80 FR 23308 - Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Its Information Barrier Rules
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 80, Issue 80 (April 27, 2015)
Federal Register Volume 80, Issue 80 (April 27, 2015)
| Page Range | 23308-23310 | |
| FR Document | 2015-09629 |
[Federal Register Volume 80, Number 80 (Monday, April 27, 2015)] [Notices] [Pages 23308-23310] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-09629] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-74771; File No. SR-ISE Gemini-2015-10) Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Its Information Barrier Rules April 21, 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 April 9, 2015 ISE Gemini, LLC (the ``Exchange'' or the ``ISE Gemini'') filed with the Securities and Exchange Commission (the ``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. --------------------------------------------------------------------------- \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 ISE Gemini is proposing to amend its Rules 810 (Limitations on Dealings) and 717 (Limitations on Orders). 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 is proposing to amend its Rules 810 (Limitations on Dealings) and 717 (Limitations on Orders) governing information barriers. Specifically, the Exchange is proposing to amend the portion of the rules that address the limitation on the flow of information between a member's Electronic Access Member (``EAM'') unit, which handles the customer/agency side of the business, and its affiliated Primary Market Maker (``PMM'') and/or Competitive Market Maker (``CMM'') (jointly, ``market makers'') unit, which handles the proprietary side of the business. The International Securities Exchange, LLC (``ISE'') recently amended its Rule 810 to allow EAMs to know where and at what price its affiliated market makers are either quoting or have orders on the order book \3\ and to use that information to influence their routing decisions.\4\ As such, an EAM may route an order that it is handling on an agency basis to the ISE where its affiliated market maker is either quoting or has an order on the order book so that the two orders immediately interact. ISE Gemini is now proposing to adopt the same change. --------------------------------------------------------------------------- \3\ According to Rule 805(b)(1)(i) and (ii) market makers may only have orders on the order book in option classes to which they are not appointed. \4\ See Securities Exchange Act Release No. 74521 (March 7, 2015), 80 FR 15262 (March 23, 2015) (SR-ISE-2014-43). --------------------------------------------------------------------------- The proposal is designed to be consistent with the protections against the misuse of material nonpublic information,\5\ [sic] should be able to consider the outstanding quotes of their affiliated marker [sic] maker units for the purposes of calculating net positions and making routing decisions to increase the member's interaction rate between its EAM unit and affiliated market making unit(s). This proposal, in tandem with existing ISE Gemini conduct rules,\6\ ISE Gemini's review and approval of the information barrier procedures submitted by market makers that will be conducting Other Business Activities,\7\ ISE Gemini's ongoing surveillances for manipulative conduct, and FINRA's exam program that reviews such members [sic] compliance with such policies and procedures, should provide a regulatory framework that guards customer interests and protects against the misuse of material nonpublic information, while increasing the operational flexibility of ISE Gemini's members. ISE Gemini notes that nothing in this proposed rule change would relieve members of their best execution obligation to obtain the most favorable terms reasonably available for customer orders. As a national securities exchange, ISE Gemini has a comprehensive surveillance program to monitor member compliance with applicable rules and regulations, including best execution. The Exchange will continue to monitor for abnormalities in interaction rates between members, and investigate and take appropriate regulatory action against members that fail to comply with their best execution obligations. --------------------------------------------------------------------------- \5\ See, e.g., 15 U.S.C. 78o(g). Section 15(g) of the Securities and Exchange Act of 1934 (the ``Act'') requires every broker or dealer to ``establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of such broker's or dealer's business, to prevent the misuse. . .of material, nonpublic information by such broker or dealer or any person associated with such broker or dealer.'' \6\ See, e.g., ISE Rules 400 (Just and Equitable Principles of Trade), 401 (Adherence to Law), 405 (Manipulation), 408 (Prevention of the Misuse of Material, Nonpublic Information) and 713 (Priority of Quotes and Orders). \7\ ISE Rule 810 defines ``Other Business Activities'' as meaning, (1) conducting an investment or banking or public securities business; (2) making markets in the stocks underlying the options in