81 FR 20004 - Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change Related to Market Wide Risk Protection
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 66 (April 6, 2016)
Federal Register Volume 81, Issue 66 (April 6, 2016)
| Page Range | 20004-20007 | |
| FR Document | 2016-07834 |
[Federal Register Volume 81, Number 66 (Wednesday, April 6, 2016)] [Notices] [Pages 20004-20007] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-07834] ======================================================================= ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-77489; File No. SR-ISE-2016-08] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change Related to Market Wide Risk Protection March 31, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that, on March 17, 2016, the International Securities Exchange, LLC (the ``Exchange'' or ``ISE'') filed with the Securities and Exchange Commission (``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 The Exchange proposes to introduce new activity based order protections as described in more detail below. 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 purpose of the proposed rule change is to introduce new risk protections for orders designed to aid members in their risk management by supplementing current price reasonability checks with activity based order protections.\3\ In particular, the Exchange proposes to introduce two activity based risk protections that will be mandatory for all members: (1) The ``Order Entry Rate Protection,'' which protects members against entering orders at a rate that exceeds predefined thresholds,\4\ and (2) the ``Order Execution Rate Protection,'' which protects members against executing orders at a rate that exceeds their predefined risk settings. Both of these risk protections are detailed in Proposed Rule 714(d), ``Market Wide Risk Protection.'' \5\ The Exchange will announce the implementation date of the Market Wide Risk Protection in a circular to be distributed to members prior to implementation. --------------------------------------------------------------------------- \3\ The Exchange provides members with limit order price protections designed to prevent erroneous executions by rejecting orders priced too far through the market. See Rule 714(b)(2). \4\ The Exchange will determine when to initiate the Order Entry Rate Protection pre-open to allow members time to load their orders without inadvertently triggering the protection. The precise time will be established by the Exchange and communicated to members via circular prior to implementation. \5\ The term ``Market Wide Risk Protection'' includes both the ``Order Entry Rate Protection'' and the ``Order Execution Rate Protection.'' --------------------------------------------------------------------------- Pursuant to the proposed Market Wide Risk Protection rule, the Exchange's trading system (the ``System'') will maintain one or more counting programs on behalf of each member that will count the number of orders entered, and the number of contracts traded on ISE or, if chosen by the member,\6\ across both ISE and ISE's affiliate, ISE Gemini, LLC (``ISE Gemini''), which shares a trading system with ISE. Members can use multiple counting programs to separate risk protections for different groups established within the member.\7\ The [[Page 20005]] counting programs will maintain separate counts, over rolling time periods specified by the member for each count, of: (1) The total number of orders entered in the regular order book; (2) the total number of orders entered in the complex order book with only options legs; (3) the total number of orders entered in the complex order book with both stock and options legs; (4) the total number of contracts traded in regular orders; and (5) the total number of contracts traded in complex orders with only options legs.\8\ --------------------------------------------------------------------------- \6\ Members will have the option to set different risk parameters for their trading activity on each exchange, or set risk parameters that apply to their trading across both ISE and ISE Gemini, if desired. \7\ The Exchange will explain how members can go about setting up risk protections for different groups (e.g., business units) in a circular issued to members. \8\ The member's allowable order rate for the Order Entry Rate Protection is comprised of the parameters defined in (1) to (3), while the allowable contract execution rate for the Order Execution Rate Protection is comprised of the parameters defined in (4) and (5). As explained below, the Exchange is not including a complex execution count for complex orders with a stock component as the execution counts maintained by the Order Execution Rate Protection are based solely on options contracts traded. See note 9 supra [sic] and accompanying text. --------------------------------------------------------------------------- Members will have discretion to establish the applicable time period for each of the counts maintained under the Market Wide Risk Protection, provided that the selected period must be within minimum and maximum parameters established by the Exchange and announced via circular.\9\ While the Market Wide Risk Protection is mandatory for all members, the Exchange is not proposing to establish minimum or maximum values for the order entry and execution parameters described in (1) through (5) above. The Exchange believes that this approach will give members the flexibility needed to appropriately tailor the Market Wide Risk Protection to their respective risk management needs. In this regard, the Exchange notes that each member is in the best position to determine risk settings appropriate for their firm based on the member's trading activity and business needs. In the interest of maintaining a fair and orderly market, however, the Exchange will establish default values for the applicable time period and order entry and execution parameters in a circular to be distributed to members. Default values established by the Exchange will apply only to members that do not submit their own parameters for the Market Wide Risk Protection. --------------------------------------------------------------------------- \9\ The Exchange anticipates that the minimum and maximum values for the applicable time period will be initially set at one second and a full trading day, respectively. --------------------------------------------------------------------------- The Exchange proposes to use separate counts for regular orders, complex options orders, and complex orders with a stock component as members may want to have different risk settings for these instruments. In order to fully protect members, however, if the Market Wide Risk Protection is triggered based on any count, the triggered action will be taken across the entire market. In particular, if the Market Wide Risk Protection is triggered, action will be taken with respect to all products traded in both simple and complex instruments, and across ISE or, if applicable, ISE and ISE Gemini. Contracts executed on the agency and contra-side of a two-sided crossing order will be counted separately for the Order Execution Rate Protection. In addition, the contract execution count for complex orders will be the sum of the number of contracts executed with respect to each leg. Complex instruments that contain a stock component will not be included as part of the complex order execution count as the Order Execution Rate Protection is based exclusively on options contracts executed, and therefore does not apply to orders that have both stock and options components.