Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Market Maker Quotations, 28109-28113 [2017-12893]

Download as PDF Federal Register / Vol. 82, No. 117 / Tuesday, June 20, 2017 / Notices 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. submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEArca–2017–64 and should be submitted on or before July 11, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–12761 Filed 6–19–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80944; File No. SR–ISE– 2017–42) Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Market Maker Quotations June 15, 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 June 12, 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. sradovich on DSK3GMQ082PROD with NOTICES I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 804, entitled ‘‘Market Maker Quotations.’’ 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 11 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 18:01 Jun 19, 2017 Jkt 241001 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend ISE Rule 804, entitled ‘‘Market Maker Quotations’’ to amend the current rule text at ISE Rule 804(g)(1) and (2) to adopt a revised description of the manner in which ISE removes market maker quotes when certain risk parameters have been triggered. The Exchange believes that the proposed new rule text will provide more detailed information to participants concerning the manner in which these risk features will remove quotes from the Order Book. Today, ISE Rule 804(g)(1) provides that a market maker must provide parameters by which the Exchange will automatically remove a market maker’s quotations in all series of an options class. If a market maker does not provide parameters then the Exchange will apply default parameters announced to members. The Exchange will automatically remove a market maker’s quotation when, during a time period established by the market maker, the market maker exceeds: (i) The specified number of total contracts in the class, (ii) the specified percentage of the total size of the market maker’s quotes in the class, (iii) the specified absolute value of the net between contracts bought and contracts sold in the class, or (iv) the specified absolute value of the net between (a) calls purchased plus puts sold in the class, and (b) calls sold plus puts purchased in the class. The Exchange proposes to adopt new rule text, which continues to require a market maker to provide parameters by which the Exchange will automatically remove a market maker’s quotations in all series of an options class. If a market maker does not provide parameters then the Exchange will apply default parameters announced to members. This is not being amended, rather it is being expanded. The proposed rule text in 804(g)(1) makes clear that market makers are required to utilize the Percentage, Volume, Delta and Vega Thresholds, each a Threshold, described in subsections (A)–(D) in the new rule text. These are the same risk parameters that are offered today by ISE. The Exchange PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 28109 is seeking to identify each risk parameter specifically and describe the function of each parameter in Rule 804(g)(1)(A)–(D). For each feature, the Exchange’s system (‘‘System’’) will continue to automatically remove quotes in all series in an options class when a certain threshold for any of the parameters has been exceeded. The Exchange elaborates in the proposed rule that a market maker is required to specify a period of time not to exceed 30 seconds (‘‘Specified Time Period’’) during which the system will automatically remove a Market Maker’s quotes in all series of an options class. The limitation of not to exceed 30 seconds is new for ISE Members. In order to establish a reasonable limit to the allowable Specified Time Period, an ISE Member will be limited to the [sic] setting their Specified Time period to no more than 30 seconds for these Thresholds. A Specified Time Period will commence for an options class every time an execution occurs in any series in such options class and will continue until the System removes quotes as described in proposed ISE Rule 804(g)(2) or (3) or the Specified Time Period expires. This is the case today, and is not changing. The Specified Time Periods will be the same value described in subsections (A)–(D). Also, as is the case today, a Specified Time Period operates on a rolling basis among all series in an options class in that there may be Specified Time Periods occurring simultaneously for each Threshold and such Specified Time Periods may overlap. If a Market Maker does not provide parameters, the Exchange will apply default parameters, which default settings will be announced to Members via an Options Trader Alert. Proposed Rule 804(g)(1)(A) describes in greater detail the operation of the Percentage Threshold. As is the case today, a Market Maker must provide a specified percentage of quote size (‘‘Percentage Threshold’’), of not less than 1%, by which the System will automatically remove a Market Maker’s quotes in all series of an options class. The Exchange is adding more detail about the manner in which the System will calculate percentages and amending the current rule to change its operation. For each series in an options class, the System will determine (i) during a Specified Time Period and for each side in a given series, a percentage calculated by dividing the size of a Market Maker’s quote size executed in a particular series (the numerator) by the Marker Maker’s quote size available at the time of execution plus the total number of the Market Marker’s quote E:\FR\FM\20JNN1.SGM 20JNN1 sradovich on DSK3GMQ082PROD with NOTICES 28110 Federal Register / Vol. 82, No. 117 / Tuesday, June 20, 2017 / Notices size previously executed during the unexpired Specified Time Period (the denominator) (‘‘Series Percentage’’); and (ii) the sum of the Series Percentages in the options class (‘‘Issue Percentage’’) during a Specified Time Period. The System will track and calculate the net impact of positions in the same option issue; long call percentages are offset by short call percentages, and long put percentages are offset by short put percentages in the Issue Percentage. The Exchange also notes that in calculating the Percentage the System will compare the number of contracts executed in that series relative to the size of the quote at the time of the execution plus the number of executed contracts that have occurred in the current time period. The current system calculates the Percentage risk parameter by comparing the number of contracts executed in that series relative to the size of the original quote only at the time of the execution. This difference is captured within the proposed rule text. The Exchange notes that with the upcoming migration from ISE’s current system to the INET system the manner in which the System offsets will change. The current ISE system does not offset, in that long call percentages are not offset by short call percentages, and long put percentages are not offset by short put percentages. The proposed System however will track and calculate the net impact.3 The Exchange notes this difference in the calculation and seeks to memorialize the change in the process upon the migration to INET. The proposed rule will provide participants with greater clarity as to the operation of the Percentage risk feature on INET. The proposed text indicates that if the Issue Percentage exceeds the Percentage Threshold the System will automatically remove a market maker’s quotes in all series of the options