionality in an Options Trader Alert, and will continue to provide notifications to members to ensure clarity about the availability of this functionality with the symbol migration. The Exchange will also issue an Options Trader Alert indicating when simultaneous complex order auctions in a complex strategy will become available on the INET platform. The Exchange does not anticipate that the proposed rule change will have any meaningful impact with respect to members’ ability to execute complex order auctions as similar restrictions are already in place on other options exchanges.17 Simultaneous complex order auctions in a complex strategy are rare, and therefore the vast majority of the time members will be able to enter a complex order auction notwithstanding the temporary delay of the implementation of concurrent auctions. With respect to Exposure auctions, in the case where another complex order auction in the same strategy has already been initiated, the Exchange proposes to allow the complex order to continue to be processed without an auction in the same manner as complex orders that are not marked for price improvement. If U.S.C. 78f(b). U.S.C. 78f(b)(5). 17 See supra notes 6–8 and accompanying text. the member has marked the complex order to be cancelled after the exposure period, however, the Exchange will cancel the order back to the member consistent with that instruction. If the member is not able to initiate a complex order auction because another complex order auction in the same strategy has been initiated, the member may either re-initiate the auction after the auction concludes or submit the order to another options market that offers similar functionality. Thus, members will be able to continue to express their trading intent regardless of the proposed delay in concurrent auction functionality. When the simultaneous complex order auction functionality is rebuilt and appropriately tested, the Exchange will then reintroduce this functionality. B. Self-Regulatory Organization’s Statement on Burden on Competition In accordance with Section 6(b)(8) of the Act,18 the Exchange does not believe that the proposed rule change will impose any burden on intermarket or intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is designed to prevent simultaneous complex order auctions in a complex strategy in connection with the migration of the trading system to INET technology, and is not designed to have any significant competitive impact. Similar restrictions are already in place on other options exchanges.19 The Exchange does not believe that the proposed rule change will impose any burden on intra-market competition because all Members uniformly will not be able to initiate simultaneous auctions in the same complex order strategy. 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 15 15 16 15 VerDate Sep<11>2014 20:35 Apr 28, 2017 Jkt 241001 18 15 U.S.C. 78f(b)(8). supra notes 6–8 and accompanying text. 19 See PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 20407 19(b)(3)(A)(iii) of the Act 20 and subparagraph (f)(6) of Rule 19b–4 thereunder.21 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. 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– ISE–2017–33 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–ISE–2017–33. 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 20 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. 21 17 E:\FR\FM\01MYN1.SGM 01MYN1 20408 Federal Register / Vol. 82, No. 82 / Monday, May 1, 2017 / Notices 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–ISE– 2017–33 and should be submitted on or before May 22, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–08702 Filed 4–28–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Submission for OMB Review; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE., Washington, DC 20549–2736. srobinson on DSK5SPTVN1PROD with NOTICES Extension: Rule 17f–7, SEC File No. 270–470, OMB Control No. 3235–0529. Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3521) (‘‘Paperwork Reduction Act’’), the Securities and Exchange Commission (the ‘‘Commission’’) has submitted to the Office of Management and Budget (‘‘OMB’’) a request for extension of the previously approved collections of information discussed below. Rule 17f–7 (17 CFR 270.17f–7) permits a fund under certain conditions to maintain its foreign assets with an eligible securities depository, which has to meet minimum standards for a depository. The fund or its investment adviser generally determines whether the depository complies with those requirements based on information provided by the fund’s primary custodian (a bank that acts as global custodian). The depository custody arrangement also must