\10\ --------------------------------------------------------------------------- \10\ Stock-option orders contain both an option component(s) executed in contracts and a stock component executed in shares. The Exchange does not believe that these two components can be combined in a way that provides a meaningful measure of risk exposure for members, and has therefore determined not to provide the Order Execution Rate Protection for complex orders that contain a stock component. --------------------------------------------------------------------------- The System will trigger the Market Wide Risk Protection when the counting program has determined that the member has either (1) entered during the specified time period a number of orders exceeding its designated allowable order rate, or (2) executed during the specified time period a number of contracts exceeding its designated allowable contract execution rate. In particular, after a member enters an order, or a member's order is executed, the System will look back over the specified time period to determine whether the member has exceeded the threshold that it has set for the total number of orders entered or the total number of contracts traded, as applicable. If the member's threshold has been exceeded in either simple or complex instruments, the Market Wide Risk Protection will be triggered and the System will automatically reject all subsequent incoming orders entered by the member on ISE or, if applicable, across both ISE and ISE Gemini.\11\ In addition, if the member has opted in to this functionality, the System will automatically cancel all of the member's existing orders. The Market Wide Risk Protection will remain engaged until the member manually (e.g., via email) notifies the Exchange to enable the acceptance of new orders; however, the System will still allow members to interact with existing orders entered before the protection was triggered, including sending cancel order messages and receiving trade executions for those orders. --------------------------------------------------------------------------- \11\ Members that set different risk parameters for ISE and ISE Gemini will only have their orders rejected on the exchange whose threshold was exceeded. --------------------------------------------------------------------------- The Exchange believes that the proposed Market Wide Risk Protection will assist members in better managing their risk when trading on the [sic] ISE. In particular, the proposed rule change provides functionality that allows members to set risk management thresholds for the number of orders entered or contracts executed on the Exchange during a specified period. This is similar to how other options exchanges have implemented activity-based risk management protections,\12\ and the Exchange believes this functionality will likewise be beneficial for ISE members. --------------------------------------------------------------------------- \12\ See Securities Exchange Act Release Nos. 74118 (January 22, 2015), 80 FR 4605 (January 28, 2015) (Notice); 74496 (March 13, 2015), 80 FR 14421 (March 19, 2015) (Approval) (SR-MIAX-2015-03). --------------------------------------------------------------------------- The examples below illustrate how the Market Wide Risk Protection would work both for order entry and order execution protections: Example 1, Order Entry Rate Protection: Broker Dealer 1 (``BD1'') designates an allowable order rate of 499 orders/1 second in simple instruments, 299 orders/1 second in complex options orders, and 199 orders/1 second in complex orders with a stock component. @0 milliseconds, BD1 enters 200 regular orders. (Regular order total: 200 orders) @150 milliseconds, BD1 enters 50 complex options orders. (Complex options order total: 50 orders) @250 milliseconds, BD1 enters 100 complex orders with a stock component. (Complex order with stock total: 100 orders) @450 milliseconds, BD1 enters 250 regular orders. (Regular order total: 450 orders) @950 milliseconds, BD1 enters 50 regular orders. (Regular order total: 500 orders) Market Wide Risk Protection is triggered on ISE, and, if applicable, ISE Gemini \13\ due to exceeding 499 regular orders in 1 second. All subsequent orders in both simple and complex [[Page 20006]] instruments are rejected, and if BD1 has opted in to this functionality, all existing orders are cancelled. BD1 must contact Market Operations to resume trading. --------------------------------------------------------------------------- \13\ Members that share risk settings across both ISE and ISE Gemini will have the Market Wide Risk Protection triggered on both markets. Example 2, Order Execution Rate Protection: BD1 designates an allowable execution rate of 15,000 contracts/2 seconds in simple instruments and 10,000 contracts/2 seconds in complex options orders. @0 milliseconds, BD1 receives executions for 5,000 contracts from regular orders. (Regular execution total: 5,000 contracts) @500 milliseconds, BD1 receives an execution for 2,500 contracts from a complex options order. (Complex execution total: 2,500 contracts) @600 milliseconds, BD1 receives executions for 10,000 contracts from regular orders. (Regular execution total: 15,000 contracts) @650 milliseconds, BD1 receives an execution for 1,500 contracts from a stock-option order. (Complex execution total: 2,500 contracts) \14\ --------------------------------------------------------------------------- \14\ Complex orders with a stock component are not included in the order execution count. --------------------------------------------------------------------------- @850 milliseconds, BD1 receives an execution for 3,000 contracts from a complex options order. (Complex execution total: 5,500 contracts) @1150 milliseconds, BD1 receives an execution for 3,000 contracts from a complex options order. (Complex execution total: 8,500 contracts) @1700 milliseconds, BD1 receives an execution for 2,000 contracts from a complex options order. (Complex execution total: 10,500 contracts) Market Wide Risk Protection is triggered on ISE, and, if applicable, ISE Gemini \15\ due to exceeding 10,000 contracts in 2 seconds for complex options orders. All subsequent orders in both simple and complex instruments are rejected, and if BD1 has opted in to this functionality, all existing orders are cancelled. BD1 must contact Market Operations to resume trading. --------------------------------------------------------------------------- \15\ Members that share risk settings across both ISE and ISE Gemini will have the Market Wide Risk Protection triggered on both markets. --------------------------------------------------------------------------- 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.