81 FR 79540 - Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Make a Number of Non-Controversial and Technical Changes

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 219 (November 14, 2016)

[Federal Register Volume 81, Number 219 (Monday, November 14, 2016)]
[Notices]
[Pages 79540-79543]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-27237]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79253; File No. SR-ISEGemini-2016-13]


Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Make a Number of 
Non-Controversial and Technical Changes

November 7, 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 October 26, 2016, ISE Gemini, LLC (``ISE Gemini'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the Exchange. 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 make a number of non-controversial and 
technical changes to its rules as described in more detail below.
    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.

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 Exchange 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
    The Exchange is proposing to make a number of non-controversial 
changes and technical corrections to its rules. Specifically, these 
changes are all to correct typographical errors and delete obsolete 
rule text.\3\ The changes are described in more detail below.
---------------------------------------------------------------------------

    \3\ See also Securities Exchange Act Release No. 73808 (December 
10, 2014), 79 FR 74797 (December 16, 2014) (SR-ISE-2014-54) (order 
approving the same proposed rule changes to the International 
Securities Exchange, LLC (``ISE'') rulebook).
---------------------------------------------------------------------------

1. No Bid Options/Limit Price
    Rule 713(b), which deals with priority of orders, provides that if 
the lowest offer for any options contract is $0.05 then no member shall 
enter a market order to sell that series, and any such market order 
shall be considered a limit order to sell at a price of $0.05. This 
provision is intended to prevent members from submitting market orders 
to sell in no bid series, which could execute at a price of $0.00, and 
to instead convert those orders to limit orders with a limit price 
equal to the minimum trading increment, i.e., $0.05 for most option 
classes.\4\ A ``no bid'' or ``zero bid'' series refers to an option 
where the bid price is $0.00. Series of options quoted no bid are 
usually deep out-of-the-money series that are perceived as having 
little if any chance of expiring in-the-money. For options that trade 
in regular nickel increments, a best offer of $0.05 corresponds to a 
best bid of $0.00, i.e. one minimum trading increment below the offer. 
However, option series may be no bid with other offer prices as well. 
For example, an option class would be considered no bid if it is quoted 
at $0.00 (bid)-$0.15 (offer). In order to avoid having these orders 
execute at a price of $0.00, the Exchange proposes to clarify that Rule 
713(b) applies to all option classes that are quoted no bid, rather 
than just those option classes that have an offer of $0.05. Currently, 
options exchanges have in place a pilot (the ``Penny Pilot'') to quote 
and trade options in one cent increments, lowering the minimum trading 
increment from $0.05 in certain symbols. The Exchange therefore

[[Page 79541]]

proposes to amend Rule 713(b) to clarify that the Exchange will put a 
limit price equal to the minimum trading increment on market orders to 
sell a no bid option series. For example, if the deep out-of-the-money 
SPY December $230.00 call, which is traded in penny increments, is 
quoted at $0.00 (bid)-$0.03 (offer), a market order to sell would 
instead be treated as a limit order to sell at a price of $0.01.
---------------------------------------------------------------------------

    \4\ Symbols not included in the Penny Pilot generally trade in 
$0.05 increments if the options contract is trading at less than 
$3.00 per option, and $0.10 increments if the options contract is 
trading at $3.00 per option or higher. See Rule 710.
---------------------------------------------------------------------------

2. Non-Displayed Penny Orders and Quotes
    The Exchange currently has rules in place that allow members to 
enter non-displayed orders and quotes in penny increments in designated 
options with a minimum trading increment greater than one cent (``non-
displayed penny orders and quotes'').\5\ A non-displayed penny order or 
quote is available for execution at its penny price but is displayed at 
the closest minimum trading increment that does not violate the limit 
price.\6\ The Exchange does not offer non-displayed penny orders or 
quotes and therefore proposes to delete obsolete references to this 
order type from its rules. First, the Exchange proposes to delete Rule 
715(b)(4), which defines non-displayed penny orders. Second, the 
Exchange proposes to delete language in Rule 804(b)(1) and Rule 805(a) 
that permits market makers to enter non-displayed penny quotes and 
orders, respectively. Third, the Exchange proposes to delete language 
in Supplementary Material .06 to Rule 716 concerning split prices for 
non-displayed penny orders and quotes entered into the Facilitation and 
Solicitation Mechanisms. Finally, the Exchange proposes to delete 
language in Supplementary Material .03 to Rule 717 concerning the 
execution of non-displayed penny orders that an Electronic Access 
Member represents as agent against principal orders and orders 
solicited from other broker dealers.
---------------------------------------------------------------------------