meet certain conditions. The fund or its adviser must receive from the primary custodian (or its agent) an initial risk analysis of the 22 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 20:35 Apr 28, 2017 Jkt 241001 depository arrangements, and the fund’s contract with its primary custodian must state that the custodian will monitor risks and promptly notify the fund or its adviser of material changes in risks. The primary custodian and other custodians also are required to agree to exercise at least reasonable care, prudence, and diligence. The collection of information requirements in rule 17f–7 are intended to provide workable standards that protect funds from the risks of using foreign securities depositories while assigning appropriate responsibilities to the fund’s primary custodian and investment adviser based on their capabilities. The requirement that the foreign securities depository meet specified minimum standards is intended to ensure that the depository is subject to basic safeguards deemed appropriate for all depositories. The requirement that the fund or its adviser must receive from the primary custodian (or its agent) an initial risk analysis of the depository arrangements, and that the fund’s contract with its primary custodian must state that the custodian will monitor risks and promptly notify the fund or its adviser of material changes in risks, is intended to provide essential information about custody risks to the fund’s investment adviser as necessary for it to approve the continued use of the depository. The requirement that the primary custodian agree to exercise reasonable care is intended to provide assurances that its services and the information it provides will meet an appropriate standard of care. The staff estimates that each of approximately 992 investment advisers 1 will make an average of 8 responses annually under the rule to address depository compliance with minimum requirements, any indemnification or insurance arrangements, and reviews of risk analyses or notifications. The staff estimates each response will take 6 hours, requiring a total of approximately 48 hours for each adviser.2 Thus the total annual burden associated with these requirements of the rule is approximately 47,616 hours.3 The staff further estimates that during each year, each of approximately 15 global custodians will make an average of 4 responses to analyze custody risks and 1 In October 2016, Commission staff estimated that, as of June 2016, 992 investment advisers managed or sponsored open-end registered funds (including exchange-traded funds) and closed-end registered funds. 2 8 responses per adviser × 6 hours per response = 48 hours per adviser. 3 992 advisers × 48 hours per adviser = 47,616 hours. PO 00000 Frm 00096 Fmt 4703 Sfmt 9990 provide notice of any material changes to custody risk under the rule. The staff estimates that each response will take 260 hours, requiring approximately 1,040 hours annually per global custodian.4 Thus the total annual burden associated with these requirements is approximately 15,600 hours.5 The staff estimates that the total annual hour burden associated with all collection of information requirements of the rule is therefore 63,216 hours.6 The estimate of average burden hours is made solely for the purposes of the Paperwork Reduction Act and is not derived from a comprehensive or even a representative survey or study of the costs of Commission rules and forms. Compliance with the collection of information requirements of the rule is necessary to obtain the benefit of relying on the rule’s permission for funds to maintain their assets in foreign custodians. The information provided under rule 17f–7 will not be kept confidential. 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 OMB control number. The public may view the background documentation for this information collection at the following Web site, www.reginfo.gov. Comments should be directed to: (i) Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503, or by sending an email to: Shagufta_ Ahmed@omb.eop.gov; and (ii) Pamela Dyson, Director/Chief Information Officer, Securities and Exchange Commission, c/o Remi Pavlik-Simon, 100 F Street NE., Washington, DC 20549 or send an email to: PRA_Mailbox@ sec.gov. Comments must be submitted to OMB within 30 days of this notice. Dated: April 25, 2017. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–08763 Filed 4–28–17; 8:45 am] BILLING CODE 8011–01–P 4 260 hours per response × 4 responses per global custodian = 1,040 hours per global custodian. 5 15 global custodians × 1,040 hours per global custodian = 15,600 hours. 6 47,616 hours + 15,600 hours = 63,216 hours. E:\FR\FM\01MYN1.SGM 01MYN1