\16\ Specifically, the proposed rule change is consistent with Section 6(b)(5) of the Act,\17\ 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. --------------------------------------------------------------------------- \16\ 15 U.S.C. 78f(b). \17\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange believes that the proposed rule change would assist with the maintenance of a fair and orderly market by establishing new activity based risk protections for orders. The Exchange currently offers a risk protection mechanism for market maker quotes that removes the member's quotes if a specified number of curtailment events occur during a set time period (``Market Wide Speed Bump'').\18\ The Exchange believes that this Market Wide Speed Bump functionality has been successful in reducing market maker risk and now proposes to adopt risk protections for orders that would allow other members to properly manage their exposure to excessive risk. In particular, the proposed rule change would implement two new risk protections based on the rate of order entry and order execution, respectively. The Exchange believes that both of these new protections, which together encompass the proposed Market Wide Risk Protection, would enable members to better manage their risk when trading options on the Exchange by limiting the member's risk exposure when systems or other issues result in orders being entered or executed at a rate that exceeds predefined thresholds. In today's market the Exchange believes that robust risk management is becoming increasingly more important for all members. The proposed rule change would provide an additional layer of risk protection for market participants that trade on the Exchange. --------------------------------------------------------------------------- \18\ See Rule 804(g)(2). --------------------------------------------------------------------------- The proposed Market Wide Risk Protection is similar to risk management functionality provided by other options exchanges, including, for example, the MIAX Options Exchange (``MIAX''), which recently received Commission approval for its ``Risk Protection Monitor'' for orders.\19\ In particular, the Market Wide Risk Protection is designed to reduce risk associated with system errors or market events that may cause members to send a large number of orders, or receive multiple, automatic executions, before they can adjust their exposure in the market. Without adequate risk management tools, such as those proposed in this filing, members could reduce the amount of order flow and liquidity that they provide. Such actions may undermine the quality of the markets available to customers and other market participants. Accordingly, the proposed rule change is designed to encourage members to submit additional order flow and liquidity to the Exchange, thereby removing impediments to and perfect [sic] the mechanisms of a free and open market and a national market system and, in general, protecting investors and the public interest. In addition, providing members with more tools for managing risk will facilitate transactions in securities because, as noted above, the members will have more confidence that protections are in place that reduce the risks from potential system errors and market events. As a result, the new functionality has the potential to promote just and equitable principles of trade. --------------------------------------------------------------------------- \19\ See supra note 10 [sic]. --------------------------------------------------------------------------- The Exchange also believes that it is consistent with the protection of investors and the public interest to offer the Market Wide Risk Protection to members across both ISE and ISE Gemini as this will permit members to more effectively manage their risk simultaneously on both markets if desired. The Exchange already offers cross market risk protections for market makers [sic] quotes,\20\ and is now proposing to similarly offer a cross market risk protection for orders in order to reduce the risk that members face when entering orders on multiple exchanges. The Exchange notes that issues that would trigger the Market Wide Risk Protection are not normally confined to a member's activity on a single exchange. Accordingly, the Exchange believes that offering the Market Wide Risk Protection on a cross- market basis would help members to more effectively manage their risk when trading on multiple markets, and reduce disruptive trading events to the benefit of all members and investors. --------------------------------------------------------------------------- \20\ See Securities Exchange Act Release Nos. 71759 (March 20, 2014), 79 FR 16850 (March 26, 2014) (``Notice''); 73147 (September 19, 2014), 79 FR 57639 (September 25, 2014) (Approval) (SR-ISE-2014- 09). --------------------------------------------------------------------------- B. Self-Regulatory Organization's Statement on Burden on Competition In accordance with Section 6(b)(8) of the Act,\21\ the Exchange does not believe that the proposed rule change would impose any burden on intermarket or intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed Market Wide Risk Protection is similar to risk protections already available on other options exchanges,\22\ and is designed to be a competitive [[Page 20007]] offering that would mitigate the risk associated with trading on the Exchange. Market makers already benefit from Market Wide Speed Bump functionality available for quotes. The proposed change would extend new risk protections to orders so that additional market participants can benefit from risk mitigating functionality. Like the Exchange's Market Wide Speed Bump, the proposed rule change would also be offered cross-market to members that want to be protected from inadvertent exposure to excessive risk when trading on both ISE and ISE Gemini. Permitting this functionality to be cross-market will not have any impact on competition that is not necessary or appropriate in furtherance of the purposes of the Act. In addition, the proposed functionality would be mandatory for all members, and would be made available on an equal and non-discriminatory basis. As such, the Exchange does not believe that the proposed rule change would impose any unnecessary burden on competition. --------------------------------------------------------------------------- \21\ 15 U.S.C. 78f(b)(8). \22\ See supra notes 10 [sic] and 19. --------------------------------------------------------------------------- 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 Within 45 days of the publication date of this notice or within such longer period (1) as the Commission may designate up to 45 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (2) as to which the self- regulatory organization consents, the Commission will: (a) By order approve or disapprove such proposed rule change; or (b) Institute proceedings to determine whether the proposed rule change should be 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-2016-08 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-2016-08. 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-2016-08 and should be submitted on or before April 27, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\23\ --------------------------------------------------------------------------- \23\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-07834 Filed 4-5-16; 8:45 am] BILLING CODE 8011-01-P
![20004 Federal Register / Vol. 81, No. 66 / Wednesday, April 6, 2016 / Notices
DATES: Comments are due: April 8, the interests of the general public in this the places specified in Item IV below.
