81 FR 85280 - Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing of Proposed Rule Change To Reduce the Response Times in the Block Mechanism, Facilitation Mechanism, Solicited Order Mechanism and Price Improvement Mechanism

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 227 (November 25, 2016)

Page Range		85280-85283
FR Document		2016-28309
Federal Register, Volume 81 Issue 227 (Friday, November 25, 2016)
[Federal Register Volume 81, Number 227 (Friday, November 25, 2016)]
[Notices]
[Pages 85280-85283]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-28309]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79353; File No. SR-ISEGemini-2016-14]


Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing 
of Proposed Rule Change To Reduce the Response Times in the Block 
Mechanism, Facilitation Mechanism, Solicited Order Mechanism and Price 
Improvement Mechanism

November 18, 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 November 8, 2016, ISE Gemini, LLC (the ``Exchange'' or the 
``ISE Gemini'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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 Rules 716 (Block Trades) and 723 
(Price Improvement Mechanism for Crossing Transactions) to reduce the 
response times in the Block Order Mechanism, Facilitation Mechanism, 
Solicited Order Mechanism, and Price Improvement Mechanism. The text of 
the proposed rule change is available on the Exchange's Web site at 
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,

[[Page 85281]]

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 purpose of the proposed rule change is to amend the time period 
allowed for member submission of responses in the Block Order 
Mechanism, Facilitation Mechanism, Solicited Order Mechanism, and Price 
Improvement Mechanism (``PIM'') from 500 milliseconds (\1/2\ of one 
second) to a time period designated by the Exchange of no less than 100 
milliseconds (\1/10\ of one second) and no more than 1 second.\3\
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    \3\ While the Exchange intends to decrease the time period 
allowed for responses, the proposed rule would also allow the 
Exchange to increase this time period up to 1 second, which is the 
time period previously allowed for the submission of responses on 
its affiliated market, the International Securities Exchange, LLC 
(``ISE''). See Securities Exchange Act Release No. 58224 (July 25, 
2008), 73 FR 44303 (July 30, 2008) (SR-ISE-2007-94).
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    Rule 716 contains the requirements applicable to the execution of 
orders using the Block Order Mechanism, Facilitation Mechanism, and 
Solicited Order Mechanism. The Block Order Mechanism allows members to 
obtain liquidity for the execution of a block-size order,\4\ and the 
Facilitation and Solicited Order Mechanisms allow members to enter 
cross transactions seeking price improvement.\5\ Rule 723 contains the 
requirements applicable to the execution of orders using the PIM. The 
PIM allows members to enter cross transactions of any size. The 
Facilitation, Solicited Order Mechanisms and PIM allow for members to 
designate certain customer orders for price improvement and submit such 
orders into one of the mechanisms with a matching contra order. Once 
the order is submitted, the Exchange commences an auction by 
broadcasting a message to all members that includes the series, price, 
size and side of the market.\6\ Further, responses within the PIM 
(i.e., Improvement Orders), are also broadcast to market participants 
during the auction. Orders entered into any of these mechanisms 
currently are exposed to all market participants for 500 milliseconds, 
giving them an opportunity to enter additional trading interest before 
the orders are automatically executed. Under the proposal, the Exchange 
would determine an appropriate exposure period for each of the four 
auction mechanisms that is no less than 100 milliseconds and no more 
than 1 second, consistent with exposure periods permitted on other 
exchanges such as NASDAQ BX (``BX'') and NASDAQ PHLX (``Phlx'').\7\ 
When approving the previous change to exposure periods in these 
mechanisms on its affiliated market, ISE, the Securities and Exchange 
Commission concluded that reducing these time periods was consistent 
with the Securities Exchange Act of 1934 (the ``Act'').\8\
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    \4\ Block-size orders are orders for 50 contracts or more. See 
