81 FR 11305 - Self-Regulatory Organizations; International Securities Exchange, LLC; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Amend Rule 804(g)

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 42 (March 3, 2016)

Page Range		11305-11307
FR Document		2016-04637
Federal Register, Volume 81 Issue 42 (Thursday, March 3, 2016)
[Federal Register Volume 81, Number 42 (Thursday, March 3, 2016)]
[Notices]
[Pages 11305-11307]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-04637]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77246; File No. SR-ISE-2015-30]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove a Proposed Rule Change To Amend Rule 804(g)

February 26, 2016.

I. Introduction

    On November 10, 2015, the International Securities Exchange, LLC 
(``ISE'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (the ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to require Clearing Member \3\ 
approval for a market maker to resume trading after the activation of a 
market-wide speed bump under ISE Rule 804(g). The proposed rule change 
was published for comment in the Federal Register on November 30, 
2015.\4\ On January 13, 2016, the Commission extended the time period 
within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change to February 28, 2016.\5\ The 
Commission did not receive any comments on the proposed rule change. 
This order institutes proceedings under Section 19(b)(2)(B) of the Act 
\6\ to determine whether to approve or disapprove the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ A ``Clearing Member'' is a Member that is self-clearing or 
an Electronic Access Member that clears transactions executed on or 
through the facilities of the Exchange for other Members of the 
Exchange. See ISE Rule 100(a)(8). An ``Electronic Access Member'' is 
an Exchange Member that is approved to exercise trading privileges 
associated with EAM Rights. See Article XIII, Section 13.1(l) of the 
Second Amended and Restated Constitution of ISE.
    \4\ See Securities Exchange Act Release No. 76506 (November 23, 
2015), 80 FR 74829 (November 30, 2015) (``Notice'').
    \5\ See Securities Exchange Act Release No. 76893 (January 13, 
2016), 81 FR 3217 (January 20, 2016).
    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal

    Pursuant to ISE Rule 804(g)(1), the Exchange requires market makers 
\7\ to provide parameters according to which the Exchange will 
automatically remove a market maker's quotations in all series of an 
options class. Additionally, the Exchange requires market makers to 
provide a market-wide parameter according to 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 (or ``curtailment events'') specified in Rule 
804(g)(1) and in Supplementary Material .04 to Rule 722 exceed such 
specified market-wide parameter.\8\ The latter market-wide risk 
management functionality is known as a ``market-wide speed bump'' and 
is available for quotes only on ISE or across both ISE and ISE's 
affiliated exchange, ISE Gemini, LLC.\9\
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    \7\ ISE has two categories of market makers: Primary Market 
Makers (``PMMs'') and Competitive Market Makers (``CMMs''). A PMM is 
appointed to each options class traded on the Exchange but a CMM may 
or may not be appointed to each such options class. See ISE Rule 
802.
    \8\ See ISE Rule 804(g)(2).
    \9\ Id.
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    Currently, if ISE's trading system removes all of a market maker's 
quotes because a market-wide speed bump is triggered, the market maker 
may re-enter the market and resume trading upon notification to the 
Exchange's Market Operations.\10\ The Exchange now proposes to amend 
ISE Rule 804(g)(2) to require Clearing Member approval

[[Page 11306]]