2016. proceeding (Public Representative). The self-regulatory organization has
ADDRESSES: Submit comments 3. Comments are due no later than prepared summaries, set forth in
electronically via the Commission’s April 8, 2016. sections A, B and C below, of the most
Filing Online system at http:// 4. The Secretary shall arrange for significant aspects of such statements.
www.prc.gov. Those who cannot submit publication of this order in the Federal
A. Self-Regulatory Organization’s
comments electronically should contact Register.
Statement of the Purpose of, and
the person identified in the FOR FURTHER By the Commission. Statutory Basis for, the Proposed Rule
INFORMATION CONTACT section by Stacy L. Ruble, Change
telephone for advice on filing Secretary.
1. Purpose
alternatives. [FR Doc. 2016–07878 Filed 4–5–16; 8:45 am]
The purpose of the proposed rule
FOR FURTHER INFORMATION CONTACT: BILLING CODE 7710–FW–P
change is to introduce new risk
David A. Trissell, General Counsel, at protections for orders designed to aid
202–789–6820. members in their risk management by
SUPPLEMENTARY INFORMATION: SECURITIES AND EXCHANGE supplementing current price
COMMISSION reasonability checks with activity based
Table of Contents
[Release No. 34–77489; File No. SR–ISE– order protections.3 In particular, the
I. Introduction 2016–08] Exchange proposes to introduce two
II. Notice of Commission Action activity based risk protections that will
III. Ordering Paragraphs Self-Regulatory Organizations; be mandatory for all members: (1) The
I. Introduction International Securities Exchange, ‘‘Order Entry Rate Protection,’’ which
LLC; Notice of Filing of Proposed Rule protects members against entering
On March 31, 2016, the Postal Service Change Related to Market Wide Risk
filed notice that it has entered into an orders at a rate that exceeds predefined
Protection thresholds,4 and (2) the ‘‘Order
additional Global Expedited Package
Services 3 (GEPS 3) negotiated service March 31, 2016.
Execution Rate Protection,’’ which
protects members against executing
agreement (Agreement).1 Pursuant to Section 19(b)(1) of the
orders at a rate that exceeds their
To support its Notice, the Postal Securities Exchange Act of 1934
predefined risk settings. Both of these
Service filed a copy of the Agreement, (‘‘Act’’),1 and Rule 19b–4 thereunder,2
risk protections are detailed in Proposed
a copy of the Governors’ Decision notice is hereby given that, on March
Rule 714(d), ‘‘Market Wide Risk
authorizing the product, a certification 17, 2016, the International Securities Protection.’’ 5 The Exchange will
of compliance with 39 U.S.C. 3633(a), Exchange, LLC (the ‘‘Exchange’’ or announce the implementation date of
and an application for non-public ‘‘ISE’’) filed with the Securities and the Market Wide Risk Protection in a
treatment of certain materials. It also Exchange Commission (‘‘Commission’’) circular to be distributed to members
filed supporting financial workpapers. the proposed rule change, as described prior to implementation.
II. Notice of Commission Action in Items I, II, and III below, which Items Pursuant to the proposed Market
have been prepared by the self- Wide Risk Protection rule, the
The Commission establishes Docket regulatory organization. The Exchange’s trading system (the
No. CP2016–144 for consideration of Commission is publishing this notice to ‘‘System’’) will maintain one or more
matters raised by the Notice. solicit comments on the proposed rule counting programs on behalf of each
The Commission invites comments on change from interested persons. member that will count the number of
whether the Postal Service’s filing is orders entered, and the number of
consistent with 39 U.S.C. 3632, 3633, or I. Self-Regulatory Organization’s
Statement of the Terms of Substance of contracts traded on ISE or, if chosen by
3642, 39 CFR part 3015, and 39 CFR the member,6 across both ISE and ISE’s
part 3020, subpart B. Comments are due the Proposed Rule Change
affiliate, ISE Gemini, LLC (‘‘ISE
no later than April 8, 2016. The public The Exchange proposes to introduce Gemini’’), which shares a trading system
portions of the filing can be accessed via new activity based order protections as with ISE. Members can use multiple
the Commission’s Web site (http:// described in more detail below. The text counting programs to separate risk
www.prc.gov). of the proposed rule change is available protections for different groups
The Commission appoints Jennaca D. on the Exchange’s Web site (http:// established within the member.7 The
Upperman to serve as Public www.ise.com), at the principal office of
Representative in this docket. the Exchange, and at the Commission’s 3 The Exchange provides members with limit
III. Ordering Paragraphs Public Reference Room. order price protections designed to prevent
erroneous executions by rejecting orders priced too
It is ordered: II. Self-Regulatory Organization’s far through the market. See Rule 714(b)(2).