Agencies

[Federal Register Volume 82, Number 82 (Monday, May 1, 2017)]
[Notices]
[Pages 20405-20408]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08702]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80525; File No. SR-ISE-2017-33]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Delay the 
Implementation of Simultaneous Complex Order Auctions

April 25, 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 April 17, 2017, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to delay implementation of simultaneous 
complex order auctions in the same complex strategy in connection with 
a system migration to Nasdaq INET technology.
    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
    ISE offers various complex order auctions that are designed to 
provide members an opportunity to trade and to potentially receive 
price improvement for complex orders that are entered on the Exchange, 
including an ``Exposure'' auction pursuant to Rule 722(b)(3)(iii), a 
Complex Price Improvement Mechanism (``PIM'') pursuant to Supplementary 
Material .09 to Rule 723, a Complex Facilitation Mechanism pursuant to 
Supplementary Material .08 to Rule 716, and Complex Solicited Order 
Mechanism also pursuant to Supplementary Material .08 to Rule 716.
    The purpose of the proposed rule change is to delay implementation 
of simultaneous complex order auctions in the same complex strategy in 
connection with a system migration to Nasdaq INET technology.\3\ No 
other changes to the complex order auction mechanisms are being 
proposed, and these auctions will continue to function as they do 
today, with the exception

[[Page 20406]]

that after the migration to the INET platform a member will not be 
permitted to initiate a complex order auction in a particular complex 
strategy if another complex order auction is already ongoing in that 
complex strategy. With this proposed change, the Exchange will handle 
multiple complex order auctions in the same complex strategy in a 
manner that is consistent with implementation on other options 
exchanges,\4\ and will reintroduce simultaneous complex order auctions 
in the same complex strategy at a later date within one year of this 
filing.
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    \3\ See Securities Exchange Act Release No. 80432 (April 11, 
2017 (SR-ISE-2017-03) (Order Approving Proposed Rule Change, as 
Modified by Amendment No. 1, to Amend Various Rules in Connection 
with a System Migration to Nasdaq INET Technology). INET is the 
proprietary core technology utilized across Nasdaq's global markets 
and utilized on The NASDAQ Options Market LLC (``NOM''), NASDAQ PHLX 
LLC (``Phlx''), NASDAQ BX, Inc. (``BX''), and introduced recently on 
Nasdaq GEMX, LLC (``GEMX''). The migration of ISE to the INET 
architecture would result in higher performance, scalability, and 
more robust architecture.
    \4\ See infra notes 6-8 and accompanying text.
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    Today, only one PIM may be ongoing at any given time in a series or 
complex strategy, and PIMs are not permitted to queue or overlap in any 
manner; \5\ however, there are no similar restrictions for non-PIM 
auctions, and any such auctions may be processed concurrently, 
including in parallel with a PIM auction. For example, while the 
trading system would prohibit a member from entering a PIM auction when 
another PIM auction is already ongoing in a complex strategy, if there 
was an Exposure auction already running a member would be able to start 
a PIM, Facilitation, Solicitation, or even another Exposure auction in 
that strategy. This allows maximum ability of members to express their 
trading intent on the Exchange by permitting multiple complex order 
auctions in the same complex strategy to be ongoing at any particular 
time.
---------------------------------------------------------------------------