which it makes markets; (3) handling listed options orders as agent on behalf of Public Customers or broker-dealers; or (4) conducting non-market making proprietary listed options trading activities. --------------------------------------------------------------------------- With this proposed rule change, the EAM unit of a member will only have access to orders and quotes that are publicly available to all market participants. The proposed rule change will not permit the EAM unit of a member to have access to any non-public order or quote information of the affiliated market maker, including hidden or undisplayed size or price information of such orders and quotes. Market makers are not allowed to post hidden or undisplayed orders and quotes on the Exchange. Additionally, members do not expect to receive any additional order or quote information as a result of this proposed rule change. ISE Gemini Rule 717(d) and (e) requires members to expose certain orders entered on the limit order book for at least one second before executing them as principal or against orders that were solicited from other broker-dealers. This requirement applies when the EAM is handling both sides of a trade and not when an EAM is handling a marketable order as agent and is routing that order to execute against a quote/ order resting on the order book. Accordingly, when customer order(s) that an EAM is handling as agent [[Page 23309]] executes against an affiliated market maker's quote or order, it appears as though the EAM was in fact handling both sides of the trade, and did not comply with the order exposure requirements of ISE Gemini Rule 717(d) and (e). However, because the Exchange does not publicly identify the member that entered an order on the limit order book, orders from the same firm may inadvertently execute against each other as a result of being entered by disparate persons and/or systems at the same member firm. Therefore, when enforcing Rule 717(d) and (e), the Exchange has never considered the inadvertent interaction of orders from the same firm within one second to be a violation of the exposure requirement. On September 20, 2011 the ISE codified this longstanding policy in Supplementary Material .06 to Rule 717,\8\ which specified that members can demonstrate that orders were entered without knowledge of a pre- existing order on the book represented by the same firm by providing evidence that effective information barriers between the persons, business units and/or systems entering the orders onto the Exchange were in existence at the time the orders were entered.\9\ This rule requires that such information barriers be fully documented and provided to the Exchange upon request.\10\ --------------------------------------------------------------------------- \8\ See Securities Exchange Act Release No. 65361 (September 20, 2011), 76 FR 59472 (September 26, 2011) (SR-ISE-2011-42). \9\ The Exchange conducts routine surveillance to identify instances when an order on the limit order book is executed against an order entered by the same firm within one second. \10\ The Exchange reviews information barrier documentation to evaluate whether a member has implemented processes that are reasonably designed to prevent the flow of pre-trade order information given the particular structure of the member firm. Additionally, information barriers are reviewed as part of the Exchange's examination program, which is administered by the Financial Industry Regulatory Authority (``FINRA'') pursuant to a regulatory services agreement. --------------------------------------------------------------------------- Given the proposed change to ISE Rule 810, the ISE also made a corresponding change to Supplementary Material .06 to Rule 717 to specify that orders from the same member's EAM unit and its affiliated PMM and/or CMM unit may interact within one second without being a violation of the order exposure requirement of paragraph [sic] (d) and (e) of Rule 717 when the firm can demonstrate that the customer order that it routed was marketable, the EAM was not handling the affiliated market maker quote/order and the affiliated market maker quote/order was in existence at the time the customer order(s) were entered into the ISE's system.\11\ --------------------------------------------------------------------------- \11\ See note 4. --------------------------------------------------------------------------- When the Exchange was drafting the ISE Gemini rulebook, adopting .06 of the supplementary material to Rule 717 was inadvertently overlooked. Accordingly, the Exchange is now proposing to adopt .06 of the supplementary material to ISE Gemini Rule 717 in its entirety, which the Exchange is proposing to be identical to .06 of the supplementary material as it currently appears in the ISE rulebook. The Exchange believes that adopting these rule changes will allow for the Exchange to provide its membership with increased operational flexibility while keeping intact the original purpose of the rule, which was intended to prevent market makers from using customer order flow information to influence their quotations. The Exchange believes that allowing information to flow from the market maker to the EAM would not compromise the integrity of our market, nor would it introduce customer harm, as discussed in more detail above. Additionally, the Exchange believes that market quality will not be eroded due to these changes because the information barrier preventing the flow of information from the EAM to its' affiliated market maker remains unchanged, meaning, market makers will continue to be unable to adjust their quotes either to intercept or avoid orders since that side of the barrier remains in force. 