Rule 716(a).
    \5\ Only block-size orders can be entered into the Facilitation 
Mechanism, whereas only orders for 500 contracts or more can be 
entered into the Solicited Order Mechanism. See Rule 716(d) and (e).
    \6\ Members may choose to hide the size, side, and price when 
entering orders into the Block Order Mechanism.
    \7\ See Securities Exchange Act Release No. 76301 (October 29, 
2015), 80 FR 68347 (November 4, 2015) (SR-BX-2015-032) and 
Securities Exchange Act Release No. 77557 (April 7, 2016), 81 FR 
21935 (April 13, 2016) (SR-PHLX-2016-40).
    \8\ See Exchange Act Release No. 68849 (February 6, 2013), 78 FR 
9973 (February 12, 2013) (SR-ISE-2012-100).
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    The Exchange is not proposing any change to the requirement in Rule 
717(d) and (e) that requires an Electronic Access Member (``EAM'') to 
expose its customer's order on the book for at least one second before 
either executing such agency order as principal or against orders 
solicited from members and non-members, unless the EAM submits the 
agency order to the Facilitation Mechanism, Solicited Order Mechanism, 
or PIM.\9\ The Exchange believes this exception for the Facilitation 
Mechanism, Solicited Order Mechanism and PIM is appropriate because the 
customer order is guaranteed an execution at the National Best Bid/
Offer (``NBBO'') or a better price through the Facilitation Mechanism, 
Solicited Order Mechanism and PIM. Additionally, members are informed 
about the agency order starting the auction through receipt of the 
broadcast. Members have the opportunity to compete for participation in 
the execution of the customer order by responding to the broadcast with 
their best priced responses.
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    \9\ Since EAMs submitting orders into the Block Mechanism do not 
have the contra order, Rule 717(d) and (e) does not apply.
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    With respect to the Facilitation Mechanism, Solicited Order 
Mechanism, and PIM, the Exchange believes the proposed rule change 
could provide more customer orders an opportunity for price improvement 
because it will reduce the market risk for all members executing trades 
in these mechanisms. Members that submit orders into such mechanisms to 
initiate an auction (``Initiating Members'') are required to guarantee 
an execution at the NBBO or a better price, and are subject to market 
risk while the order is exposed in one of the mechanisms to other 
members. While other members are also subject to market risk, the 
Initiating Member is most exposed because the market can move against 
them during the auction period and they have guaranteed the customer an 
execution at the NBBO or better based on the market prices prior to the 
commencement of the auction. In today's fast-paced markets, big price 
changes can occur in 100 milliseconds or less, leaving the Initiating 
Members vulnerable to trading losses due to their choice to seek price 
improvement for their customer. The Initiating Member acts in a 
critical role in the price improvement process and their willingness to 
guarantee the customer an execution at the NBBO or a better price is 
keystone to the customer order gaining the opportunity for price 
improvement. Therefore, limiting Initiating Members' market risk by 
reducing the exposure time in the mechanisms should increase the 
likelihood that an Initiating Member would seek price improvement for 
its customer by entering such orders into one of the mechanisms.
    Additionally, the Exchange does not believe that requiring the 
auction to run for 500 milliseconds is necessary in today's market 
where, generally, members' systems have the capability to respond 
within 100 milliseconds or faster. As such, reducing the response time 
in the Block Order Mechanism is appropriate as members no longer need 
500 milliseconds to respond to the auction. Reducing the auction time 
for the Block Order Mechanism from 500 milliseconds to as low as 100 
milliseconds will allow members the opportunity to seek out liquidity 
in an expedient manner that is consistent with system capabilities.
    Furthermore, although the Exchange currently plans to reduce the 
time period allowed for the submission of auction responses to 100 
milliseconds, the Exchange believes that it is appropriate to provide 
the flexibility to choose a response period of up to 1

