80 FR 18447 - Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Share Member-Designated Risk Settings in the Trading System With Clearing Members

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 65 (April 6, 2015)

[Federal Register Volume 80, Number 65 (Monday, April 6, 2015)]
[Notices]
[Pages 18447-18449]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-07850]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74623; File No. SR-ISE-2015-12]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Share Member-Designated Risk Settings in the Trading System 
With Clearing Members

April 1, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on March 19, 2015 the International Securities Exchange, LLC (the 
``Exchange'' or the ``ISE'') filed with the Securities and Exchange 
Commission the proposed rule change, as described in Items I, II, and 
III below, which items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

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[[Page 18448]]

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

    The ISE proposes to amend Rule 706 to authorize the Exchange to 
share any Member-designated risk settings in the trading system with 
the Clearing Member that clears transactions on behalf of the Member. 
The text of the proposed rule change is available on the Exchange's Web 
site (http://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 self-regulatory organization 
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 self-regulatory organization 
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 Rule 706 to authorize the Exchange 
to share any Member-designated risk settings in the trading system with 
the Clearing Member that clears transactions on behalf of the Member. 
Rule 706 states that ``[u]nless otherwise provided in the Rules, no one 
but a Member or a person associated with a Member shall effect any 
Exchange Transactions.'' \3\ The Exchange proposes to amend the current 
rule by adding the following sentence: ``The Exchange may share any 
Member-designated risk settings in the trading system with the Clearing 
Member that clears transactions on behalf of the Member.''
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    \3\ See Rule 706(a).
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    Each Member that transacts through a Clearing Member on the 
Exchange executes a Letter of Clearing Authorization, in the case of 
Electronic Access Members, or a Market Maker Letter of Guarantee, in 
the case of Primary Market Makers and Competitive Market Makers, 
wherein the Clearing Member ``accepts financial responsibility for all 
Exchange Transactions made by the'' Member on whose behalf the Clearing 
Member submits the letter of guarantee. The Exchange believes that 
because Clearing Members guarantee all transactions on behalf of a 
Member, and therefore, bear the risk associated with those 
transactions, it is appropriate for Clearing Members to have knowledge 
of what risk settings a Member may utilize within the trading system.
    The Exchange notes that while not all Members are Clearing Members, 
all Members require a Clearing Member's consent to clear transactions 
on their behalf in order to conduct business on the Exchange. As the 
Clearing Member ultimately bears all the risk for a trade they clear on 
any Member's behalf, the Exchange believes it is reasonable to provide 
Clearing Members with information relating to the risk settings used by 
each Member whose transactions they are clearing. To the extent that a 
Clearing Member might reasonably require a Member to provide access to 
its risk settings as a prerequisite to continue to clear trades on the 
Member's behalf, the Exchange's proposal to share those risk settings 
directly reduces the administrative burden on Members and ensures that 
Clearing Members are receiving information that is up-to-date and 
conforms to the settings active in the trading system.
    The Exchange further notes that any broker-dealer is free to become 
a Clearing Member of the Options Clearing Corporation (the ``OCC''), 
which would enable that Member to avoid sharing risk settings with any 
third party, if they so choose. For these reasons, the Exchange 
believes that the proposal is consistent with the Act as it provides 
Clearing Members with additional risk-related information that may aid 
them in complying with the Act, notably Rule 15c3-5 and, as noted, 
Members that do not wish to share such settings with a Clearing Member 
can do so by become clearing members of the OCC.
    The risk settings that would be shared pursuant to the proposed 
rule are currently codified in Rule 804 (for regulars orders) and Rule 
722 (for complex orders). The risk settings are designed to mitigate 
the potential risks of multiple executions against a Member's trading 
interest that, in today's highly automated and electronic trading 
environment, can occur simultaneously across multiple series and 
multiple option classes. The proposed rule will allow the Exchange to 
share a Member's risk settings with the Clearing Member that guarantees 
the Member's transactions, and therefore has a financial interesting 
[sic] in understanding the risk tolerance of a Member.
    Because the Letter of Clearing Authorization and the Market Maker 
Letter of Guarantee codifies relationships between a Member and the 
Clearing Member, the Exchange is on notice of which Clearing Members 
have relationships with which Members. The proposed rule change would 
simply provide the Exchange with authority to directly provide Clearing 
Members with information that may otherwise be available to such 
Clearing Members by virtue of their relationship with the respective 
Member.
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.\4\ In 
particular, the proposal is consistent with Section 6(b)(5) of the 
Act,\5\ because it is designed to promote just and equitable principles 
of trade, to 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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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change removes 
impediments to and perfects the mechanism of a free and open market by 
codifying that the Exchange can directly provide to Clearing Members 
that guarantee that Member's transactions on the Exchange the Member-
designated risk settings in the trading system, which are designed to 
mitigate the potential risk of multiple executions against a Member's 
trading interest that, in today's highly automated and electronic 
trading environment, can occur simultaneously across multiple series 
and multiple option classes. The Exchange believes that the proposed 
rule change is consistent with the protection of investors and the 
public interests because it will permit Clearing Members with a 
financial interest in a Member's risk settings to better monitor and 
manage the potential risks assumed by Members with whom the Clearing 
Member has entered into a letter of guarantee, thereby providing 
Clearing Members with greater control and flexibility over setting 
their own risk tolerance and exposure.

[[Page 18449]]

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

    The Exchange believes the proposal is consistent with Section 
6(b)(8) of the Act \6\ in that it does not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The proposed rule change is not designed to 
address any aspect of competition, but would provide authority for the 
Exchange to directly share risk settings with Clearing Members 
regarding the Members with whom the Clearing Member has executed a 
letter of guarantee so the Clearing Member can better monitor and 
manage the potential risks assumed by the Members, thereby providing 
them with greater control and flexibility over setting their own risk 
tolerance and exposure. The proposed rule change does not pose an undue 
burden on non-Clearing Members because, unlike Clearing Members, non-
Clearing Members do not guarantee the execution of the Member 
transactions on the Exchange. The proposed rule change is structured to 
offer the same enhancement to all Clearing Members, regardless of size, 
and would not impose a competitive burden on any participant.
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    \6\ 15 U.S.C. 78f(b)(8).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

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

    The Exchange believes that the foregoing proposed rule change may 
take effect upon filing with the Commission pursuant to 
Section19(b)(3)(A) \7\ of the Act and Rule 19b-4(f)(6) thereunder \8\ 
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 after its filing date, or such shorter time as the Commission 
may designate.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
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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 [email protected]. Please include 
File Number SR-ISE-2015-12 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-2015-12. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington DC, 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal offices 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-2015-12, 
and should be submitted on or before April 27, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-07850 Filed 4-3-15; 8:45 am]
BILLING CODE 8011-01-P