80 FR 69266 - Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing of Proposed Rule Change To Comply With the Requirements of Rule 1004 of Regulation SCI

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 216 (November 9, 2015)

[Federal Register Volume 80, Number 216 (Monday, November 9, 2015)]
[Notices]
[Pages 69266-69268]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-28403]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76332; File No. SR-ISEGemini-2015-23]


Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing 
of Proposed Rule Change To Comply With the Requirements of Rule 1004 of 
Regulation SCI

November 3, 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 October 23, 2015, ISE Gemini, LLC (the ``Exchange'' or the 
``ISE Gemini'') 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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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    ISE Gemini proposes to designate all members that function as 
Primary Market Makers (``PMMs'') as necessary for the maintenance of a 
fair and orderly market should business continuity and disaster 
recovery plans (collectively ``DR Plans'') be activated, and proposes 
to require PMMs to participate in scheduled functional and performance 
testing of the operation of such DR Plans by amending Rule 803, 
Obligations of Market Makers. The Exchange notes that ISE Rule 1903 v 
\3\ Order Routing to Other Exchanges, which is incorporated by 
reference into ISE Gemini's rulebook, designates members that function 
as Linkage Handlers as necessary for the maintenance of a fair and 
orderly market should DR Plans be activated and requires Linkage 
Handlers to participate in scheduled functional and performance testing 
of the operation of such DR Plans. 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.
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    \3\ This rule is being amended by SR-ISE-2015-35 to designate 
Linkage Handlers as necessary for the maintenance of a fair and 
orderly market should the Exchange's DR Plans activate, and require 
Linkage Handlers to participate in scheduled functional and 
performance testing of the operation of such DR Plans.

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[[Page 69267]]

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 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
    Rule 1004 requires the establishment of standards for the 
designation of those members the Exchange reasonably determines are, 
taken as a whole, the minimum necessary for the maintenance of a fair 
and orderly market should the Exchange's business continuity and 
disaster recovery plans be activated. Rule 1004 also requires the 
Exchange to designate members pursuant to those standards and require 
participation by such members in scheduled functional and performance 
testing of the operation of such plans, in the manner and frequency 
specified by the Exchange, provided that such frequency shall not be 
less than once every 12 months. Therefore, in accordance with Rule 
1004, the Exchange proposes to designate all PMMs \4\ and Linkage 
Handlers,\5\ as the minimum necessary for the maintenance of a fair and 
orderly market should the Exchange's DR Plans be activated. This 
proposed rule also mandates participation by designated members in 
scheduled functional and performance testing of the operation of such 
DR Plans.
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    \4\ A PMM posts two-sided continuous quotations in all of the 
options classes to which it is appointed and undertakes special 
responsibilities for maintaining fair and orderly markets. PMM 
memberships are represented by PMM Trading Rights. The options 
classes trading on ISE Gemini are divided into groups or ``bins'', 
each with one PMM. One PMM member may, however, represent more than 
one bin.
    \5\ A Linkage Handler is a broker that is unaffiliated with the 
Exchange with which the Exchange has contracted with to provide 
routing services, by routing certain orders, to other exchanges as 
agent in connection with the Options Order Protection and Locked/
Crossed Market Plan. See .03 to Supplementary Material to ISE Rule 
1901.
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Background
    On November 19, 2014, the Securities and Exchange Commission 
unanimously voted to adopt Regulation SCI, which is a set of rules 
designed to strengthen the technology infrastructure of the U.S. 
securities markets.\6\ Specifically, the rules are designed to reduce 
the occurrence of systems issues, improve resiliency when systems 
problems do occur, and enhance the Commission's oversight and 
enforcement of securities market technology infrastructure.\7\
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    \6\ See Securities Exchange Act Release No. 73639 (November 19, 
2014), 79 FR 72252 (December 5, 2014) (``SCI Adopting Release'').
    \7\ Division of Trading and Markets, Responses to Frequently 
Asked Questions Concerning Regulation SCI at https://www.sec.gov/divisions/marketreg/regulation-sci-faq.shtml.
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    Regulation SCI applies to ``SCI entities,'' a term which includes 
SROs such as ISE Gemini. Regulation SCI requires SCI entities to, among 
other things, (1) Eestablish written policies and procedures reasonably 
designed to ensure that their systems have levels of capacity, 
integrity, resiliency, availability, and security adequate to maintain 
their operational capability; (2) mandate participation by designated 
members in scheduled testing of the operation of their business 
continuity and disaster recovery plans, including backup systems, and 
to coordinate such testing on an industry- or sector-wide basis with 
other SCI entities; (3) take corrective action with respect to ``SCI 
events'' (such as systems disruptions, systems compliance issues, and 
systems intrusions), and to notify the Commission of such events; (4) 
disseminate information about certain SCI events to affected members 
and, for certain ``major'' SCI events, to all members; and (5) review 
their systems by objective, qualified personnel at least annually, to 
submit quarterly reports regarding completed, ongoing, and planned 
material changes to their SCI systems to the Commission, and to 
maintain certain books and records.\8\
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    \8\ Id.
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Proposed Rule Change
    Rule 1004 of Regulation SCI requires the establishment of standards 
for the designation of those members ISE Gemini reasonably determines 
are, taken as a whole, the minimum necessary for the maintenance of a 
fair and orderly market should the Exchange activate its DR Plans. To 
comply with this rule, the Exchange proposes to amend .02 of 
Supplementary Material to ISE Gemini Rule 803, Obligations of Market 
Makers, by designating all members that function as PMMs. The Exchange 
also notes that .03 of Supplementary Material to ISE Rule 1903, Order 
Routing to Other Exchanges, has been incorporated by reference into ISE 
Gemini's rulebook and designates all members that function as Linkage 
Handlers as necessary for the maintenance of a fair and orderly market 
should the Exchange activate its DR Plans.\9\
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    \9\ The Exchange notes that these designations are determined by 
the members' respective functions.
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    ISE Gemini believes PMMs (together with Linkage Handlers) meet the 
requirements of Regulation SCI because they are vital to maintaining a 
fair and orderly market. Among other things, PMMs compete with other 
market makers \10\ to improve the market in all series of options 
classes to which the PMM is appointed; make markets that are honored 
for the number of contracts entered into the Exchange's system in all 
series of options classes to which the PMM is appointed; update market 
quotations in response to changed market conditions in all series of 
options classes to which the PMM is appointed; and price option 
contracts fairly.\11\ If the DR Plans are activated, PMMs will ensure 
ISE Gemini's market continues to run smoothly. Similarly, Linkage 
Handlers meet the requirements of Regulation SCI because they route 
orders to other exchanges when ISE Gemini is not at the National Best 
Bid or Offer (``NBBO''). Should the DR Plans be activated, Linkage 
Handlers will ensure that investors receive the best price available 
across all exchanges for their orders.
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    \10\ Market makers refers to ``Competitive Market Makers'' and 
``PMMs'' collectively. See ISE Gemini Rule 100(a)(25).
    \11\ See ISE Gemini Rule 803.
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    Rule 1004 also requires that the Exchange mandate participation by 
designated members in scheduled functional and performance testing of 
the operation of such plans, in the manner and frequency specified by 
the Exchange, provided that such frequency shall not be less than once 
every 12 months. The Exchange now proposes that PMMs and Linkage 
Handlers (requirements incorporated by reference) are required to 
participate in scheduled functional and performance testing of such 
plans at least once every 12 months. This testing will prepare the 
designated members for certain SCI events, and enable the market to 
continue operating without major issues during such events.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act, and the