2. Statutory Basis--The basis under the Act for this proposed rule change is the requirement under Section 6(b),\12\ in general, and Section 6(b)(5) \13\ in particular, that an exchange have rules that are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest. In particular, the Exchange believes that amending its rules to allow information to flow from the market maker to the EAM would not compromise the integrity of the market as the information barrier preventing the flow of information from the EAM to its affiliated market maker remains unchanged. Meaning, a market maker cannot be privy to nonpublic information about incoming customer orders and adjust their quotations in response. The Exchange also believes that this rule change will not introduce customer harm as this change does not impact the order protection rules applicable to an EAM handling an order as agent,\14\ but rather allows the EAM to route to a specific destination to interact with its affiliated market makers' quotations or orders in the same manner that the EAM would route orders to access quotes and orders of market makers that it is not affiliated with. In addition, members will continue to be subject to federal and Exchange requirements for preventing the misuse of material nonpublic order information.\15\ --------------------------------------------------------------------------- \12\ 15 U.S.C. 78f(b). \13\ 15 U.S.C. 78f(b)(5). \14\ See note 7 [sic]. \15\ See 15 U.S.C. 78o(g) and ISE Rule 408. --------------------------------------------------------------------------- Additionally, the Exchange notes that the rule will still require that member organizations maintain and enforce policies and procedures reasonably designed to ensure compliance with applicable federal securities laws and regulations and with Exchange rules. Such written policies and procedures will continue to be subject to oversight by the Exchange and therefore allowing information to flow from the market makers to their affiliated EAMs should not reduce the effectiveness of the Exchange rules to protect against the misuse of material nonpublic information. Rather the Exchange believes that a member should be able to integrate its market makers' positions and quoting information with its EAM unit(s) because this proposal, in tandem with existing ISE Gemini conduct rules,\16\ ISE Gemini's review and approval of the information barrier procedures submitted by market makers that will be conducting Other Business Activities, ISE Gemini's ongoing surveillances for manipulative conduct, and FINRA's exam program that reviews such members compliance with such policies and procedures, should provide a regulatory framework that guards customer interests and protects against the misuse of material nonpublic information. ISE Gemini notes that nothing in this proposed rule change would relieve members of their best execution obligation to obtain the most favorable terms reasonably available for customer orders. As a national securities exchange, ISE Gemini has a comprehensive surveillance program to monitor member compliance with applicable rules and regulations, including best execution. The Exchange will continue to monitor for abnormalities in interaction rates between members, and investigate and take appropriate regulatory action against members that fail to comply with their best execution obligations. As discussed, the proposed changes do not alter a member's best execution duty to [[Page 23310]] get the best price for its customer and, therefore, the Exchange does not believe that the proposed changes provide any advantage or disadvantage to customers or the markets in general. --------------------------------------------------------------------------- \16\ See note 7 [sic]. --------------------------------------------------------------------------- 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 that is not necessary or appropriate in furtherance of the purposes of the Act. However, the Exchange believes that Rule 810 currently imposes a burden on competition for the Exchange because it requires market makers that engage in Other Business Activities to operate in a manner that the Exchange believes is more restrictive than necessary for the protection of investors to the public interest. The Exchange believes that the proposed rule change is pro-competitive because it is consistent with how other national securities exchanges are currently interpreting their rules and should provide greater flexibility to allow member firms to make routing decisions based on the same information across multiple markets. 