before a market maker can resume trading.\11\ Specifically, following a 
market-wide speed bump, the proposed rule requires a market maker to 
notify its Clearing Member(s) when it is ready to resume trading and 
requires each applicable Clearing Member to inform the Exchange 
directly when its authorization has been given for the market maker to 
resume trading.\12\ In order to ``facilitate a better response time'' 
from Clearing Members, so that a market maker can re-enter the market, 
the proposal also allows Exchange staff to notify Clearing Member(s) 
when a market maker's quotes have been removed pursuant to the market-
wide speed bump.\13\
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    \10\ See Notice, supra note 4, at 74830.
    \11\ See proposed Rule 804(g)(2).
    \12\ See id.
    \13\ See id.
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    The Exchange believes that it is appropriate to require Clearing 
Member approval before a market maker can re-enter the market after a 
market-wide speed bump because the Clearing Member guarantees the 
market maker's trades and bears the ultimate financial risk associated 
with those transactions. The Exchange notes that, while not all market 
makers are Clearing Members, all market makers require a Clearing 
Member's consent to clear transactions on their behalf in order to 
conduct business on the Exchange.\14\ According to the Exchange, the 
proposed rule change will permit Clearing Members to better monitor and 
manage the potential risks assumed by a market maker and provide 
Clearing Members with greater control and flexibility over their risk 
tolerance and exposure.\15\
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    \14\ Each market maker authorized to trade on the Exchange must 
obtain from a Clearing Member a ``Market Maker Letter of Guarantee'' 
wherein the Clearing Member accepts financial responsibility for all 
Exchange transactions made by the market maker. See ISE Rule 808.
    \15\ See Notice, supra note 4, at 74830. Under ISE's current 
rules, 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. See ISE Rule 706(a).
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III. Proceedings To Determine Whether To Approve or Disapprove SR-ISE-
2015-30 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \16\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change, as discussed below. 
Institution of proceedings does not indicate that the Commission has 
reached any conclusions with respect to any of the issues involved. 
Rather, as described in greater detail below, the Commission seeks and 
encourages interested persons to provide additional comment on the 
proposed rule change.
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    \16\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also 
provides that proceedings to determine whether to disapprove a 
proposed rule change must be concluded within 180 days of the date 
of publication of notice of the filing of the proposed rule change. 
See id. The time for conclusion of the proceedings may be extended 
for up to 60 days if the Commission finds good cause for such 
extension and publishes its reasons for so finding. See id.
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    Pursuant to Section 19(b)(2)(B) of the Act, the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings because the proposal raises 
important issues that warrant further public comment and Commission 
consideration. Specifically, the Commission is instituting proceedings 
to allow for additional analysis of, and input from commenters with 
respect to, the proposed rule change's consistency with Section 6(b)(5) 
of the Act,\17\ which requires that the rules of a national securities 
exchange be designed, among other things, to prevent fraudulent and 
manipulative acts and practices, 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.
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    \17\ 15 U.S.C. 78f(b)(5).
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    Under ISE's current rules, a market maker must enter continuous 
quotations for the options classes to which it is appointed.\18\ In 
return, the market maker receives certain benefits, including 
participation entitlements \19\ and an exception from the prohibition 
in Section 11(a) of the Act.\20\ As the Commission has stated in the 
past, a market maker must be subject to sufficient and commensurate 
affirmative obligations, including the obligation to hold itself out as 
willing to buy and sell options for its own account on a regular or 
continuous basis, to justify favorable treatment.\21\ As discussed 
above, however, the Exchange now proposes to amend ISE Rule 804(g) to 
require Clearing Member approval before a market maker can resume 
trading after triggering a market-wide speed bump.
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    \18\ See ISE Rule 804(e).
    \19\ See, e.g., ISE Rule 713.
    \20\ 15 U.S.C. 78k(a).
    \21\ See, e.g., Securities Exchange Act Release No. 68341 
(December 3, 2012), 77 FR 73065, 73076 (December 7, 2012) (approving 
the application of Miami International Securities Exchange, LLC for 
registration as a national securities exchange); Securities Exchange 
Act Release No. 70050 (July 26, 2013), 78 FR 46622 (August 1, 2013) 
(approving the application of Topaz Exchange, LLC for registration 
as a national securities exchange); Securities Exchange Act Release 
No. 76998 (January 29, 2016), 81 FR 6066 (February 4, 2016) 
(approving the application of ISE Mercury, LLC for registration as a 
national securities exchange).
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    The Exchange justifies the change as appropriate because, ``[w]hile 
in some cases this may result in a minimal delay for a market maker 
that wants to reenter the market quickly following a market-wide speed 
bump, the Exchange believes that Clearing Member approval . . . 
ensure[s] that the market maker does not prematurely enter the market 
without adequate safeguards . . .''\22\ The Exchange, however, does not 
provide any basis for its statement that the proposed rule would result 
in only a ``minimal delay'' for a market maker seeking to resume 
quoting. Moreover, the Exchange does not address how the proposal 
impacts the continuous quoting obligations of market makers. The 
Commission accordingly believes the proposed rule change raises 
questions regarding the ability of market makers to meet their quoting 
obligations and, therefore, whether the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act.
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    \22\ See Notice, supra note 4, at 74830.
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data and arguments with respect to the 
concerns identified above, as well as any other concerns they may have 
with the proposed rule change. In particular, the Commission invites 
the written views of interested persons concerning whether the proposal 
is consistent with Sections 6(b)(5)\23\ or any other provision of the 
Act, or the rules and regulations thereunder. Although there does not 
appear to be any issue relevant to approval or disapproval which would 
be facilitated by an oral presentation of views, data, and arguments, 
the Commission will consider, pursuant to Rule 19b-4 under the Act,\24\ 
any request for an opportunity to make an oral presentation.\25\
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    \23\ 15 U.S.C. 78f(b)(5).
    \24\ 17 CFR 240.19b-4.
    \25\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Pub. L. 94-29 (June 4, 1975), grants to the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the