class. Proposed Rule 804(g)(1)(B) describes in greater detail the operation of the Volume Threshold. As is the case today on ISE’s current system, a market maker must provide a Volume Threshold by which the System will automatically remove a market maker’s quotes in all series of an underlying security when the market maker executes a number of contracts which exceeds the designated number of contracts in all options series in an options class. Proposed Rule 804(g)(1)(C) describes in greater detail the operation of the Delta Threshold. As is the case today on ISE’s current system, a market maker must provide a Delta Threshold by which the System will automatically 3 The net impact of positions takes into account the offsets noted herein. VerDate Sep<11>2014 18:01 Jun 19, 2017 Jkt 241001 remove a market maker’s quotes in all series of an underlying security. For each class of options, the System will maintain a Delta counter, which tracks the absolute value of the difference between (i) purchased call contracts plus sold put contracts and (ii) sold call contracts plus purchased put contracts. If the Delta counter exceeds the Delta Threshold established by the Member, the System will automatically remove a market maker’s quotes in all series of the options class. Proposed Rule 804(g)(1)(D) describes in greater detail the operation of the Vega Threshold. As is the case today on ISE’s system, a market maker must provide a Vega Threshold by which the System will automatically remove a Market Maker’s quotes in all series of an options class. For each class of options, the System will maintain a Vega counter, which tracks the absolute value of purchased contracts minus sold contracts. If the Vega counter exceeds the Vega Threshold established by the Member, the System will automatically remove a Market Maker’s quotes in all series of the options class. Proposed Rule 804(g)(2) provides more detail about the System’s current operation with respect to quote removal. The System will automatically remove quotes in all options in an underlying security when the Percentage Threshold, Volume Threshold, Delta Threshold or Vega Threshold has been exceeded. The System will send a Purge Notification Message to the Market Maker for all affected series when any of the above thresholds have been exceeded. The Percentage Threshold, Volume Threshold, Delta Threshold and Vega Threshold are considered independently of each other. Quotes will be automatically executed up to the Market Maker’s size regardless of whether the execution of such quotes would cause the Market Maker to exceed the Percentage Threshold, Volume Threshold, Delta Threshold or Vega Threshold. Proposed Rule 804(g)(3) provides more detail about the manner in which the System resets the counting of the various risk parameters. Notwithstanding the automatic removal of quotes described in the rule, if a market maker requests the System to remove quotes in all options series in an options class, the System will automatically reset all Thresholds. Proposed Rule 804(g)(4) provides more detail about the process to reinitiate quoting. When the System removes quotes because the Percentage Threshold, Volume Threshold, Delta Threshold or Vega Threshold were exceeded, the market maker must send PO 00000 Frm 00068 Fmt 4703 Sfmt 4703 a re-entry indicator to re-enter the System. Proposed Rule 804(g)(5) provides more detail about default parameters as mentioned above. If a market maker does not provide a parameter for each of the automated quotation removal Thresholds described in Rule 804(g)(1)(A–D) above, the Exchange will apply default parameters, which are announced to Members. This language exists today in the current text and is being memorialized herein. Finally, proposed Rule 804(g)(6) describes the interaction between the four Thresholds and the market wide parameter. In addition to the Thresholds described in Rule 804(g)(1)(A)–(D) above, a market maker must provide a market wide parameter by which the Exchange will automatically remove a market maker’s quotes in all classes when, during a time period established by the market maker, the total number of quote removal events specified in Rule 804(g)(1)(A)–(D) exceeds the market wide parameter provided to the Exchange by the market maker. As is the case today, Market Makers may request the Exchange to set the market wide parameter to apply to just Nasdaq ISE or across Nasdaq ISE and GEMX. Below are some illustrative examples of the Percentage and Volume risk parameters. Example #1: Describes the Percentage risk parameter. Presume the following Order Book: Series of underlying XYZ 100 100 110 110 Strike Strike Strike Strike Call Put Call Put .......... ........... .......... ........... Size on bid x offer for MM1 300x300 50x50 200x200 150x150 In this example, assume the Specified Time Period designated by the Market Maker #1 is 10 seconds and the Percentage Threshold is set to 100%. Assume at 12:00:00, Market Maker #1 executes 100 contracts of his offer size, 200 contracts, in the 110 Strike Calls. This represents an execution equaling 50% (100 contracts of the 200 contract quote size) of the 100% Percentage Threshold. Assume at 12:00:01, Market Maker #1 executes 50 additional contracts in the same 110 Strike Calls. This execution equates to an additional 25% ((50 contracts/(100 remaining quote size +100 contracts already executed within the Specified Time Period)) for a net 75% Series Percentage count toward the 100% Percentage Threshold. If at 12:00:03, Market Maker #1 executes the full size of his bid (50 contracts) in the 100 Strike Put, the System will automatically remove all of E:\FR\FM\20JNN1.SGM 20JNN1 sradovich on DSK3GMQ082PROD with NOTICES Federal Register / Vol. 82, No. 117 / Tuesday, June 20, 2017 / Notices Market Maker #1’s quotes in Underlying XYZ since the execution caused his 100% Percentage Threshold to be exceeded; the execution in the 100 Strike Put added 100% Series Percentage to his previously calculated Series Percentage of 75% totaling 175% Issue Percentage. No further quotes for Market Maker #1 in Underlying XYZ will be available until re-entry. The Specified Time Period will be reset for Market Maker #1 in options class XYZ and Market Maker #1 will need to send a re-entry indicator in order to re-enter quotes in options series for options class XYZ into the System. Example #2 is another example of the Percentage Threshold. Presume the following Order Book: In this example, assume Market Maker #1 has Percentage Threshold set at 100% with a Specified Time Period over 5 seconds. Assume at 12:00:00, Market Maker #1 is quoting the XYZ 20 strike calls at 1.00 (10)¥1.20 (10). An incoming Order to buy 5 contracts for 1.20 trades against Market Maker #1’s quote. Based on this trade, the Series Percentage Threshold calculation is 5/ [(10) + (0)] = 5/10 = 50%. Since this is the only execution during the Time Period, 50% also represents the Issue Percentage, therefore Market Maker #1’s quote is now 1.00 (10)¥1.20 (5). Next, assume at 12:00:01 an Incoming Order to buy 2 contracts for 1.20 trades against Market Maker #1’s quote. Based on this trade, the Series Percentage Threshold calculation is 2/[(5) + (5)] = 2/10 = 20%. The Issue Percentage calculation is the sum of Series Percentages during the time period, or 50% + 20% = 70%. Finally, presume Market Maker #1’s quote is now 1.00 (10)¥1.20 (3). At 12:00:02, Market Maker #1 updates his quote in the XYZ 20 strike calls to increase his offer size back to 10 contracts, 1.00 (10)¥1.20 (10). An incoming Order to buy 6 contracts for 1.20 trades against Market Maker #1’s quote. Based on this trade, the Series Percentage Threshold calculation: 6/ [(10) + (7)] = 6/17 = 35.29%. The Issue Percentage calculation is the sum of Series Percentages during the time period, or 50% + 20% + 35.29% = 105.29%. In this scenario, Market Maler [sic] #1’s quotes are removed in all series of XYZ since his setting of 100% over 5 seconds has been exceeded. Example #3 describes the Volume Threshold. Presume the following Order Book: Series of underlying XYZ 100 Strike Call .......... VerDate Sep<11>2014 Size on bid x offer for MM1 300x300 18:01 Jun 19, 2017 Jkt 241001 Series of underlying XYZ 100 Strike Put ........... 