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 Section 19(b)(3)(A) \17\ of the Act and Rule 19b-4(f)(6) thereunder \18\ 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. --------------------------------------------------------------------------- \17\ 15 U.S.C. 78s(b)(3)(A). \18\ 17 CFR 240.19b-4(f)(6). --------------------------------------------------------------------------- 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 CommentsUse 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 Gemini-2015-10 on the subject line. Paper Comments Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-ISE Gemini-2015-10. 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 will also 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 Gemini-2015-10 and should be submitted on or before May 18, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\19\ --------------------------------------------------------------------------- \19\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Jill M. Peterson, Assistant Secretary. [FR Doc. 2015-09629 Filed 4-24-15; 8:45 am] BILLING CODE 8011-01-P
![23308 Federal Register / Vol. 80, No. 80 / Monday, April 27, 2015 / Notices
Dated: April 22, 2015. A. Self-Regulatory Organization’s procedures submitted by market makers
Brent J. Fields, Statement of the Purpose of, and that will be conducting Other Business
Secretary. Statutory Basis for, the Proposed Rule Activities,7 ISE Gemini’s ongoing
[FR Doc. 2015–09789 Filed 4–23–15; 11:15 am]
Change surveillances for manipulative conduct,
and FINRA’s exam program that reviews
BILLING CODE 8011–01–P 1. Purpose
such members [sic] compliance with
The Exchange is proposing to amend such policies and procedures, should
its Rules 810 (Limitations on Dealings) provide a regulatory framework that
SECURITIES AND EXCHANGE and 717 (Limitations on Orders) guards customer interests and protects
COMMISSION governing information barriers. against the misuse of material nonpublic
Specifically, the Exchange is proposing information, while increasing the
[Release No. 34–74771; File No. SR–ISE to amend the portion of the rules that operational flexibility of ISE Gemini’s
Gemini–2015–10) address the limitation on the flow of members. ISE Gemini notes that nothing
information between a member’s in this proposed rule change would
Self-Regulatory Organizations; ISE Electronic Access Member (‘‘EAM’’) relieve members of their best execution
Gemini, LLC; Notice of Filing and unit, which handles the customer/ obligation to obtain the most favorable
Immediate Effectiveness of Proposed agency side of the business, and its terms reasonably available for customer
Rule Change Amending Its Information affiliated Primary Market Maker orders. As a national securities
Barrier Rules (‘‘PMM’’) and/or Competitive Market exchange, ISE Gemini has a
April 21, 2015. Maker (‘‘CMM’’) (jointly, ‘‘market comprehensive surveillance program to
makers’’) unit, which handles the monitor member compliance with
Pursuant to Section 19(b)(1) of the proprietary side of the business. applicable rules and regulations,
Securities Exchange Act of 1934 (the The International Securities including best execution. The Exchange
‘‘Act’’),1 and Rule 19b–4 thereunder,2 Exchange, LLC (‘‘ISE’’) recently will continue to monitor for
notice is hereby given that on April 9, amended its Rule 810 to allow EAMs to abnormalities in interaction rates
2015 ISE Gemini, LLC (the ‘‘Exchange’’ know where and at what price its between members, and investigate and
or the ‘‘ISE Gemini’’) filed with the affiliated market makers are either take appropriate regulatory action
Securities and Exchange Commission quoting or have orders on the order against members that fail to comply
(the ‘‘Commission’’) the proposed rule book 3 and to use that information to with their best execution obligations.
change, as described in Items I, II, and influence their routing decisions.4 As With this proposed rule change, the
III below, which items have been such, an EAM may route an order that EAM unit of a member will only have
prepared by the self-regulatory it is handling on an agency basis to the access to orders and quotes that are
organization. The Commission is ISE where its affiliated market maker is publicly available to all market
publishing this notice to solicit either quoting or has an order on the participants. The proposed rule change
comments on the proposed rule change order book so that the two orders will not permit the EAM unit of a
from interested persons. immediately interact. ISE Gemini is now member to have access to any non-
I. Self-Regulatory Organization’s proposing to adopt the same change. public order or quote information of the
Statement of the Terms of Substance of The proposal is designed to be affiliated market maker, including
the Proposed Rule Change consistent with the protections against hidden or undisplayed size or price
the misuse of material nonpublic information of such orders and quotes.