[[Page 11307]]

proposal should be approved or disapproved by March 24, 2016. Any 
person who wishes to file a rebuttal to any other person's submission 
must file that rebuttal by April 7, 2016. In light of the concerns 
raised by the proposed rule change, as discussed above, the Commission 
invites additional comment on the proposed rule change as the 
Commission continues its analysis of the proposed rule change's 
consistency with Sections 6(b)(5) and 6(b)(8),\26\ or any other 
provision of the Act, or the rules and regulations thereunder. The 
Commission asks that commenters address the sufficiency and merit of 
the Exchange's statements in support of the proposed rule change, in 
addition to any other comments they may wish to submit about the 
proposed rule change.
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    \26\ 15 U.S.C. 78f(b)(5), (b)(8).
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    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-2015-30 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-2015-30. 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-2015-30 and should be 
submitted by March 24, 2016. Rebuttal comments should be submitted by 
April 7, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(57).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-04637 Filed 3-2-16; 8:45 am]
BILLING CODE 8011-01-P
Federal Register / Vol. 81, No. 42 / Thursday, March 3, 2016 / Notices 11305

Stratton Real Estate Fund, Inc. [811– which was distributed to the approval for a market maker to resume
02240] shareholders of each of the feeder funds. trading after the activation of a market-
Summary: Applicant seeks an order Expenses of $21,667 incurred in wide speed bump under ISE Rule
declaring that it has ceased to be an connection with the liquidation were 804(g). The proposed rule change was
investment company. Applicant paid by applicant’s investment adviser. published for comment in the Federal
transferred its assets to Sterling Capital Filing Dates: The application was Register on November 30, 2015.4 On
Stratton Real Estate Fund and, on filed on February 19, 2016, and January 13, 2016, the Commission
November 13, 2015, made a final amended on February 24, 2016. extended the time period within which
Applicant’s Address: 375 Park to approve the proposed rule change,
distribution to its shareholders based on
Avenue, 32nd Floor, New York, NY disapprove the proposed rule change, or
net asset value. Total expenses of
10152. institute proceedings to determine
$541,000 incurred by Stratton Mid Cap
Value Fund, Inc., Stratton Funds, Inc., Lincoln Advisors Trust [File No. 811– whether to disapprove the proposed
and Stratton Real Estate Fund, Inc. in 22583] rule change to February 28, 2016.5 The
connection with their reorganizations Commission did not receive any
Summary: Applicant seeks an order comments on the proposed rule change.
were paid by applicant’s investment declaring that it has ceased to be an
adviser. This order institutes proceedings under
investment company. On December 15, Section 19(b)(2)(B) of the Act 6 to
Filing Dates: The application was 2015, applicant made a liquidating
filed on January 20, 2016, and amended determine whether to approve or
distribution to its shareholders, based disapprove the proposed rule change.
on February 5, 2016. on net asset value. Expenses of
Applicant’s Address: 150 South approximately $489 incurred in II. Description of the Proposal
Warner Road, Suite 460–A, King of connection with the liquidation were Pursuant to ISE Rule 804(g)(1), the
Prussia, PA 19406. paid by applicant’s investment adviser. Exchange requires market makers 7 to
Arden Sage Triton Fund, L.L.C. [File Filing Date: The application was filed provide parameters according to which
No. 811–21472]; Arden Sage Multi- on February 19, 2016. the Exchange will automatically remove
Strategy TEI Institutional Fund, L.L.C. Applicant’s Address: 1300 South a market maker’s quotations in all series
[File No. 811–22225]; Arden Sage Multi- Clinton Street, Fort Wayne, IN 46802. of an options class. Additionally, the
Strategy Institutional Fund, L.L.C. [File For the Commission, by the Division of Exchange requires market makers to
No. 811–22224]; Arden Sage Multi- Investment Management, pursuant to provide a market-wide parameter