110 Strike Call .......... 110 Strike Put ........... Size on bid x offer for MM1 platform as the symbols migrate to that platform. 50x50 200x200 150x150 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 6 in general, and furthers the objectives of Section 6(b)(5) of the Act 7 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, by memorializing, with greater detail, the risk protections available to market makers. The described Thresholds serve to decrease risk and increase stability. Additionally, because the Exchange offers these risk tools to market makers, in order to encourage them to provide as much liquidity as possible and encourage market making generally, the proposal removes impediments to and perfects the mechanism of a free and open market and a national market system and protects investors and the public interest. The Exchange believes that amending Rule 804(g) to add more clarifying text, which explains in greater detail the manner in which the four Thresholds operate, will bring more transparency to the rule which serves to protect investors and the public interest, because market makers will be more informed about the manner in which the functionality operates. In addition, the Exchange’s proposal to amend the current Percentage Threshold to: (i) Calculate offsets; and (ii) calculate the Percentage Threshold during a Specified Time Period and for each side in a given series, a percentage, by dividing the size of a Market Maker’s quote size executed in a particular series (the numerator) by the Marker Maker’s quote size available at the time of execution plus the total number of the Market Marker’s quote size previously executed during the unexpired Specified Time Period, will provide Market Makers with greater precision in calculating quoting risks. The Exchange believes that providing Market Makers with tools to calculate risk serves to perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest because Market Makers are better able to manage risks with this risk tool. The Exchange further represents that its proposal will continue to operate consistently with the firm quote obligations of a broker-dealer pursuant In this example, assume the Specified Time Period designated by the Market Maker #1 is 10 seconds and the designated number of contracts permitted for the Volume-Based Threshold is 250 contracts. Assume at 12:00:00, the Market Maker #1 executes all of his offer size, 200 contracts, in the 110 Strike Calls. The System will initiate the Specified Time Period and for 10 seconds the System will count all volume executed in series of options class XYZ. If at any point during that 10 second period, the Market Maker #1 executes additional contracts in any series of the options class XYZ, those contracts will be added to the initial execution of 200 contracts. To illustrate, assume at 12:00:05 the Market Maker #1 executes 60 contracts of his offer in the 100 Strike Calls. The total volume executed is now 260 contracts. Since that volume exceeds the Market Maker #1’s designated number of contracts for the Volume Threshold (250 contracts), all of his quotes in all series of the options class XYZ over the Specialized Quote Feed 4 will be removed from the System; no further quotes will be executed until re-entry. The Volume Specified Time Period will be reset for Market Maker #1 in options class XYZ and Market Maker #1 will need to send a re-entry indicator in order to re-enter quotes in options series for options class XYZ into the System. Implementation The Exchange will begin a system migration to Nasdaq INET in Q2 of 2017.5 The migration will be on a symbol by symbol basis as specified by the Exchange in a notice to Members. The Exchange is proposing to implement this rule change on the INET 4 The Specialized Quote Feed interface that allows market makers to connect and send quotes, sweeps and auction responses into GEMX. Data includes the following: (1) Options Auction Notifications (e.g., opening imbalance, Flash, PIM, Solicitation and Facilitation or other information); (2) Options Symbol Directory Messages; (3) System Event Messages (e.g., start of messages, start of system hours, start of quoting, start of opening); (4) Option Trading Action Messages (e.g., halts, resumes); (5) Execution Messages; and (6) Quote Messages (quote/sweep messages, risk protection triggers or purge notifications). 5 See Securities Exchange Act Release No. 80432 (April 11, 2017), 82 FR 18191 (April 17, 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). PO 00000 Frm 00069 Fmt 4703 28111 Sfmt 4703 6 15 7 15 E:\FR\FM\20JNN1.SGM U.S.C. 78f(b). U.S.C. 78f(b)(5). 20JNN1 28112 Federal Register / Vol. 82, No. 117 / Tuesday, June 20, 2017 / Notices sradovich on DSK3GMQ082PROD with NOTICES to Rule 602 of Regulation NMS and that the functionality is mandatory. Specifically, any interest that is executable against a market maker’s quotes that are received 8 by the Exchange prior to the time any of these functionalities are engaged will be automatically executed at the price up to the market maker’s size, regardless of whether such execution results in executions in excess of the market maker’s pre-set parameters. 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. Specifically, the proposal will not impose a burden on intra-market or inter-market competition, rather it provides market makers with the continued opportunity to avail themselves of risk tools, [sic] The proposal does not impose a burden on inter-market competition, because participants may choose to become market makers on a number of other options exchanges, which may have similar but not identical features.9 The proposed rule change is meant to continue to protect market makers from inadvertent exposure to excessive risk. Accordingly, the proposed rule change will have no impact on competition. The Exchange’s proposal to amend the current Percentage Based risk feature to: (i) Calculate offsets; and (ii) calculate the Percentage Threshold during a Specified Time Period and for each side in a given series, a percentage, by dividing the size of a Market Maker’s quote size executed in a particular series (the numerator) by the Market Maker’s quote size available at the time of execution plus the total number of the Market Marker’s quote size previously executed during the unexpired Specified Time Period,, [sic] does not impose an undue burden on competition and is non-controversial because the Exchange offers a Percentage Threshold today. The proposed changes to the Percentage risk tool simply add more precision to the existing calculation to permit Market Makers to better control their risk with respect to quoting. Further, the Exchange is memorializing more detail concerning the function of the Thresholds with this rule proposal and making clear the 8 The time of receipt is the time such message is processed by the Order Book. 9 See BATS Rule 21.16, BOX Rules 8100 and 8110, C2 Rule 8.12, CBOE Rule 8.18, MIAX Rule 612, NYSE MKT Rule 928NY