    \5\ See Supplementary Material .04 to Rule 723.
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    Nevertheless, other options exchanges do not offer the same 
functionality for simultaneous complex order auctions in a complex 
strategy provided by the Exchange. The Exchange's affiliate, Nasdaq 
Phlx, LLC (``Phlx''), for example, does not allow the initiation of a 
Complex Order Live Auction (``COLA'') when there is already a Price 
Improvement XL (``PIXL'') auction already ongoing in the strategy.\6\ 
Similarly, MIAX can limit the frequency of Complex Auctions by 
establishing a minimum time period between such auctions,\7\ and 
permits only one Complex Auction per strategy to be in progress at any 
particular time.\8\
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    \6\ See Phlx Rule 1098(e)(2). Phlx would also similarly not 
allow a PIXL auction to be initiated if there is a COLA already 
ongoing in the complex strategy.
    \7\ See MIAX Rule 518(d)(2).
    \8\ See Securities Exchange Act Release Nos. 78620 (August 18, 
2016), 81 FR 58769, 58799 (August 25, 2016) (Notice); 79072 (October 
7, 2016), 81 FR 71131 (October 14, 2016)) (Approval) (SR-MIAX-2016-
26).
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    In order to give the Exchange additional time to develop and test 
this functionality, the Exchange proposes to delay the implementation 
of simultaneous complex order auctions in the same complex strategy in 
connection with the migration of the trading system to the INET 
platform. With the proposed change, only one complex order auction may 
be ongoing at any given time in a complex strategy, and such auctions 
will not queue or overlap in any manner. For PIM, Facilitation, or 
Solicitation auctions, the Exchange will reject a complex order auction 
of the same or different auction type in a complex strategy that is 
initiated while another complex order auction is ongoing in that 
complex strategy.\9\ In the case where a complex order auction has 
already been initiated in a complex strategy, an Exposure auction for 
an order for that strategy will not be initiated and the order will be 
processed as a complex order that is not marked for price 
improvement,\10\ instead of rejecting the complex order. If the member 
requested the order to be cancelled after the exposure period, then the 
complex order will be cancelled back to the member. Simultaneous 
complex order auctions in the same complex strategy will be 
subsequently rolled out on the INET trading system within one year of 
the date of filing of this proposed rule change. The Exchange is 
staging the re-platform of its trading system to provide maximum 
benefit to its members while also ensuring a successful rollout. This 
delay in implementing simultaneous complex order auctions in the same 
complex strategy will provide the Exchange additional time to test and 
implement this functionality on the INET platform.
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    \9\ The rejection message sent to the member will contain an 
appropriate reason code indicating that the auction was rejected due 
to another ongoing complex order auction in the same complex 
strategy.
    \10\ Currently, an Exposure order auction is automatically 
initiated when a member submits an eligible complex order that is 
marked for price improvement. See Rule 722(b)(3)(iii). Pursuant to 
Rule 722(b)(3)(iii), complex orders may be marked for price 
improvement, and if so marked, the complex order may be exposed on 
the complex order book for a period of up to one-second before being 
automatically executed. Members can also request that their complex 
orders be cancelled after the exposure period.
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    The Exchange believes that implementing simultaneous complex order 
auctions in the same complex strategy at a later date will not have a 
significant impact on members as it is rare for multiple complex order 
auctions in a complex strategy to be ongoing at a particular time. This 
is particularly the case today due to the recent decrease in the 
Exchange's auction timers to 100 milliseconds.\11\ The Exchange notes 
that simultaneous complex order auctions in a strategy only occur 
approximately 0.5% of the time that an auction runs on the Exchange. 
The Exchange therefore believes that the impact on members will be 
insignificant, and if a member does have auction eligible interest to 
execute when another complex order auction is ongoing, the member can 
either re-submit that order to the Exchange, after the auction has 
concluded, or submit it to another options market that provides similar 
auction functionality. In this regard, the Exchange notes that its 
market data feeds provide information to members about when a complex 
order auction is ongoing, and members can therefore use this 
information to make appropriate routing decisions based on applicable 
market conditions.
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    \11\ See Securities Exchange Act Release No. 79733 (January 4, 
2017), 82 FR 3055 (January 10, 2017) (SR-ISE-2016-26) (permitting 
the Exchange to determine auction timers for PIM, Facilitation, and 
Solicitation within a range of 100 milliseconds and one second). 
Each of these auction timers are currently set to 100 milliseconds--
i.e., the bottom of the range approved in the filing. Exposure 
auctions can be any duration up to one second (See Rule 722(b)(3)), 
and are also currently set to 100 milliseconds.
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Implementation
    The proposed rule change will be implemented on the Exchange's new 
INET trading system, which is scheduled to launch in Q2 2017.\12\ The 
INET migration will take place on a symbol by symbol basis \13\ as 
specified by the Exchange in a notice to be provided to Members.\14\ 
The Exchange is proposing to implement this rule change on the INET 
platform as the symbols migrate to that platform. As such, the proposed 
change will be rolled out in symbols as they migrate to the INET 
platform, at which point only one complex order auction will be 
permitted to be ongoing in a complex strategy. Members will still be 
able to use all of the Exchange's complex order auctions, provided that 
there is not another auction already ongoing in the complex strategy. 
The Exchange will issue an Options Trader Alert to all members 
notifying them that simultaneous complex order auctions will no longer 
be available with the symbol migration to INET. The Exchange proposes 
to launch the simultaneous complex order auction functionality on the 
INET platform within one year from the date