1. The Commission establishes Docket Statement of the Purpose of, and 4 The Exchange will determine when to initiate
Statutory Basis for, the Proposed Rule the Order Entry Rate Protection pre-open to allow
No. CP2016–144 for consideration of the members time to load their orders without
matters raised by the Postal Service’s Change inadvertently triggering the protection. The precise
Notice. In its filing with the Commission, the time will be established by the Exchange and
2. Pursuant to 39 U.S.C. 505, Jennaca communicated to members via circular prior to
asabaliauskas on DSK3SPTVN1PROD with NOTICES
self-regulatory organization included implementation.
D. Upperman is appointed to serve as an statements concerning the purpose of, 5 The term ‘‘Market Wide Risk Protection’’
officer of the Commission to represent and basis for, the proposed rule change includes both the ‘‘Order Entry Rate Protection’’
and discussed any comments it received and the ‘‘Order Execution Rate Protection.’’
1 Notice of United States Postal Service of Filing 6 Members will have the option to set different
on the proposed rule change. The text
a Functionally Equivalent Global Expedited risk parameters for their trading activity on each
Package Services 3 Negotiated Service Agreement
of these statements may be examined at exchange, or set risk parameters that apply to their
and Application for Non-Public Treatment of trading across both ISE and ISE Gemini, if desired.
1 15 U.S.C. 78s(b)(1).
Materials Filed Under Seal, March 31, 2016 7 The Exchange will explain how members can go
(Notice). 2 17 CFR 240.19b–4. about setting up risk protections for different groups
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![Federal Register / Vol. 81, No. 66 / Wednesday, April 6, 2016 / Notices 20005
counting programs will maintain risk settings for these instruments. In existing orders. The Market Wide Risk
separate counts, over rolling time order to fully protect members, Protection will remain engaged until the
periods specified by the member for however, if the Market Wide Risk member manually (e.g., via email)
each count, of: (1) The total number of Protection is triggered based on any notifies the Exchange to enable the
orders entered in the regular order book; count, the triggered action will be taken acceptance of new orders; however, the
(2) the total number of orders entered in across the entire market. In particular, if System will still allow members to
the complex order book with only the Market Wide Risk Protection is interact with existing orders entered
options legs; (3) the total number of triggered, action will be taken with before the protection was triggered,
orders entered in the complex order respect to all products traded in both including sending cancel order
book with both stock and options legs; simple and complex instruments, and messages and receiving trade executions
(4) the total number of contracts traded across ISE or, if applicable, ISE and ISE for those orders.
in regular orders; and (5) the total Gemini. Contracts executed on the The Exchange believes that the
number of contracts traded in complex agency and contra-side of a two-sided proposed Market Wide Risk Protection
orders with only options legs.8 crossing order will be counted will assist members in better managing
Members will have discretion to separately for the Order Execution Rate their risk when trading on the [sic] ISE.
establish the applicable time period for Protection. In addition, the contract In particular, the proposed rule change
each of the counts maintained under the execution count for complex orders will provides functionality that allows
Market Wide Risk Protection, provided be the sum of the number of contracts members to set risk management
that the selected period must be within executed with respect to each leg. thresholds for the number of orders
minimum and maximum parameters Complex instruments that contain a entered or contracts executed on the
established by the Exchange and stock component will not be included as Exchange during a specified period.
announced via circular.9 While the part of the complex order execution This is similar to how other options
Market Wide Risk Protection is count as the Order Execution Rate exchanges have implemented activity-
mandatory for all members, the Protection is based exclusively on based risk management protections,12
Exchange is not proposing to establish options contracts executed, and and the Exchange believes this
minimum or maximum values for the therefore does not apply to orders that functionality will likewise be beneficial
order entry and execution parameters have both stock and options for ISE members.
described in (1) through (5) above. The components.10 The examples below illustrate how
Exchange believes that this approach The System will trigger the Market the Market Wide Risk Protection would
will give members the flexibility needed Wide Risk Protection when the counting work both for order entry and order
to appropriately tailor the Market Wide program has determined that the execution protections:
Risk Protection to their respective risk member has either (1) entered during
management needs. In this regard, the the specified time period a number of Example 1, Order Entry Rate
Exchange notes that each member is in orders exceeding its designated Protection:
the best position to determine risk allowable order rate, or (2) executed Broker Dealer 1 (‘‘BD1’’) designates an
settings appropriate for their firm based during the specified time period a allowable order rate of 499 orders/1
on the member’s trading activity and number of contracts exceeding its second in simple instruments, 299
business needs. In the interest of designated allowable contract execution orders/1 second in complex options
maintaining a fair and orderly market, rate. In particular, after a member enters orders, and 199 orders/1 second in
however, the Exchange will establish an order, or a member’s order is complex orders with a stock component.