and NYSE Arca Rule 6.40. VerDate Sep<11>2014 18:01 Jun 19, 2017 Jkt 241001 method in which the Percentage risk tool is calculated. The risk tools will continue to reduce risk for market makers in the event of a systems issue or due to the occurrence of unusual or unexpected market activity. action is necessary or appropriate in the public interest; for the protection of investors; or otherwise in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others 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: 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 10 and subparagraph (f)(6) of Rule 19b–4 thereunder.11 In its filing, ISE requests that the Commission waive the 30-day operative delay in order to enable the Exchange to coordinate the implementation of the proposed rule changes with its planned migration to the INET platform, which has commenced.12 Although the Exchange proposes certain technical changes to how the risk parameters will operate (e.g., limiting the Specified Time Period to 30 seconds), the proposed changes are largely intended to provide more detail about the operation of the existing risk parameters. Accordingly, the Commission believes that granting a waiver of the operative delay is consistent with the protection of investors and the public interest and therefore designates the proposed rule change to be operative upon filing.13 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 10 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. 12 See supra note 5 and accompanying text. 13 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 11 17 PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 IV. Solicitation of Comments 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–2017–42 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–2017–42. 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 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– 2017–42 and should be submitted on or before July 11, 2017. E:\FR\FM\20JNN1.SGM 20JNN1 Federal Register / Vol. 82, No. 117 / Tuesday, June 20, 2017 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–12893 Filed 6–19–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80937; File No. SR–MRX– 2017–01] Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 2 Thereto, To Amend the Opening Process June 15, 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 May 31, 2017, Nasdaq MRX, LLC (‘‘MRX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. On June 14, 2017, the Exchange filed Amendment No. 1 to the proposal. On June 14, 2017, the Exchange withdrew Amendment No.1 and filed Amendment No. 2 to the proposal, which replaced and superseded the original filing in its entirety. The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 2, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to mend the opening process. This Amendment No. 2 supersedes the original filing in its entirety. 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. sradovich on DSK3GMQ082PROD with NOTICES 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 14 17 CFR 200.30–3(a)(12) and (59). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 18:01 Jun 19, 2017 Jkt 241001 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. 28113 experience that they receive on Phlx today. MRX will replace its current opening process at Rule 701 with Phlx’s Opening Process.3 The Exchange believes that the proposed opening process will provide a similar experience for Members and investors that trade on MRX to the Current Opening Process Today, for each class of options that has been approved for trading, the opening rotation is conducted by the Primary Market Maker (‘‘PMM’’) appointed to such class of options pursuant to MRX Rule 701(b)(1). The Exchange may direct that one or more trading rotations be employed on any business day to aid in producing a fair and orderly market pursuant to MRX Rule 701(a)(1). For each rotation so employed, except as the Exchange may direct, rotations are conducted in the order and manner the PMM determines to be appropriate under the circumstances pursuant to MRX Rule 701(a)(2). The PMM, with the approval of the Exchange, has the authority to determine the rotation order and manner and may also employ multiple trading rotations simultaneously pursuant to MRX Rule 701(a)(3). Trading rotations are employed at the opening of the Exchange each business day and during the reopening of the market after a trading halt pursuant to MRX Rule 701(b). The opening rotation in each class of options is held promptly following the opening of the market for the underlying security.4 The opening rotation for options contracts in an underlying security is delayed until the market for such underlying security has opened unless the Exchange determines that the interests of a fair and orderly market are best served by opening trading in the options contracts pursuant to MRX Rule 701(b)(3). Market Makers on MRX are held to quoting obligations as outlined in MRX Rule 803. Further, Market Makers quotes prior to the opening rotation, including PMM quotes, are permitted with spread differential of no more than $0.25 between the bid and offer for each options contract for which the bid is less than $2, no more than $0.40 where the bid is at least $2 but does not exceed $5, no more than $0.50 where the bid is more than $5 but does not exceed $10, no more than $0.80 where the bid is more than $10 but does not exceed $20, and no more than $1 where the bid is $20 or greater, provided that the Exchange may establish differences other than the above for one or more options series, as specified in MRX Rule 3 See Phlx Rule 1017. See also Securities Exchange Act Release No. 79274 (November 9, 2016), 81 FR 80694 (November 16, 2016) (SR–Phlx– 2017–79) (notice of Filing of Partial Amendment No. 2 and Order Granting Approval of a Proposed Rule Change, as Modified by Partial Amendment No. 2, to Amend PHLX Rule 1017, Openings in Options). 4 The ‘‘market for the underlying security’’ is either the primary listing market, the primary volume market (defined as the market with the most liquidity in that underlying security for the previous two calendar months), or the first market to open the underlying security, as determined by the Exchange on an issue-by-issue basis. See MRX Rule 701(b)(2). A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this rule change is to amend the MRX opening process in connection with a technology migration to a Nasdaq, Inc. (‘‘Nasdaq’’) supported architecture. 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’’) and NASDAQ BX, Inc. (‘‘BX’’) (collectively ‘‘Nasdaq Exchanges’’). The migration of MRX to the Nasdaq INET architecture would result in higher performance, scalability, and more robust architecture. With this system migration, the Exchange intends to adopt the Phlx opening process. The Exchange intends to begin implementation of the proposed rule change in Q3 2017. The migration will be on a symbol by symbol basis, and the Exchange will issue an alert to Members to provide notification of the symbols that will migrate and the relevant dates. Generally With the re-platform, the Exchange will now be built on the Nasdaq INET architecture, which allows certain trading system functionality to be performed in parallel. The Exchange believes that this architecture change will improve the Member experience by reducing overall latency compared to the current MRX system because of the manner in which the system is segregated into component parts to handle processing. Opening Rotation PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 E:\FR\FM\20JNN1.SGM 20JNN1