ISE Gemini is proposing to amend its information,5 [sic] should be able to Market makers are not allowed to post
Rules 810 (Limitations on Dealings) and consider the outstanding quotes of their hidden or undisplayed orders and
717 (Limitations on Orders). The text of affiliated marker [sic] maker units for quotes on the Exchange. Additionally,
the proposed rule change is available on the purposes of calculating net positions members do not expect to receive any
the Exchange’s Web site (http:// and making routing decisions to additional order or quote information as
www.ise.com), at the principal office of increase the member’s interaction rate a result of this proposed rule change.
the Exchange, and at the Commission’s between its EAM unit and affiliated ISE Gemini Rule 717(d) and (e)
Public Reference Room. market making unit(s). This proposal, in requires members to expose certain
tandem with existing ISE Gemini orders entered on the limit order book
II. Self-Regulatory Organization’s conduct rules,6 ISE Gemini’s review and for at least one second before executing
Statement of the Purpose of, and approval of the information barrier them as principal or against orders that
Statutory Basis for, the Proposed Rule were solicited from other broker-dealers.
Change 3 According to Rule 805(b)(1)(i) and (ii) market
This requirement applies when the
makers may only have orders on the order book in
In its filing with the Commission, the option classes to which they are not appointed.
EAM is handling both sides of a trade
self-regulatory organization included 4 See Securities Exchange Act Release No. 74521 and not when an EAM is handling a
statements concerning the purpose of, (March 7, 2015), 80 FR 15262 (March 23, 2015) (SR– marketable order as agent and is routing
and basis for, the proposed rule change ISE–2014–43). that order to execute against a quote/
5 See, e.g., 15 U.S.C. 78o(g). Section 15(g) of the
and discussed any comments it received order resting on the order book.
Securities and Exchange Act of 1934 (the ‘‘Act’’)
on the proposed rule change. The text requires every broker or dealer to ‘‘establish,
Accordingly, when customer order(s)
of these statements may be examined at maintain, and enforce written policies and that an EAM is handling as agent
the places specified in Item IV below. procedures reasonably designed, taking into
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consideration the nature of such broker’s or dealer’s 7 ISE Rule 810 defines ‘‘Other Business
The self-regulatory organization has business, to prevent the misuse. . .of material, Activities’’ as meaning, (1) conducting an
prepared summaries, set forth in nonpublic information by such broker or dealer or investment or banking or public securities business;
sections A, B and C below, of the most any person associated with such broker or dealer.’’ (2) making markets in the stocks underlying the
6 See, e.g., ISE Rules 400 (Just and Equitable options in which it makes markets; (3) handling
significant aspects of such statements.
Principles of Trade), 401 (Adherence to Law), 405 listed options orders as agent on behalf of Public
(Manipulation), 408 (Prevention of the Misuse of Customers or broker-dealers; or (4) conducting non-
1 15 U.S.C. 78s(b)(1). Material, Nonpublic Information) and 713 (Priority market making proprietary listed options trading
2 17 CFR 240.19b–4. of Quotes and Orders). activities.
