81 FR 13864 - Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Limit Mandatory Participation in Scheduled Functional and Performance Testing Under Regulation SCI to Only Those Primary Market Makers That Meet Specified Criteria

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 50 (March 15, 2016)

[Federal Register Volume 81, Number 50 (Tuesday, March 15, 2016)]
[Notices]
[Pages 13864-13866]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-05755]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77334; File No. SR-ISE Gemini-2016-02]


Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Limit Mandatory 
Participation in Scheduled Functional and Performance Testing Under 
Regulation SCI to Only Those Primary Market Makers That Meet Specified 
Criteria

March 9, 2016.
    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 February 26, 2016, 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

    The Exchange proposes to amend Rule 803, Obligations of Market 
Makers, to limit mandatory participation in scheduled functional and 
performance testing, under Regulation Systems Compliance and Integrity 
(``Regulation SCI''),\3\ to those Primary Market Makers (``PMMs'') that 
contribute a meaningful percentage of the Exchange's overall volume, 
measured on a quarterly or monthly basis. The Exchange proposes to also 
consider other factors in determining the PMMs that will be required to 
participate in scheduled functional and performance testing of the 
Exchange's business continuity and disaster recovery plans 
(collectively ``DR Plans''), including average daily volume traded on 
the Exchange measured on a quarterly or monthly basis, or PMMs that 
collectively account for a certain percentage of market share on the 
Exchange or within a specific product. In addition, the Exchange 
proposes to publish the criteria to be used by the Exchange to 
determine which PMMs will be required to participate in such testing, 
and notify those PMMs that are required to

[[Page 13865]]

participate based on such criteria. 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\ See Securities Exchange Act Release No. 73639 (November 19, 
2014), 79 FR 72252 (December 5, 2014) (``SCI Adopting Release'').
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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
    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.\4\ 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.\5\
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    \4\ Id.
    \5\ 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) establish 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.\6\
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    \6\ Id.
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    In accordance with Rule 1004 of Regulation SCI, the Exchange 
amended Rule 803 and Rule 1903, which was incorporated by reference 
into ISE Gemini's Rulebook, in 2015 to designate all PMMs \7\ and 
Linkage Handlers,\8\ as the minimum necessary for the maintenance of a 
fair and orderly market should the Exchange's DR Plans be activated.\9\ 
The Exchange also mandated participation by designated members in 
scheduled functional and performance testing of the operation of such 
DR Plans.\10\
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    \7\ 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.
    \8\ 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 Rule 1901.
    \9\ Securities Exchange Act Release No. 76331 (November 3, 
2015), 80 FR 69266 (November 9, 2015), SR-ISE Gemini-2015-23 and .02 
of Supplementary Material to Rule 803.
    \10\ Id.
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    The Exchange has reevaluated its designation of all PMMs as the 
minimum necessary for the maintenance of a fair and orderly market 
should the Exchange's DR Plans be activated and now believes that 
designating all PMMs is more than the minimum necessary to maintain a 
fair and orderly market should its DR Plans be activated. The Exchange 
proposes to revise Rule 803 and limit mandatory participation in 
scheduled functional and performance testing, under Regulation SCI and 
Rule 803, to those PMMs that contribute a meaningful percentage of the 
Exchange's overall volume, measured on a quarterly or monthly basis. 
The Exchange proposes to consider other factors in determining which 
PMMs will be required to participate in scheduled functional and 
performance testing, including average daily volume traded on the 
Exchange measured on a quarterly or monthly basis, or PMMs that 
collectively account for a certain percentage of market share on the 
Exchange or within a specific product. The Exchange represents that it 
will publish the criteria \11\ to be used by the Exchange to determine 
which PMMs will be required to participate in such testing, and notify 
those PMMs that are required to participate based on such criteria.
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    \11\ This criteria will be published by the Exchange, in a 
regulatory information circular, no later than the effective date of 
this rule filing.
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    The Exchange notes that it encourages all PMMs to connect to the 
Exchange's backup systems and to participate in testing of such 
systems. However, in revising the requirements in proposed Rule 803, 
the rule will subject only those PMMs to mandatory testing that the 
Exchange believes are, taken as a whole, the minimum necessary to 
maintain fair and orderly markets. The Exchange believes that 
designating PMMs to participate in mandatory testing because they, for 
example, account for a significant portion of the Exchange's overall 
volume or collectively account for a certain percentage of market share 
on the Exchange is a reasonable means to ensure the maintenance of a 
fair and orderly market on the Exchange should its DR Plans be 
activated.
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.\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 revision is consistent with 
the Exchange Act because it complies with Regulation SCI's 
requirements. ISE Gemini's proposed rule designates only those PMMs it 
determines are necessary for the maintenance of a fair and orderly 
market if the Exchange's DR Plans are activated. Additionally, the 
proposal will ensure that the PMMs necessary to ensure the maintenance 
of a fair and orderly market are properly designated consistent with 
Rule 1004 of Regulation SCI. Specifically, as proposed, the Exchange 
will adopt clear and objective

[[Page 13866]]

criteria with respect to the designation of PMMs that are required to 
participate in the testing of the Exchange's DR Plans, as well as 
appropriate notification regarding such designation. As set forth in 
the SCI Adopting Release, ``SROs have the authority, and legal 
responsibility, under section 6 of the Exchange Act, to adopt and 
enforce rules (including rules to comply with Regulation SCI's 
requirements relating to [business continuity and disaster recovery] 
testing) applicable to their members or participants that are designed 
to, among other things, foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, 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.'' \14\ The Exchange believes 
that this proposal is consistent with such authority and legal 
responsibility.
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    \14\ See SCI Adopting Release, supra note 4 at 72350.
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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 \15\ and Rule 19b-
4(f)(6) thereunder.\16\ 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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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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-ISE Gemini-2016-02 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-2016-02. 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, 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 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-2016-02 and 
should be submitted by April 5, 2016.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-05755 Filed 3-14-16; 8:45 am]
 BILLING CODE 8011-01-P