Strategy Fund, L.L.C. [File No. 811– delegated authority. according to which the Exchange will
21778] Robert W. Errett, automatically remove a market maker’s
Deputy Secretary. quotes in all classes when, during a time
Summary: Applicants, closed-end
period established by the market maker,
investment companies and feeder funds [FR Doc. 2016–04639 Filed 3–2–16; 8:45 am]
the total number of quote removal
in a master/feeder structure, seek an BILLING CODE 8011–01–P
events (or ‘‘curtailment events’’)
order declaring that they have each
specified in Rule 804(g)(1) and in
ceased to be an investment company.
SECURITIES AND EXCHANGE Supplementary Material .04 to Rule 722
On February 4, 2016, the master fund in
COMMISSION exceed such specified market-wide
which each applicant invested
parameter.8 The latter market-wide risk
transferred its remaining assets to a [Release No. 34–77246; File No. SR–ISE– management functionality is known as a
liquidating trust, based on net asset 2015–30] ‘‘market-wide speed bump’’ and is
value. Each applicant’s investors
Self-Regulatory Organizations; available for quotes only on ISE or
received cash and a pro rata interest in
International Securities Exchange, across both ISE and ISE’s affiliated
the liquidating trust based on the
LLC; Order Instituting Proceedings To exchange, ISE Gemini, LLC.9
number of each applicant’s units owned
Currently, if ISE’s trading system
by the investor. Expenses of $7,000 Determine Whether To Approve or
removes all of a market maker’s quotes
incurred by each applicant in Disapprove a Proposed Rule Change
because a market-wide speed bump is
connection with the liquidations were To Amend Rule 804(g)
triggered, the market maker may re-enter
paid by applicants’ investment adviser.
February 26, 2016. the market and resume trading upon
Filing Dates: The applications were
notification to the Exchange’s Market
filed on February 10, 2016, and I. Introduction Operations.10 The Exchange now
amended on February 19, 2016 and On November 10, 2015, the proposes to amend ISE Rule 804(g)(2) to
February 24, 2016. International Securities Exchange, LLC require Clearing Member approval
Applicant’s Address: 375 Park (‘‘ISE’’ or the ‘‘Exchange’’) filed with the
Avenue, 32nd Floor, New York, NY Securities and Exchange Commission Rights. See Article XIII, Section 13.1(l) of the
10152. (the ‘‘Commission’’), pursuant to Second Amended and Restated Constitution of ISE.
4 See Securities Exchange Act Release No. 76506
Arden Sage Multi-Strategy Master Section 19(b)(1) of the Securities
(November 23, 2015), 80 FR 74829 (November 30,
Fund, L.L.C. [File No. 811–22223] Exchange Act of 1934 (the ‘‘Act’’) 1 and 2015) (‘‘Notice’’).
Rule 19b–4 thereunder,2 a proposed rule 5 See Securities Exchange Act Release No. 76893
Summary: Applicant, a closed-end
change to require Clearing Member 3 (January 13, 2016), 81 FR 3217 (January 20, 2016).
investment company and master fund in 6 15 U.S.C. 78s(b)(2)(B).
mstockstill on DSK4VPTVN1PROD with NOTICES

a master/feeder structure, seeks an order 1 15 U.S.C. 78s(b)(1). 7 ISE has two categories of market makers:
declaring that it has ceased to be an 2 17 CFR 240.19b–4. Primary Market Makers (‘‘PMMs’’) and Competitive
investment company. On February 4, 3 A ‘‘Clearing Member’’ is a Member that is self- Market Makers (‘‘CMMs’’). A PMM is appointed to
2016, applicant transferred its clearing or an Electronic Access Member that clears each options class traded on the Exchange but a
transactions executed on or through the facilities of CMM may or may not be appointed to each such
remaining assets to a liquidating trust, options class. See ISE Rule 802.
the Exchange for other Members of the Exchange.
based on net asset value. Each of See ISE Rule 100(a)(8). An ‘‘Electronic Access
8 See ISE Rule 804(g)(2).

applicant’s feeder funds received a pro Member’’ is an Exchange Member that is approved 9 Id.

rata interest in the liquidating trust, to exercise trading privileges associated with EAM 10 See Notice, supra note 4, at 74830.

VerDate Sep<11>2014 19:17 Mar 02, 2016 Jkt 238001 PO 00000 Frm 00133 Fmt 4703 Sfmt 4703 E:\FR\FM\03MRN1.SGM 03MRN1
Document Created: 2016-03-03 03:51:40
Document Modified: 2016-03-03 03:51:40
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		81 FR 11305