    \5\ See Rule 715(b)(4), Rule 804(b)(1) and Rule 805(a).
    \6\ See Rule 715(b)(4) and Rule 804(b)(1).
---------------------------------------------------------------------------

3. Customer Participation Orders
    A customer participation order (``CPO'') is an order type that can 
be used by Public Customers \7\ to participate in the Price Improvement 
Mechanism (``PIM'').\8\ Upon entry of a Crossing Transaction into the 
PIM,\9\ a broadcast message is sent to all members, who then have 500 
milliseconds to enter orders that indicate the size and price at which 
they want to participate in the execution (``Improvement Orders'').\10\ 
The CPO is an instruction to the member to enter an Improvement Order 
on behalf of a Public Customer. Specifically, a CPO is a limit order on 
behalf of a Public Customer that, in addition to the limit order price 
in standard increments, includes a price stated in one cent increments 
at which the Public Customer wishes to participate in trades executed 
in the same options series in penny increments through the PIM.\11\ The 
Exchange does not offer CPOs and therefore proposes to delete obsolete 
references to this order type from its rules. The Exchange first 
proposes to delete Rule 715(f), which defines CPOs. Furthermore, the 
Exchange proposes to remove two references to CPOs in other rules. 
Specifically, the Exchange proposes to remove references to CPOs in 
Supplementary Material .06 to Rule 723, which explains when Improvement 
Orders can be entered with respect to CPOs,\12\ and in Rule 723(d), 
which notes that the agency side of an order entered into the Price 
Improvement Mechanism may execute against CPOs at the end of the 
exposure period.
---------------------------------------------------------------------------

    \7\ The term ``Public Customer'' means a person or entity that 
is not a broker or dealer in securities. See Rule 100(a)(38).
    \8\ The PIM is a process by which an Electronic Access Member 
can provide price improvement opportunities for a transaction 
wherein the Electronic Access Member seeks to facilitate an order it 
represents as agent, and/or a transaction wherein the Electronic 
Access Member solicited interest to execute against an order it 
represents as agent (a ``Crossing Transaction''). See Rule 723(a).
    \9\ A Crossing Transaction is comprised of the order the 
Electronic Access Member represents as agent (the ``Agency Order'') 
and a counter-side order for the full size of the Agency Order (the 
``Counter-Side Order''). The Counter-Side Order may represent 
interest for the Member's own account, or interest the Member has 
solicited from one or more other parties, or a combination of both. 
See Rule 723(b).
    \10\ See Rule 723(c)(1).
    \11\ See Rule 715(f).
    \12\ Although CPOs are no longer available, members will 
continue to be able to enter Improvement Orders for the account of 
Public Customers.
---------------------------------------------------------------------------

4. Linkage Rules
    The Exchange proposes to delete Supplementary Material .04 and .05 
to Rule 803, which contains duplicative and obsolete provisions 
relevant to away market routing. In particular, the content of 
Supplementary Material .04 and .05 to Rule 803 is now contained in 
Supplementary Material .06 and .07 to Rule 1901 \13\ because linkage 
handling is performed by unaffiliated broker dealers (i.e., Linkage 
Handlers) on the Exchange. Therefore as described above, the Exchange 
proposes to delete this language from Rule 803, which concerns the 
obligations of market makers.
---------------------------------------------------------------------------

    \13\ See Securities Exchange Act Release No. 73808 (December 10, 
2014), 79 FR 74797 (December 16, 2014) (SR-ISE-2014-54) (order 
approving the proposed changes to move Supplementary Material .04 
and .05 to Rule 803 to Supplementary Material .06 and .07 to Rule 
1901 in the ISE rulebook). Chapter 19 of the Exchange's rulebook 
incorporates Chapter 19 of the ISE rulebook by reference.
---------------------------------------------------------------------------