default values for the applicable time executed, the System will look back @0 milliseconds, BD1 enters 200 regular
period and order entry and execution over the specified time period to orders. (Regular order total: 200
parameters in a circular to be determine whether the member has orders)
distributed to members. Default values exceeded the threshold that it has set for @150 milliseconds, BD1 enters 50
established by the Exchange will apply the total number of orders entered or the complex options orders. (Complex
only to members that do not submit total number of contracts traded, as options order total: 50 orders)
their own parameters for the Market applicable. If the member’s threshold @250 milliseconds, BD1 enters 100
Wide Risk Protection. has been exceeded in either simple or complex orders with a stock
The Exchange proposes to use complex instruments, the Market Wide component. (Complex order with
separate counts for regular orders, Risk Protection will be triggered and the stock total: 100 orders)
complex options orders, and complex System will automatically reject all @450 milliseconds, BD1 enters 250
orders with a stock component as subsequent incoming orders entered by regular orders. (Regular order total:
members may want to have different the member on ISE or, if applicable, 450 orders)
across both ISE and ISE Gemini.11 In @950 milliseconds, BD1 enters 50
(e.g., business units) in a circular issued to addition, if the member has opted in to regular orders. (Regular order total:
members. 500 orders)
8 The member’s allowable order rate for the Order
this functionality, the System will
Entry Rate Protection is comprised of the automatically cancel all of the member’s Market Wide Risk Protection is
parameters defined in (1) to (3), while the allowable triggered on ISE, and, if applicable, ISE
contract execution rate for the Order Execution Rate 10 Stock-option orders contain both an option
Gemini 13 due to exceeding 499 regular
Protection is comprised of the parameters defined component(s) executed in contracts and a stock orders in 1 second. All subsequent
in (4) and (5). As explained below, the Exchange is component executed in shares. The Exchange does
asabaliauskas on DSK3SPTVN1PROD with NOTICES
not including a complex execution count for not believe that these two components can be orders in both simple and complex
complex orders with a stock component as the combined in a way that provides a meaningful
execution counts maintained by the Order measure of risk exposure for members, and has 12 See Securities Exchange Act Release Nos.
Execution Rate Protection are based solely on therefore determined not to provide the Order 74118 (January 22, 2015), 80 FR 4605 (January 28,
options contracts traded. See note 9 supra [sic] and Execution Rate Protection for complex orders that 2015) (Notice); 74496 (March 13, 2015), 80 FR
accompanying text. contain a stock component. 14421 (March 19, 2015) (Approval) (SR–MIAX–
9 The Exchange anticipates that the minimum and 11 Members that set different risk parameters for 2015–03).
maximum values for the applicable time period will ISE and ISE Gemini will only have their orders 13 Members that share risk settings across both
be initially set at one second and a full trading day, rejected on the exchange whose threshold was ISE and ISE Gemini will have the Market Wide Risk
respectively. exceeded. Protection triggered on both markets.
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![20006 Federal Register / Vol. 81, No. 66 / Wednesday, April 6, 2016 / Notices
instruments are rejected, and if BD1 has promote just and equitable principles of the markets available to customers and
opted in to this functionality, all trade, remove impediments to and other market participants. Accordingly,
existing orders are cancelled. BD1 must perfect the mechanisms of a free and the proposed rule change is designed to
contact Market Operations to resume open market and a national market encourage members to submit
trading. system and, in general, to protect additional order flow and liquidity to
Example 2, Order Execution Rate investors and the public interest. the Exchange, thereby removing
Protection: The Exchange believes that the impediments to and perfect [sic] the
BD1 designates an allowable proposed rule change would assist with mechanisms of a free and open market
execution rate of 15,000 contracts/2 the maintenance of a fair and orderly and a national market system and, in
seconds in simple instruments and market by establishing new activity general, protecting investors and the
10,000 contracts/2 seconds in complex based risk protections for orders. The public interest. In addition, providing
options orders. Exchange currently offers a risk members with more tools for managing
protection mechanism for market maker risk will facilitate transactions in
@0 milliseconds, BD1 receives
quotes that removes the member’s securities because, as noted above, the
executions for 5,000 contracts from
quotes if a specified number of members will have more confidence
regular orders. (Regular execution
curtailment events occur during a set that protections are in place that reduce
total: 5,000 contracts)
@500 milliseconds, BD1 receives an time period (‘‘Market Wide Speed the risks from potential system errors
execution for 2,500 contracts from a Bump’’).18 The Exchange believes that and market events. As a result, the new
complex options order. (Complex this Market Wide Speed Bump functionality has the potential to
execution total: 2,500 contracts) functionality has been successful in promote just and equitable principles of
@600 milliseconds, BD1 receives reducing market maker risk and now trade.