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executes against an affiliated market When the Exchange was drafting the applicable to an EAM handling an order
maker’s quote or order, it appears as ISE Gemini rulebook, adopting .06 of as agent,14 but rather allows the EAM to
though the EAM was in fact handling the supplementary material to Rule 717 route to a specific destination to interact
both sides of the trade, and did not was inadvertently overlooked. with its affiliated market makers’
comply with the order exposure Accordingly, the Exchange is now quotations or orders in the same manner
requirements of ISE Gemini Rule 717(d) proposing to adopt .06 of the that the EAM would route orders to
and (e). However, because the Exchange supplementary material to ISE Gemini access quotes and orders of market
does not publicly identify the member Rule 717 in its entirety, which the makers that it is not affiliated with. In
that entered an order on the limit order Exchange is proposing to be identical to addition, members will continue to be
book, orders from the same firm may .06 of the supplementary material as it subject to federal and Exchange
inadvertently execute against each other currently appears in the ISE rulebook. requirements for preventing the misuse
as a result of being entered by disparate The Exchange believes that adopting of material nonpublic order
persons and/or systems at the same these rule changes will allow for the information.15
member firm. Therefore, when enforcing Exchange to provide its membership Additionally, the Exchange notes that
Rule 717(d) and (e), the Exchange has with increased operational flexibility the rule will still require that member
never considered the inadvertent while keeping intact the original organizations maintain and enforce
interaction of orders from the same firm purpose of the rule, which was intended policies and procedures reasonably
within one second to be a violation of to prevent market makers from using designed to ensure compliance with
the exposure requirement. customer order flow information to applicable federal securities laws and
On September 20, 2011 the ISE influence their quotations. The regulations and with Exchange rules.
codified this longstanding policy in Exchange believes that allowing Such written policies and procedures
Supplementary Material .06 to Rule information to flow from the market will continue to be subject to oversight
717,8 which specified that members can maker to the EAM would not by the Exchange and therefore allowing
demonstrate that orders were entered compromise the integrity of our market, information to flow from the market
without knowledge of a pre-existing nor would it introduce customer harm, makers to their affiliated EAMs should
order on the book represented by the as discussed in more detail above. not reduce the effectiveness of the
same firm by providing evidence that Additionally, the Exchange believes that Exchange rules to protect against the
effective information barriers between market quality will not be eroded due to misuse of material nonpublic
the persons, business units and/or these changes because the information information. Rather the Exchange
systems entering the orders onto the barrier preventing the flow of believes that a member should be able
Exchange were in existence at the time information from the EAM to its’ to integrate its market makers’ positions
the orders were entered.9 This rule affiliated market maker remains and quoting information with its EAM
requires that such information barriers unchanged, meaning, market makers unit(s) because this proposal, in tandem
be fully documented and provided to will continue to be unable to adjust with existing ISE Gemini conduct
the Exchange upon request.10 their quotes either to intercept or avoid rules,16 ISE Gemini’s review and
Given the proposed change to ISE orders since that side of the barrier approval of the information barrier
Rule 810, the ISE also made a remains in force. procedures submitted by market makers
corresponding change to Supplementary 2. Statutory Basis—The basis under that will be conducting Other Business
Material .06 to Rule 717 to specify that the Act for this proposed rule change is Activities, ISE Gemini’s ongoing
orders from the same member’s EAM the requirement under Section 6(b),12 in surveillances for manipulative conduct,
unit and its affiliated PMM and/or CMM general, and Section 6(b)(5) 13 in and FINRA’s exam program that reviews
unit may interact within one second particular, that an exchange have rules such members compliance with such
without being a violation of the order that are designed to prevent fraudulent policies and procedures, should provide
exposure requirement of paragraph [sic] and manipulative acts and practices, to a regulatory framework that guards
(d) and (e) of Rule 717 when the firm promote just and equitable principles of customer interests and protects against
can demonstrate that the customer order trade, to remove impediments to and the misuse of material nonpublic
that it routed was marketable, the EAM perfect the mechanism for a free and information. ISE Gemini notes that
was not handling the affiliated market open market and a national market nothing in this proposed rule change
maker quote/order and the affiliated system, and, in general, to protect would relieve members of their best
market maker quote/order was in investors and the public interest. In execution obligation to obtain the most
existence at the time the customer particular, the Exchange believes that favorable terms reasonably available for
order(s) were entered into the ISE’s amending its rules to allow information customer orders. As a national securities
system.11 to flow from the market maker to the exchange, ISE Gemini has a
EAM would not compromise the comprehensive surveillance program to
8 See Securities Exchange Act Release No. 65361
integrity of the market as the monitor member compliance with
(September 20, 2011), 76 FR 59472 (September 26, information barrier preventing the flow
2011) (SR–ISE–2011–42).