Agencies

[Federal Register Volume 82, Number 117 (Tuesday, June 20, 2017)]
[Notices]
[Pages 28109-28113]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-12893]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80944; File No. SR-ISE-2017-42)


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Regarding Market 
Maker Quotations

June 15, 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 June 12, 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.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 804, entitled ``Market Maker 
Quotations.''
    The text of the proposed rule change is available on the Exchange's 
Web site at www.ise.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange proposes to amend ISE Rule 804, entitled ``Market 
Maker Quotations'' to amend the current rule text at ISE Rule 804(g)(1) 
and (2) to adopt a revised description of the manner in which ISE 
removes market maker quotes when certain risk parameters have been 
triggered. The Exchange believes that the proposed new rule text will 
provide more detailed information to participants concerning the manner 
in which these risk features will remove quotes from the Order Book.
    Today, ISE Rule 804(g)(1) provides that a market maker must provide 
parameters by which the Exchange will automatically remove a market 
maker's quotations in all series of an options class. If a market maker 
does not provide parameters then the Exchange will apply default 
parameters announced to members. The Exchange will automatically remove 
a market maker's quotation when, during a time period established by 
the market maker, the market maker exceeds: (i) The specified number of 
total contracts in the class, (ii) the specified percentage of the 
total size of the market maker's quotes in the class, (iii) the 
specified absolute value of the net between contracts bought and 
contracts sold in the class, or (iv) the specified absolute value of 
the net between (a) calls purchased plus puts sold in the class, and 
(b) calls sold plus puts purchased in the class.
    The Exchange proposes to adopt new rule text, which continues to 
require a market maker to provide parameters by which the Exchange will 
automatically remove a market maker's quotations in all series of an 
options class. If a market maker does not provide parameters then the 
Exchange will apply default parameters announced to members. This is 
not being amended, rather it is being expanded.
    The proposed rule text in 804(g)(1) makes clear that market makers 
are required to utilize the Percentage, Volume, Delta and Vega 
Thresholds, each a Threshold, described in subsections (A)-(D) in the 
new rule text. These are the same risk parameters that are offered 
today by ISE. The Exchange is seeking to identify each risk parameter 
specifically and describe the function of each parameter in Rule 
804(g)(1)(A)-(D). For each feature, the Exchange's system (``System'') 
will continue to automatically remove quotes in all series in an 
options class when a certain threshold for any of the parameters has 
been exceeded.
    The Exchange elaborates in the proposed rule that a market maker is 
required to specify a period of time not to exceed 30 seconds 
(``Specified Time Period'') during which the system will automatically 
remove a Market Maker's quotes in all series of an options class. The 
limitation of not to exceed 30 seconds is new for ISE Members. In order 
to establish a reasonable limit to the allowable Specified Time Period, 
an ISE Member will be limited to the [sic] setting their Specified Time 
period to no more than 30 seconds for these Thresholds. A Specified 
Time Period will commence for an options class every time an execution 
occurs in any series in such options class and will continue until the 
System removes quotes as described in proposed ISE Rule 804(g)(2) or 
(3) or the Specified Time Period expires. This is the case today, and 
is not changing. The Specified Time Periods will be the same value 
described in subsections (A)-(D). Also, as is the case today, a 
Specified Time Period operates on a rolling basis among all series in 
an options class in that there may be Specified Time Periods occurring 
simultaneously for each Threshold and such Specified Time Periods may 
overlap. If a Market Maker does not provide parameters, the Exchange 
will apply default parameters, which default settings will be announced 
to Members via an Options Trader Alert.
    Proposed Rule 804(g)(1)(A) describes in greater detail the 
operation of the Percentage Threshold. As is the case today, a Market 
Maker must provide a specified percentage of quote size (``Percentage 
Threshold''), of not less than 1%, by which the System will 
automatically remove a Market Maker's quotes in all series of an 
options class. The Exchange is adding more detail about the manner in 
which the System will calculate percentages and amending the current 
rule to change its operation. For each series in an options class, the 
System will determine (i) during a Specified Time Period and for each 
side in a given series, a percentage calculated by dividing the size of 
a Market Maker's quote size executed in a particular series (the 
numerator) by the Marker Maker's quote size available at the time of 
execution plus the total number of the Market Marker's quote