executions for 10,000 contracts from proposes to adopt risk protections for The Exchange also believes that it is
regular orders. (Regular execution orders that would allow other members consistent with the protection of
total: 15,000 contracts) to properly manage their exposure to investors and the public interest to offer
@650 milliseconds, BD1 receives an excessive risk. In particular, the the Market Wide Risk Protection to
execution for 1,500 contracts from a proposed rule change would implement members across both ISE and ISE
stock-option order. (Complex two new risk protections based on the Gemini as this will permit members to
execution total: 2,500 contracts) 14 rate of order entry and order execution, more effectively manage their risk
@850 milliseconds, BD1 receives an respectively. The Exchange believes that simultaneously on both markets if
execution for 3,000 contracts from a both of these new protections, which desired. The Exchange already offers
complex options order. (Complex together encompass the proposed cross market risk protections for market
execution total: 5,500 contracts) Market Wide Risk Protection, would makers [sic] quotes,20 and is now
@1150 milliseconds, BD1 receives an enable members to better manage their proposing to similarly offer a cross
execution for 3,000 contracts from a risk when trading options on the market risk protection for orders in
complex options order. (Complex Exchange by limiting the member’s risk order to reduce the risk that members
execution total: 8,500 contracts) exposure when systems or other issues face when entering orders on multiple
@1700 milliseconds, BD1 receives an result in orders being entered or exchanges. The Exchange notes that
execution for 2,000 contracts from a executed at a rate that exceeds issues that would trigger the Market
complex options order. (Complex predefined thresholds. In today’s market Wide Risk Protection are not normally
execution total: 10,500 contracts) the Exchange believes that robust risk confined to a member’s activity on a
Market Wide Risk Protection is management is becoming increasingly single exchange. Accordingly, the
triggered on ISE, and, if applicable, ISE more important for all members. The Exchange believes that offering the
Gemini 15 due to exceeding 10,000 proposed rule change would provide an Market Wide Risk Protection on a cross-
contracts in 2 seconds for complex additional layer of risk protection for market basis would help members to
options orders. All subsequent orders in market participants that trade on the more effectively manage their risk when
both simple and complex instruments Exchange. trading on multiple markets, and reduce
are rejected, and if BD1 has opted in to The proposed Market Wide Risk disruptive trading events to the benefit
this functionality, all existing orders are Protection is similar to risk management of all members and investors.
cancelled. BD1 must contact Market functionality provided by other options
exchanges, including, for example, the B. Self-Regulatory Organization’s
Operations to resume trading. Statement on Burden on Competition
MIAX Options Exchange (‘‘MIAX’’),
2. Statutory Basis which recently received Commission In accordance with Section 6(b)(8) of
The Exchange believes that the approval for its ‘‘Risk Protection the Act,21 the Exchange does not believe
proposed rule change is consistent with Monitor’’ for orders.19 In particular, the that the proposed rule change would
the requirements of the Act and the Market Wide Risk Protection is designed impose any burden on intermarket or
rules and regulations thereunder that to reduce risk associated with system intramarket competition that is not
are applicable to a national securities errors or market events that may cause necessary or appropriate in furtherance
exchange, and, in particular, with the members to send a large number of of the purposes of the Act. The
requirements of Section 6(b) of the orders, or receive multiple, automatic proposed Market Wide Risk Protection
Act.16 Specifically, the proposed rule executions, before they can adjust their is similar to risk protections already
change is consistent with Section 6(b)(5) available on other options exchanges,22
asabaliauskas on DSK3SPTVN1PROD with NOTICES
exposure in the market. Without
of the Act,17 because it is designed to adequate risk management tools, such as and is designed to be a competitive
those proposed in this filing, members
14 Complex orders with a stock component are 20 See Securities Exchange Act Release Nos.
could reduce the amount of order flow
not included in the order execution count. 71759 (March 20, 2014), 79 FR 16850 (March 26,
15 Members that share risk settings across both
and liquidity that they provide. Such 2014) (‘‘Notice’’); 73147 (September 19, 2014), 79
ISE and ISE Gemini will have the Market Wide Risk actions may undermine the quality of FR 57639 (September 25, 2014) (Approval) (SR–
Protection triggered on both markets. ISE–2014–09).
16 15 U.S.C. 78f(b). 18 See Rule 804(g)(2). 21 15 U.S.C. 78f(b)(8).
17 15 U.S.C. 78f(b)(5). 19 See supra note 10 [sic]. 22 See supra notes 10 [sic] and 19.
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![Federal Register / Vol. 81, No. 66 / Wednesday, April 6, 2016 / Notices 20007
offering that would mitigate the risk Electronic Comments SECURITIES AND EXCHANGE
associated with trading on the COMMISSION
Exchange. Market makers already • Use the Commission’s Internet
benefit from Market Wide Speed Bump comment form (http://www.sec.gov/ [Investment Company Act Release No.
rules/sro.shtml); or 32063; 812–14537]
functionality available for quotes. The
proposed change would extend new risk • Send an email to rule-comments@ Advisors Asset Management, Inc. and
protections to orders so that additional sec.gov. Please include File Number SR– AAM ETF Trust; Notice of Application
market participants can benefit from ISE–2016–08 on the subject line.
risk mitigating functionality. Like the March 31, 2016.