[[Page 85282]]

second as this is consistent with the rules of other options 
markets.\10\
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    \10\ See note 7 supra.
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    The Exchange's members operate electronic systems that enable them 
to react and respond to orders in a meaningful way in fractions of a 
second. The Exchange anticipates that its members will continue to 
compete within the proposed auction duration designated by the 
Exchange. In particular, the Exchange believes that the proposed 
auction response times--which will be no less than 100 milliseconds and 
no more than 1 second--will continue to provide members with sufficient 
time to respond to, compete for, and provide price improvement for 
orders, and will provide investors and other market participants with 
more timely executions, and reduce their market risk.
    Reducing the duration of the auctions from 500 milliseconds to as 
low as 100 milliseconds will benefit members trading in the mechanisms. 
It is in these members' best interest to minimize the auction time 
while continuing to allow members adequate time to electronically 
respond. Both the order being exposed and the members' responses are 
subject to market risk during the auction. While a limited number of 
members wait to respond until later in the auction, presumably to 
minimize their market risk, in more than 94% of executions occurring in 
the mechanisms members respond within the first 100 milliseconds. The 
Exchange believes that an auction time as low as 100 milliseconds will 
continue to provide market participants with sufficient time to 
respond, compete, and provide price improvement for orders and will 
provide investors and other market participants with more timely 
executions, thereby reducing their market risk.\11\
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    \11\ With Block Orders, the member enters one side of the order 
in an effort to find contra-side liquidity. While this order is 
exposed, the member is exposed to market risk. Therefore, reducing 
the exposure time will reduce the market risk for Block Orders just 
as it will reduce the market risk with respect to orders entered 
into the Facilitation Mechanism, Solicited Order Mechanism, and PIM.
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    To substantiate that members can receive, process, and communicate 
a response to an auction broadcast within 100 milliseconds, the 
Exchange surveyed all members that responded to an auction in the 
period beginning July 1, 2015 and ending January 15, 2016. The Exchange 
received responses from all of the 15 members surveyed, and each member 
confirmed that they can receive, process, and communicate a response 
back to the Exchange within 100 milliseconds.
    Also in consideration of this proposed rule change, the Exchange 
reviewed all executions occurring in the mechanisms by its Members from 
March 28, 2016-April 25, 2016. This review of executions in the 
mechanisms indicates that approximately 98% of responses that resulted 
in price improving executions at the conclusion of an auction were 
submitted within 500 milliseconds. Approximately 94% of responses that 
resulted in price improving executions at the conclusion of an auction 
were submitted within 100 milliseconds of the initial order, and 83% 
were submitted within 50 milliseconds of the initial order.
    Accordingly, the Exchange believes that an auction time as low as 
100 milliseconds will continue to provide members with sufficient time 
to respond to, compete for, and provide price improvement for orders, 
and will provide investors and other market participants with more 
timely executions, and reduce their market risk. Moreover, 
Supplementary Material .04 to Rule 723 provides that the PIM will not 
run simultaneously with or overlap another PIM in the same series. As a 
result, members may be unable to initiate PIMs on behalf of their 
customers. Reducing the auction time to as low as 100 milliseconds will 
decrease the likelihood that an auction is underway when a customer 
order is received. Accordingly, the Exchange believes it is likely that 
the number of PIM transactions will increase, thereby providing 
customers a greater opportunity to benefit from price improvement.
    The Exchange believes that the information outlined above regarding 
price improving transactions in the mechanisms and the feedback 
provided by members provides substantial support for its assertion that 
reducing the auction from 500 milliseconds to as low as 100 
milliseconds will continue to provide members with sufficient time to 
ensure competition for orders entered into the mechanisms, and could 
provide customer orders with additional opportunities for price 
improvement.
    With regard to the impact of this proposal on system capacity, the 
Exchange has analyzed its capacity and represents that it has the 
necessary systems capacity to handle the potential additional traffic 
associated with the additional transactions that may occur with the 
implementation of the proposed reduction in the auction duration to no 
less than 100 milliseconds. Additionally, the Exchange represents that 
its systems will be able to sufficiently maintain an audit trail for 
order and trade information with the reduction in the auction duration. 
Further, although the Exchange and its members are fully capable of 
handling a response time of 100 milliseconds, the Exchange proposes to 
reduce the auction time over a period of weeks ending at 100 
milliseconds. This will ensure a smooth implementation of the faster 
timers and that the Exchange's and its members' systems are working 
properly given the faster response times.
    Upon effectiveness of the proposal, and at least six weeks prior to 
implementation of the proposed rule change, the Exchange will issue a 
circular to members, informing them of the implementation date of the 
reduction of the auction from 500 milliseconds to the auction time 
designated by the Exchange to allow members the opportunity to perform 
systems changes. This will give members an opportunity to make any 
necessary modifications to coincide with the implementation date. The 
Exchange also represents that it will issue a circular at least four 
weeks prior to any future changes, as permitted by its rules, to the 
auction time.
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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    In particular, the proposed rule change will provide investors with 
more timely execution of their options orders, while ensuring that 
there is an adequate exposure of orders in the mechanisms. 
Additionally, the proposed change will allow more investors the 
opportunity to receive price improvement through the mechanisms, and 
will reduce market risk for members using the mechanisms. Finally, as 
mentioned above, other exchanges such as BX and Phlx, have already 
amended their rules to permit response times consistent with those 
proposed here--i.e., no less than 100 milliseconds and no more than 1

[[Page 85283]]

second.\14\ As such, the Exchange believes the proposed rule change 
would help perfect the mechanism for a free and open national market 
system, and generally help protect investors' and the public's 
interest.
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    \14\ See note 7 supra.
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    The Exchange believes the proposed rule change is not unfairly 
discriminatory because the auction duration would be the same for all 
members. All members in the mechanisms have today, and will continue to 
have, an equal opportunity to receive the broadcast and respond with 
their best prices during the auction. Additionally, the Exchange 
believes the reduction in the auction duration reduces the market risk 
for all members. The reduction in time period reduces the market risk 
for the Initiating Member as well as any members providing orders in 
response to a broadcast. Moreover, based on the feedback the Exchange 
received from its members, the Exchange believes that a reduction in 
the auction period to a low of 100 milliseconds would not impair 
members' ability to compete in the mechanisms. The Exchange believes 
these results support the assertion that a reduction in the auction 
duration would not be unfairly discriminatory and would benefit 
investors.