[[Page 28110]]

size previously executed during the unexpired Specified Time Period 
(the denominator) (``Series Percentage''); and (ii) the sum of the 
Series Percentages in the options class (``Issue Percentage'') during a 
Specified Time Period. The System will track and calculate the net 
impact of positions in the same option issue; long call percentages are 
offset by short call percentages, and long put percentages are offset 
by short put percentages in the Issue Percentage. The Exchange also 
notes that in calculating the Percentage the System will compare the 
number of contracts executed in that series relative to the size of the 
quote at the time of the execution plus the number of executed 
contracts that have occurred in the current time period. The current 
system calculates the Percentage risk parameter by comparing the number 
of contracts executed in that series relative to the size of the 
original quote only at the time of the execution. This difference is 
captured within the proposed rule text. The Exchange notes that with 
the upcoming migration from ISE's current system to the INET system the 
manner in which the System offsets will change. The current ISE system 
does not offset, in that long call percentages are not offset by short 
call percentages, and long put percentages are not offset by short put 
percentages. The proposed System however will track and calculate the 
net impact.\3\ The Exchange notes this difference in the calculation 
and seeks to memorialize the change in the process upon the migration 
to INET. The proposed rule will provide participants with greater 
clarity as to the operation of the Percentage risk feature on INET. The 
proposed text indicates that if the Issue Percentage exceeds the 
Percentage Threshold the System will automatically remove a market 
maker's quotes in all series of the options class.
---------------------------------------------------------------------------

    \3\ The net impact of positions takes into account the offsets 
noted herein.
---------------------------------------------------------------------------

    Proposed Rule 804(g)(1)(B) describes in greater detail the 
operation of the Volume Threshold. As is the case today on ISE's 
current system, a market maker must provide a Volume Threshold by which 
the System will automatically remove a market maker's quotes in all 
series of an underlying security when the market maker executes a 
number of contracts which exceeds the designated number of contracts in 
all options series in an options class.
    Proposed Rule 804(g)(1)(C) describes in greater detail the 
operation of the Delta Threshold. As is the case today on ISE's current 
system, a market maker must provide a Delta Threshold by which the 
System will automatically remove a market maker's quotes in all series 
of an underlying security. For each class of options, the System will 
maintain a Delta counter, which tracks the absolute value of the 
difference between (i) purchased call contracts plus sold put contracts 
and (ii) sold call contracts plus purchased put contracts. If the Delta 
counter exceeds the Delta Threshold established by the Member, the 
System will automatically remove a market maker's quotes in all series 
of the options class.
    Proposed Rule 804(g)(1)(D) describes in greater detail the 
operation of the Vega Threshold. As is the case today on ISE's system, 
a market maker must provide a Vega Threshold by which the System will 
automatically remove a Market Maker's quotes in all series of an 
options class. For each class of options, the System will maintain a 
Vega counter, which tracks the absolute value of purchased contracts 
minus sold contracts. If the Vega counter exceeds the Vega Threshold 
established by the Member, the System will automatically remove a 
Market Maker's quotes in all series of the options class.
    Proposed Rule 804(g)(2) provides more detail about the System's 
current operation with respect to quote removal. The System will 
automatically remove quotes in all options in an underlying security 
when the Percentage Threshold, Volume Threshold, Delta Threshold or 
Vega Threshold has been exceeded. The System will send a Purge 
Notification Message to the Market Maker for all affected series when 
any of the above thresholds have been exceeded. The Percentage 
Threshold, Volume Threshold, Delta Threshold and Vega Threshold are 
considered independently of each other. Quotes will be automatically 
executed up to the Market Maker's size regardless of whether the 
execution of such quotes would cause the Market Maker to exceed the 
Percentage Threshold, Volume Threshold, Delta Threshold or Vega 
Threshold.
    Proposed Rule 804(g)(3) provides more detail about the manner in 
which the System resets the counting of the various risk parameters. 
Notwithstanding the automatic removal of quotes described in the rule, 
if a market maker requests the System to remove quotes in all options 
series in an options class, the System will automatically reset all 
Thresholds.
    Proposed Rule 804(g)(4) provides more detail about the process to 
re-initiate quoting. When the System removes quotes because the 
Percentage Threshold, Volume Threshold, Delta Threshold or Vega 
Threshold were exceeded, the market maker must send a re-entry 
indicator to re-enter the System.
    Proposed Rule 804(g)(5) provides more detail about default 
parameters as mentioned above. If a market maker does not provide a 
parameter for each of the automated quotation removal Thresholds 
described in Rule 804(g)(1)(A-D) above, the Exchange will apply default 
parameters, which are announced to Members. This language exists today 
in the current text and is being memorialized herein.
    Finally, proposed Rule 804(g)(6) describes the interaction between 
the four Thresholds and the market wide parameter. In addition to the 
Thresholds described in Rule 804(g)(1)(A)-(D) above, a market maker 
must provide a market wide parameter by which the Exchange will 
automatically remove a market maker's quotes in all classes when, 
during a time period established by the market maker, the total number 
of quote removal events specified in Rule 804(g)(1)(A)-(D) exceeds the 
market wide parameter provided to the Exchange by the market maker. As 
is the case today, Market Makers may request the Exchange to set the 
market wide parameter to apply to just Nasdaq ISE or across Nasdaq ISE 
and GEMX.
    Below are some illustrative examples of the Percentage and Volume 
risk parameters.
    Example #1: Describes the Percentage risk parameter. Presume the 
following Order Book:

------------------------------------------------------------------------
         Series of underlying XYZ            Size on bid x offer for MM1
------------------------------------------------------------------------
100 Strike Call...........................  300x300
100 Strike Put............................  50x50
110 Strike Call...........................  200x200
110 Strike Put............................  150x150
------------------------------------------------------------------------

    In this example, assume the Specified Time Period designated by the 
Market Maker #1 is 10 seconds and the Percentage Threshold is set to 
100%. Assume at 12:00:00, Market Maker #1 executes 100 contracts of his 
offer size, 200 contracts, in the 110 Strike Calls. This represents an 
execution equaling 50% (100 contracts of the 200 contract quote size) 
of the 100% Percentage Threshold. Assume at 12:00:01, Market Maker #1 
executes 50 additional contracts in the same 110 Strike Calls. This 
execution equates to an additional 25% ((50 contracts/(100 remaining 
quote size +100 contracts already executed within the Specified Time 
Period)) for a net 75% Series Percentage count toward the 100% 
Percentage Threshold. If at 12:00:03, Market Maker #1 executes the full 
size of his bid (50 contracts) in the 100 Strike Put, the System will 
automatically remove all of

[[Page 28111]]

Market Maker #1's quotes in Underlying XYZ since the execution caused 
his 100% Percentage Threshold to be exceeded; the execution in the 100 
Strike Put added 100% Series Percentage to his previously calculated 
Series Percentage of 75% totaling 175% Issue Percentage. No further 
quotes for Market Maker #1 in Underlying XYZ will be available until 
re-entry. The Specified Time Period will be reset for Market Maker #1 
in options class XYZ and Market Maker #1 will need to send a re-entry 
indicator in order to re-enter quotes in options series for options 
class XYZ into the System.
    Example #2 is another example of the Percentage Threshold. Presume 
the following Order Book:
    In this example, assume Market Maker #1 has Percentage Threshold 
set at 100% with a Specified Time Period over 5 seconds. Assume at 
12:00:00, Market Maker #1 is quoting the XYZ 20 strike calls at 1.00 
(10)-1.20 (10). An incoming Order to buy 5 contracts for 1.20 trades 
against Market Maker #1's quote. Based on this trade, the Series 
Percentage Threshold calculation is 5/[(10) + (0)] = 5/10 = 50%. Since 
this is the only execution during the Time Period, 50% also represents 
the Issue Percentage, therefore Market Maker #1's quote is now 1.00 
(10)-1.20 (5).
    Next, assume at 12:00:01 an Incoming Order to buy 2 contracts for 
1.20 trades against Market Maker #1's quote. Based on this trade, the 
Series Percentage Threshold calculation is 2/[(5) + (5)] = 2/10 = 20%. 
The Issue Percentage calculation is the sum of Series Percentages 
during the time period, or 50% + 20% = 70%.
    Finally, presume Market Maker #1's quote is now 1.00 (10)-1.20 (3). 
At 12:00:02, Market Maker #1 updates his quote in the XYZ 20 strike 
calls to increase his offer size back to 10 contracts, 1.00 (10)-1.20 
(10). An incoming Order to buy 6 contracts for 1.20 trades against 
Market Maker #1's quote. Based on this trade, the Series Percentage 
Threshold calculation: 6/[(10) + (7)] = 6/17 = 35.29%. The Issue 
Percentage calculation is the sum of Series Percentages during the time 
period, or 50% + 20% + 35.29% = 105.29%. In this scenario, Market Maler 
[sic] #1's quotes are removed in all series of XYZ since his setting of 
100% over 5 seconds has been exceeded.
    Example #3 describes the Volume Threshold. Presume the following 
Order Book:

------------------------------------------------------------------------
         Series of underlying XYZ            Size on bid x offer for MM1
------------------------------------------------------------------------
100 Strike Call...........................  300x300
100 Strike Put............................  50x50
110 Strike Call...........................  200x200
110 Strike Put............................  150x150
------------------------------------------------------------------------

    In this example, assume the Specified Time Period designated by the 
Market Maker #1 is 10 seconds and the designated number of contracts 
permitted for the Volume-Based Threshold is 250 contracts. Assume at 
12:00:00, the Market Maker #1 executes all of his offer size, 200 
contracts, in the 110 Strike Calls. The System will initiate the 
Specified Time Period and for 10 seconds the System will count all 
volume executed in series of options class XYZ. If at any point during 
that 10 second period, the Market Maker #1 executes additional 
contracts in any series of the options class XYZ, those contracts will 
be added to the initial execution of 200 contracts. To illustrate, 
assume at 12:00:05 the Market Maker #1 executes 60 contracts of his 
offer in the 100 Strike Calls. The total volume executed is now 260 
contracts. Since that volume exceeds the Market Maker #1's designated 
number of contracts for the Volume Threshold (250 contracts), all of 
his quotes in all series of the options class XYZ over the Specialized 
Quote Feed \4\ will be removed from the System; no further quotes will 
be executed until re-entry. The Volume Specified Time Period will be 
reset for Market Maker #1 in options class XYZ and Market Maker #1 will 
need to send a re-entry indicator in order to re-enter quotes in 
options series for options class XYZ into the System.
---------------------------------------------------------------------------