Paper Comments AGENCY: Securities and Exchange
Exchange’s Market Wide Speed Bump,
the proposed rule change would also be • Send paper comments in triplicate Commission (‘‘Commission’’).
offered cross-market to members that to Secretary, Securities and Exchange ACTION: Notice of an application for an
want to be protected from inadvertent Commission, 100 F Street NE., order under section 6(c) of the
exposure to excessive risk when trading Washington, DC 20549–1090. Investment Company Act of 1940 (the
on both ISE and ISE Gemini. Permitting ‘‘Act’’) for an exemption from sections
this functionality to be cross-market will All submissions should refer to File 2(a)(32), 5(a)(1), 22(d), and 22(e) of the
not have any impact on competition that Number SR–ISE–2016–08. This file Act and rule 22c–1 under the Act, under
is not necessary or appropriate in number should be included on the sections 6(c) and 17(b) of the Act for an
furtherance of the purposes of the Act. subject line if email is used. To help the exemption from sections 17(a)(1) and
In addition, the proposed functionality Commission process and review your 17(a)(2) of the Act, and under section
would be mandatory for all members, comments more efficiently, please use 12(d)(1)(J) for an exemption from
and would be made available on an only one method. The Commission will sections 12(d)(1)(A) and 12(d)(1)(B) of
post all comments on the Commission’s the Act.
equal and non-discriminatory basis. As
such, the Exchange does not believe that Internet Web site (http://www.sec.gov/
SUMMARY: Summary of Application:
the proposed rule change would impose rules/sro.shtml). Copies of the
Applicants request an order that would
any unnecessary burden on submission, all subsequent
permit (a) series of certain open-end
competition. amendments, all written statements management investment companies to
with respect to the proposed rule issue shares (‘‘Shares’’) redeemable in
C. Self-Regulatory Organization’s change that are filed with the large aggregations only (‘‘Creation
Statement on Comments on the Commission, and all written Units’’); (b) secondary market
Proposed Rule Change Received From communications relating to the transactions in Shares to occur at
Members, Participants, or Others proposed rule change between the negotiated market prices rather than at
The Exchange has not solicited, and Commission and any person, other than net asset value (‘‘NAV’’); (c) certain
does not intend to solicit, comments on those that may be withheld from the series to pay redemption proceeds,
this proposed rule change. The public in accordance with the under certain circumstances, more than
Exchange has not received any provisions of 5 U.S.C. 552, will be seven days after the tender of Shares for
unsolicited written comments from available for Web site viewing and redemption; (d) certain affiliated
members or other interested parties. printing in the Commission’s Public persons of the series to deposit
Reference Room, 100 F Street NE., securities into, and receive securities
III. Date of Effectiveness of the Washington, DC 20549, on official from, the series in connection with the
Proposed Rule Change and Timing for business days between the hours of purchase and redemption of Creation
Commission Action 10:00 a.m. and 3:00 p.m. Copies of the Units; and (e) certain registered
filing also will be available for management investment companies and
Within 45 days of the publication date unit investment trusts (‘‘UITs’’) outside
inspection and copying at the principal
of this notice or within such longer of the same group of investment
office of the Exchange. All comments
period (1) as the Commission may companies as the series to acquire
received will be posted without change;
designate up to 45 days of such date if Shares.
the Commission does not edit personal
it finds such longer period to be Applicants: Advisors Asset
identifying information from
appropriate and publishes its reasons Management Inc. (the ‘‘Initial Adviser’’)
submissions. You should submit only
for so finding or (2) as to which the self- and AAM ETF Trust (the ‘‘Trust’’).
regulatory organization consents, the information that you wish to make
available publicly. All submissions DATES: Filing Dates: The application was
Commission will: filed on August 20, 2015, and amended
should refer to File Number SR–ISE–
(a) By order approve or disapprove 2016–08 and should be submitted on or on January 13, 2016.
such proposed rule change; or Hearing or Notification of Hearing: An
before April 27, 2016.
(b) Institute proceedings to determine order granting the requested relief will
For the Commission, by the Division of be issued unless the Commission orders
whether the proposed rule change Trading and Markets, pursuant to delegated a hearing. Interested persons may
should be disapproved. authority.23 request a hearing by writing to the
Robert W. Errett, Commission’s Secretary and serving
asabaliauskas on DSK3SPTVN1PROD with NOTICES
IV. Solicitation of Comments
Deputy Secretary. applicants with a copy of the request,
Interested persons are invited to personally or by mail. Hearing requests
[FR Doc. 2016–07834 Filed 4–5–16; 8:45 am]
submit written data, views and should be received by the Commission
BILLING CODE 8011–01–P
arguments concerning the foregoing, by 5:30 p.m. on April 25, 2016, and
including whether the proposed rule should be accompanied by proof of
change is consistent with the Act. service on applicants, in the form of an
Comments may be submitted by any of affidavit, or for lawyers, a certificate of
the following methods: 23 17 CFR 200.30–3(a)(12). service. Pursuant to rule 0–5 under the
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Document Created: 2018-02-07 13:51:47
Document Modified: 2018-02-07 13:51:47
| 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 20004 |
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