applicable rules and regulations,
9 The Exchange conducts routine surveillance to
of information from the EAM to its including best execution. The Exchange
identify instances when an order on the limit order affiliated market maker remains will continue to monitor for
book is executed against an order entered by the unchanged. Meaning, a market maker abnormalities in interaction rates
same firm within one second. cannot be privy to nonpublic between members, and investigate and
10 The Exchange reviews information barrier
information about incoming customer take appropriate regulatory action
documentation to evaluate whether a member has
orders and adjust their quotations in against members that fail to comply
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implemented processes that are reasonably
designed to prevent the flow of pre-trade order response. The Exchange also believes with their best execution obligations. As
information given the particular structure of the that this rule change will not introduce discussed, the proposed changes do not
member firm. Additionally, information barriers are customer harm as this change does not
reviewed as part of the Exchange’s examination
alter a member’s best execution duty to
program, which is administered by the Financial impact the order protection rules
14 See note 7 [sic].
Industry Regulatory Authority (‘‘FINRA’’) pursuant
to a regulatory services agreement. 12 15 U.S.C. 78f(b). 15 See 15 U.S.C. 78o(g) and ISE Rule 408.
11 See note 4. 13 15 U.S.C. 78f(b)(5). 16 See note 7 [sic].
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![23310 Federal Register / Vol. 80, No. 80 / Monday, April 27, 2015 / Notices
get the best price for its customer and, of investors; or (iii) otherwise in For the Commission, by the Division of
therefore, the Exchange does not believe furtherance of the purposes of the Act. Trading and Markets, pursuant to delegated
that the proposed changes provide any If the Commission takes such action, the authority.19
advantage or disadvantage to customers Commission shall institute proceedings Jill M. Peterson,
or the markets in general. to determine whether the proposed rule Assistant Secretary.
should be approved or disapproved. [FR Doc. 2015–09629 Filed 4–24–15; 8:45 am]
B. Self-Regulatory Organization’s
BILLING CODE 8011–01–P
Statement on Burden on Competition IV. Solicitation of Comments
The Exchange does not believe that Interested persons are invited to
the proposed rule change will impose submit written data, views, and SECURITIES AND EXCHANGE
any burden on competition that is not arguments concerning the foregoing, COMMISSION
necessary or appropriate in furtherance including whether the proposed rule
[Release No. 34–74774; File No. SR–
of the purposes of the Act. However, the change is consistent with the Act. NYSEArca–2015–31]
Exchange believes that Rule 810 Comments may be submitted by any of
currently imposes a burden on the following methods: Self-Regulatory Organizations; NYSE
competition for the Exchange because it Arca, Inc.; Notice of Filing and
requires market makers that engage in Electronic Comments
Immediate Effectiveness of Proposed
Other Business Activities to operate in • Use the Commission’s Internet Rule Change Modifying the Manner in
a manner that the Exchange believes is comment form (http://www.sec.gov/ Which It Calculates Volume, Liquidity
more restrictive than necessary for the rules/sro.shtml); or and Quoting Thresholds Applicable to
protection of investors to the public • Send an email to rule-comments@ Billing on the Exchange on March 31,
interest. The Exchange believes that the sec.gov. Please include File Number SR– 2015
proposed rule change is pro-competitive ISE Gemini–2015–10 on the subject line.
because it is consistent with how other April 21, 2015.