[[Page 20407]]

of filing of this rule change to be announced in an Options Trader 
Alert.
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    \12\ See supra note 3.
    \13\ When a symbol is migrated to INET, all strikes and 
strategies will migrate with that symbol.
    \14\ The Exchange will issue an Options Trader Alert prior to 
the migration and will specify the dates that symbols will migrate 
to the INET platform.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6(b) of the Act.\15\ In 
particular, the proposal is consistent with Section 6(b)(5) of the 
Act,\16\ because it is designed to promote just and equitable 
principles of trade, remove impediments to and perfect the mechanisms 
of a free and open market and a national market system and, in general, 
to protect investors and the public interest.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is consistent 
with the Act as it will provide additional time for the Exchange to 
rebuild this technology on the INET platform. By delaying the 
implementation of simultaneous complex order auctions in a complex 
strategy, the Exchange will have additional time to test and implement 
this functionality. The Exchange will provide members with ample notice 
of the delayed implementation of this functionality in an Options 
Trader Alert, and will continue to provide notifications to members to 
ensure clarity about the availability of this functionality with the 
symbol migration. The Exchange will also issue an Options Trader Alert 
indicating when simultaneous complex order auctions in a complex 
strategy will become available on the INET platform.
    The Exchange does not anticipate that the proposed rule change will 
have any meaningful impact with respect to members' ability to execute 
complex order auctions as similar restrictions are already in place on 
other options exchanges.\17\ Simultaneous complex order auctions in a 
complex strategy are rare, and therefore the vast majority of the time 
members will be able to enter a complex order auction notwithstanding 
the temporary delay of the implementation of concurrent auctions. With 
respect to Exposure auctions, in the case where another complex order 
auction in the same strategy has already been initiated, the Exchange 
proposes to allow the complex order to continue to be processed without 
an auction in the same manner as complex orders that are not marked for 
price improvement. If the member has marked the complex order to be 
cancelled after the exposure period, however, the Exchange will cancel 
the order back to the member consistent with that instruction. If the 
member is not able to initiate a complex order auction because another 
complex order auction in the same strategy has been initiated, the 
member may either re-initiate the auction after the auction concludes 
or submit the order to another options market that offers similar 
functionality. Thus, members will be able to continue to express their 
trading intent regardless of the proposed delay in concurrent auction 
functionality. When the simultaneous complex order auction 
functionality is rebuilt and appropriately tested, the Exchange will 
then reintroduce this functionality.
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    \17\ See supra notes 6-8 and accompanying text.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\18\ the Exchange 
does not believe that the proposed rule change will impose any burden 
on intermarket or intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The proposed 
rule change is designed to prevent simultaneous complex order auctions 
in a complex strategy in connection with the migration of the trading 
system to INET technology, and is not designed to have any significant 
competitive impact. Similar restrictions are already in place on other 
options exchanges.\19\ The Exchange does not believe that the proposed 
rule change will impose any burden on intra-market competition because 
all Members uniformly will not be able to initiate simultaneous 
auctions in the same complex order strategy.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f(b)(8).
    \19\ See supra notes 6-8 and accompanying text.
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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 \20\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\21\
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    \20\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \21\ 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 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-ISE-2017-33 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2017-33. 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

[[Page 20408]]

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-ISE-2017-33 and should be submitted on or before May 22, 
2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-08702 Filed 4-28-17; 8:45 am]
 BILLING CODE 8011-01-P