5. Supplementary Material
    The Exchange notes that certain supplementary material is 
mistakenly labelled as ``supplemental'' material in the Exchange's 
rulebook.\14\ In order to achieve consistency with how other rules are 
labelled, the Exchange proposes to change these to instead refer to 
``supplementary'' material. Finally, the Exchange proposes to make a 
non-substantive change to Supplementary Material to Rule 803, which 
concerns the obligations of market makers, by updating the word ``To'' 
to lower case.
---------------------------------------------------------------------------

    \14\ See ``Supplemental'' Material to Rules 717 and 809. See 
also reference in Rule 721(a)(3) to ``Supplemental'' Material .01 to 
Rule 717.
---------------------------------------------------------------------------

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.\15\ In 
particular, the proposal is consistent with Section 6(b)(5) of the Act 
\16\ because it is designed to promote just and equitable principles of 
trade, to 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. The Exchange believes it is 
appropriate to make the proposed technical corrections to its rules so 
that Exchange members and investors have a clear and accurate 
understanding of the meaning of the ISE Gemini rules.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

1. No Bid Options/Limit Price
    The Exchange currently operates a pilot program to permit 
designated options classes to be quoted and traded in increments as low 
as one cent. The Exchange is proposing to amend Rule 713(b) to account 
for the fact that option classes selected for inclusion in the Penny 
Pilot are permitted to trade in penny increments. For penny classes 
that are quoted no bid, the Exchange will convert a market order to 
sell to a limit order with a price of one cent. In addition, the 
proposed rule change clarifies that Rule 713(b) applies to all series 
with a bid of $0.00, and not just those series that also have an offer 
of $0.05. The proposed rule change is necessary to account for options 
trading in multiple trading increments,

[[Page 79542]]

including under the Penny Pilot, and will ensure that market orders to 
sell are not inadvertently executed at a price of zero. The Exchange 
believes that these changes more accurately reflect the intent of Rule 
713(b), as described above, and will eliminate investor confusion with 
respect to the operation of this rule by more accurately describing the 
functionality provided by the Exchange.
2. Non-Displayed Penny Orders and Quotes/Customer Participation Orders
    As explained above, the Exchange does not offer non-displayed penny 
orders and quotes or customer participation orders, and thus proposes 
to remove obsolete definitions and other outdated references to these 
order types. The Exchange believes that these changes will eliminate 
investor confusion regarding order types available for trading on ISE 
Gemini to the benefit of members and investors.
3. Linkage Rules
    The proposed changes to the linkage rules are non-substantive and 
intended to reduce investor confusion. As explained above, the Exchange 
is deleting duplicative and obsolete rule text from Chapter 8 of its 
rulebook because linkage handling is handled by Linkage Handlers. 
Therefore, the Exchange believes that these rules are more 
appropriately located in Chapter 19 of the Exchange's rulebook, which 
incorporates by reference Chapter 19 of the ISE rulebook.
4. Supplementary Material
    The proposed change to label supplementary material correctly is 
non-substantive and is intended to achieve consistency in how these 
rules are labelled to the benefit of members and investors.

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

    In accordance with Section 6(b)(8) of the Act,\17\ the Exchange 
does not believe that the proposed rule change will impose any burden 
on intermarket or intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The proposed 
rule change makes technical, non-substantive amendments to the 
Exchange's rules in order to eliminate investor confusion, and is not 
designed to have any competitive impact.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days 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)(iii) of the Act \18\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) \20\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. In its filing with the Commission, 
the Exchange requests that the Commission waive the 30-day operative 
delay. The Exchange asserts that waiver of the operative delay is 
consistent with the protection of investors and the public interest 
because the proposed rule change makes non-substantive, technical 
changes to the Exchange's rules. The Exchange also believes that the 
proposed rule change increases the clarity of ISE Gemini rules to the 
benefit of members and investors that trade on the Exchange. For these 
reasons, the Commission believes that waiver of the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. Therefore, the Commission designates the proposed rule change 
to be operative upon filing.\21\
---------------------------------------------------------------------------

    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is 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 Number SR-ISEGemini-2016-13 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-ISEGemini-2016-13. 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-

[[Page 79543]]

ISEGemini-2016-13 and should be submitted on or before December 5, 
2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Brent J. Fields,
Secretary.
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 2016-27237 Filed 11-10-16; 8:45 am]
 BILLING CODE 8011-01-P