    \4\ The Specialized Quote Feed interface that allows market 
makers to connect and send quotes, sweeps and auction responses into 
GEMX. Data includes the following: (1) Options Auction Notifications 
(e.g., opening imbalance, Flash, PIM, Solicitation and Facilitation 
or other information); (2) Options Symbol Directory Messages; (3) 
System Event Messages (e.g., start of messages, start of system 
hours, start of quoting, start of opening); (4) Option Trading 
Action Messages (e.g., halts, resumes); (5) Execution Messages; and 
(6) Quote Messages (quote/sweep messages, risk protection triggers 
or purge notifications).
---------------------------------------------------------------------------

Implementation
    The Exchange will begin a system migration to Nasdaq INET in Q2 of 
2017.\5\ The migration will be on a symbol by symbol basis as specified 
by the Exchange in a notice to Members. The Exchange is proposing to 
implement this rule change on the INET platform as the symbols migrate 
to that platform.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 80432 (April 11, 
2017), 82 FR 18191 (April 17, 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).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \7\ 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, 
by memorializing, with greater detail, the risk protections available 
to market makers. The described Thresholds serve to decrease risk and 
increase stability. Additionally, because the Exchange offers these 
risk tools to market makers, in order to encourage them to provide as 
much liquidity as possible and encourage market making generally, the 
proposal removes impediments to and perfects the mechanism of a free 
and open market and a national market system and protects investors and 
the public interest. The Exchange believes that amending Rule 804(g) to 
add more clarifying text, which explains in greater detail the manner 
in which the four Thresholds operate, will bring more transparency to 
the rule which serves to protect investors and the public interest, 
because market makers will be more informed about the manner in which 
the functionality operates.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In addition, the Exchange's proposal to amend the current 
Percentage Threshold to: (i) Calculate offsets; and (ii) calculate the 
Percentage Threshold during a Specified Time Period and for each side 
in a given series, a percentage, by dividing the size of a Market 
Maker's quote size executed in a particular series (the numerator) by 
the Marker Maker's quote size available at the time of execution plus 
the total number of the Market Marker's quote size previously executed 
during the unexpired Specified Time Period, will provide Market Makers 
with greater precision in calculating quoting risks. The Exchange 
believes that providing Market Makers with tools to calculate risk 
serves to perfect the mechanism of a free and open market and a 
national market system, and, in general to protect investors and the 
public interest because Market Makers are better able to manage risks 
with this risk tool.
    The Exchange further represents that its proposal will continue to 
operate consistently with the firm quote obligations of a broker-dealer 
pursuant

[[Page 28112]]

to Rule 602 of Regulation NMS and that the functionality is mandatory. 
Specifically, any interest that is executable against a market maker's 
quotes that are received \8\ by the Exchange prior to the time any of 
these functionalities are engaged will be automatically executed at the 
price up to the market maker's size, regardless of whether such 
execution results in executions in excess of the market maker's pre-set 
parameters.
---------------------------------------------------------------------------

    \8\ The time of receipt is the time such message is processed by 
the Order Book.
---------------------------------------------------------------------------

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. Specifically, the proposal will 
not impose a burden on intra-market or inter-market competition, rather 
it provides market makers with the continued opportunity to avail 
themselves of risk tools, [sic] The proposal does not impose a burden 
on inter-market competition, because participants may choose to become 
market makers on a number of other options exchanges, which may have 
similar but not identical features.\9\ The proposed rule change is 
meant to continue to protect market makers from inadvertent exposure to 
excessive risk. Accordingly, the proposed rule change will have no 
impact on competition. The Exchange's proposal to amend the current 
Percentage Based risk feature to: (i) Calculate offsets; and (ii) 
calculate the Percentage Threshold during a Specified Time Period and 
for each side in a given series, a percentage, by dividing the size of 
a Market Maker's quote size executed in a particular series (the 
numerator) by the Market Maker's quote size available at the time of 
execution plus the total number of the Market Marker's quote size 
previously executed during the unexpired Specified Time Period,, [sic] 
does not impose an undue burden on competition and is non-controversial 
because the Exchange offers a Percentage Threshold today. The proposed 
changes to the Percentage risk tool simply add more precision to the 
existing calculation to permit Market Makers to better control their 
risk with respect to quoting.
---------------------------------------------------------------------------

    \9\ See BATS Rule 21.16, BOX Rules 8100 and 8110, C2 Rule 8.12, 
CBOE Rule 8.18, MIAX Rule 612, NYSE MKT Rule 928NY and NYSE Arca 
Rule 6.40.
---------------------------------------------------------------------------

    Further, the Exchange is memorializing more detail concerning the 
function of the Thresholds with this rule proposal and making clear the 
method in which the Percentage risk tool is calculated. The risk tools 
will continue to reduce risk for market makers in the event of a 
systems issue or due to the occurrence of unusual or unexpected market 
activity.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \10\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 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.
---------------------------------------------------------------------------

    In its filing, ISE requests that the Commission waive the 30-day 
operative delay in order to enable the Exchange to coordinate the 
implementation of the proposed rule changes with its planned migration 
to the INET platform, which has commenced.\12\ Although the Exchange 
proposes certain technical changes to how the risk parameters will 
operate (e.g., limiting the Specified Time Period to 30 seconds), the 
proposed changes are largely intended to provide more detail about the 
operation of the existing risk parameters. Accordingly, the Commission 
believes that granting a waiver of the operative delay is consistent 
with the protection of investors and the public interest and therefore 
designates the proposed rule change to be operative upon filing.\13\
---------------------------------------------------------------------------

    \12\ See supra note 5 and accompanying text.
    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest; for the protection of investors; or 
otherwise in furtherance of the purposes of the Act.

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-2017-42 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-2017-42. 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 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-2017-42 and should be 
submitted on or before July 11, 2017.


[[Page 28113]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12) and (59).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-12893 Filed 6-19-17; 8:45 am]
BILLING CODE 8011-01-P