Paper Comments Pursuant to Section 19(b)(1) of the
national securities exchanges are
currently interpreting their rules and • Send paper comments in triplicate Securities Exchange Act of 1934 (the
should provide greater flexibility to to Brent J. Fields, Secretary, Securities ‘‘Act’’),1 and Rule 19b–4 thereunder,2
allow member firms to make routing and Exchange Commission, 100 F Street notice is hereby given that on April 10,
decisions based on the same NE., Washington, DC 20549–1090. 2015, NYSE Arca, Inc. (the ‘‘Exchange’’
information across multiple markets. All submissions should refer to File or ‘‘NYSE Arca’’) filed with the
Number SR–ISE Gemini–2015–10. This Securities and Exchange Commission
C. Self-Regulatory Organization’s (the ‘‘Commission’’) the proposed rule
Statement on Comments on the file number should be included on the
subject line if email is used. To help the change as described in Items I and II
Proposed Rule Change Received From below, which Items have been prepared
Members, Participants or Others Commission process and review your
comments more efficiently, please use by the self-regulatory organization. The
The Exchange has not solicited, and only one method. The Commission will Commission is publishing this notice to
does not intend to solicit, comments on post all comments on the Commission’s solicit comments on the proposed rule
this proposed rule change. The Internet Web site (http://www.sec.gov/ change from interested persons.
Exchange has not received any rules/sro.shtml). Copies of the
unsolicited written comments from I. Self-Regulatory Organization’s
submission, all subsequent Statement of the Terms of the Substance
members or other interested parties. amendments, all written statements of the Proposed Rule Change
III. Date of Effectiveness of the with respect to the proposed rule
change that are filed with the The Exchange proposes to modify the
Proposed Rule Change and Timing for
Commission, and all written manner in which it calculates volume,
Commission Action
communications relating to the liquidity and quoting thresholds
The Exchange believes that the applicable to billing on the Exchange in
foregoing proposed rule change may proposed rule change between the
Commission and any person, other than connection with an interruption in
take effect upon filing with the trading in certain securities on the
Commission pursuant to Section those that may be withheld from the
public in accordance with the Exchange on March 31, 2015. The text
19(b)(3)(A) 17 of the Act and Rule 19b– of the proposed rule change is available
4(f)(6) thereunder 18 because the provisions of 5 U.S.C. 552, will be
available for Web site viewing and on the Exchange’s Web site at
foregoing proposed rule change does not www.nyse.com, at the principal office of
(i) significantly affect the protection of printing in the Commission’s Public
Reference Room, 100 F Street NE., the Exchange, and at the Commission’s
investors or the public interest, (ii) Public Reference Room.
impose any significant burden on Washington, DC 20549, on official
competition, and (iii) become operative business days between the hours of II. Self-Regulatory Organization’s
for 30 days after its filing date, or such 10:00 a.m. and 3:00 p.m. Copies of the Statement of the Purpose of, and
shorter time as the Commission may filing will also be available for Statutory Basis for, the Proposed Rule
designate. inspection and copying at the principal Change
At any time within 60 days of the office of the Exchange. All comments
In its filing with the Commission, the
filing of the proposed rule change, the received will be posted without change;
self-regulatory organization included
Commission summarily may the Commission does not edit personal
statements concerning the purpose of,
Rmajette on DSK2VPTVN1PROD with NOTICES
temporarily suspend such rule change if identifying information from
and basis for, the proposed rule change
it appears to the Commission that such submissions. You should submit only
and discussed any comments it received
action is: (i) Necessary or appropriate in information that you wish to make
on the proposed rule change. The text
the public interest; (ii) for the protection available publicly. All submissions
should refer to File Number SR–ISE 19 17 CFR 200.30–3(a)(12).
17 15 U.S.C. 78s(b)(3)(A). Gemini–2015–10 and should be 1 15 U.S.C. 78s(b)(1).
18 17 CFR 240.19b–4(f)(6). submitted on or before May 18, 2015. 2 17 CFR 240.19b–4.
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Document Created: 2015-12-16 08:29:28
Document Modified: 2015-12-16 08:29:28
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