[[Page 69268]]

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.\12\ In particular, the proposal is consistent 
with section 6(b)(5) of the Act,\13\ because it is designed to promote 
just and equitable principles of trade, remove impediments to and 
perfect the mechanisms of a free and open market and a national market 
system and, in general, to protect investors and the public interest.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed rule is consistent with the 
Exchange Act because it complies with Regulation SCI's requirements. 
ISE Gemini's Rule 803, and ISE Rule 1903, which is incorporated by 
reference, designate members they determine are necessary for the 
maintenance of a fair and orderly market if the Exchange's DR Plans are 
activated and mandate participation by designated members in scheduled 
functional and performance testing of the DR Plans at least once every 
12 months.
    The Exchange further believes the proposed rule change is 
consistent with the protection of investors and the public interest 
because ISE Gemini has designated PMMs, which maintain a fair and 
orderly market by making markets that are honored, competing with other 
market makers to improve the market, updating market quotations, and 
pricing option contracts fairly. Similarly, ISE Gemini has incorporated 
by reference the designation of Linkage Handlers, which route certain 
orders to other exchanges when ISE Gemini is not at the NBBO. This 
provides investors with the best price available across exchanges for 
their orders. Further, the proposed rule is consistent with the 
protection of investors and the public interest because, as proposed 
and incorporated by reference, these designated members are required to 
participate in functional and performance testing of the DR Plans. As a 
result, if the DR Plans are activated, the designated members and their 
systems will be prepared to handle a potential SCI event and ensure 
that investors can continue to trade during the event.

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

    This proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Exchange Act because ISE Gemini is implementing the requirements of 
Regulation SCI.

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

    The Exchange has neither solicited nor received written comments on 
this proposed rule change. The Exchange has not received any written 
comments from members or other interested parties.

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

    Because the foregoing proposed rule change does not significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not 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) of the Act \14\ and Rule 19b-
4(f)(6) thereunder.\15\ The Exchange provided the Commission with 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at least 
five business days prior to the date of filing the proposed rule 
change, or such shorter time as designated by the Commission, as 
required by Rule 19b-4(f)(6).
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of such 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. 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 No. SR-ISEGemini-2015-23 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-ISEGemini-2015-23. 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 Commissions 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. Copies of such filing also will 
be available for inspection and copying at the principal office of ISE 
Gemini. 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-
ISEGemini-2015-23 and should be submitted by November 30, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-28403 Filed 11-6-15; 8:45 am]
BILLING CODE 8011-01-P