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

    The Exchange believes the proposal is consistent with Section 
6(b)(8) of the Act\15\ in that it does not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The proposed rule change is not designed to 
address any aspect of competition, but instead would continue to 
provide market participants with sufficient time to respond, compete, 
and provide price improvement for orders in the Exchange's auction 
mechanisms. The proposed rule also provides investors and other market 
participants with more timely executions, thereby reducing their market 
risk. As proposed, the rule does not impose an undue burden on members 
because they are all currently capable of responding to these 
mechanisms in under 100 milliseconds. Finally, the proposed rule change 
offers the same exposure period to all members and would not impose a 
competitive burden on any particular participant.
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    \15\ 15 U.S.C. 78f(b)(8).
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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 in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) 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 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-2016-14 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISEGemini-2016-14. 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-ISEGemini-2016-14 and should 
be submitted on or before December 16, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-28309 Filed 11-23-16; 8:45 am]
 BILLING CODE 8011-01-P
85280 Federal Register / Vol. 81, No. 227 / Friday, November 25, 2016 / Notices

auction. Additionally, the Exchange appropriate and publishes its reasons 2016–26 and should be submitted on or
believes the reduction in the auction for so finding or (ii) as to which the self- before December 16, 2016.
duration reduces the market risk for all regulatory organization consents, the For the Commission, by the Division of
members. The reduction in time period Commission will: Trading and Markets, pursuant to delegated
reduces the market risk for the Initiating (A) By order approve or disapprove authority.16
Member as well as any members such proposed rule change, or Brent J. Fields,
providing orders in response to a (B) institute proceedings to determine Secretary.
broadcast. Moreover, based on the whether the proposed rule change
[FR Doc. 2016–28308 Filed 11–23–16; 8:45 am]
feedback the Exchange received from its should be disapproved.
BILLING CODE 8011–01–P
members, the Exchange believes that a IV. Solicitation of Comments
reduction in the auction period to a low
of 100 milliseconds would not impair Interested persons are invited to
submit written data, views, and SECURITIES AND EXCHANGE
members’ ability to compete in the COMMISSION
mechanisms. The Exchange believes arguments concerning the foregoing,
these results support the assertion that including whether the proposed rule [Release No. 34–79353; File No. SR–
a reduction in the auction duration change is consistent with the Act. ISEGemini–2016–14]
would not be unfairly discriminatory Comments may be submitted by any of
the following methods: Self-Regulatory Organizations; ISE
and would benefit investors. Gemini, LLC; Notice of Filing of
B. Self-Regulatory Organization’s Electronic Comments Proposed Rule Change To Reduce the
Statement on Burden on Competition • Use the Commission’s Internet Response Times in the Block
The Exchange believes the proposal is comment form (http://www.sec.gov/ Mechanism, Facilitation Mechanism,
consistent with Section 6(b)(8) of the rules/sro.shtml); or Solicited Order Mechanism and Price
Act 15 in that it does not impose any • Send an email to rule-comments@ Improvement Mechanism
burden on competition that is not sec.gov. Please include File Number SR–
November 18, 2016.
necessary or appropriate in furtherance ISE–2016–26 on the subject line.
Pursuant to Section 19(b)(1) of the
of the purposes of the Act. The Paper Comments Securities Exchange Act of 1934 (the
proposed rule change is not designed to • Send paper comments in triplicate ‘‘Act’’),1 and Rule 19b–4 thereunder,2
address any aspect of competition, but to Brent J. Fields, Secretary, Securities notice is hereby given that on November
instead would continue to provide and Exchange Commission, 100 F Street 8, 2016, ISE Gemini, LLC (the
market participants with sufficient time NE., Washington, DC 20549–1090. ‘‘Exchange’’ or the ‘‘ISE Gemini’’) filed
to respond, compete, and provide price with the Securities and Exchange
All submissions should refer to File
improvement for orders in the Commission (‘‘Commission’’) the
Number SR–ISE–2016–26. This file
Exchange’s auction mechanisms. The proposed rule change as described in
number should be included on the
proposed rule also provides investors Items I and II below, which Items have
subject line if email is used. To help the
and other market participants with more been prepared by the self-regulatory
Commission process and review your
timely executions, thereby reducing organization. The Commission is
comments more efficiently, please use
their market risk. As proposed, the rule publishing this notice to solicit
only one method. The Commission will
does not impose an undue burden on comments on the proposed rule change
post all comments on the Commission’s
members because they are all currently from interested persons.
Internet Web site (http://www.sec.gov/
capable of responding to these
rules/sro.shtml). Copies of the I. Self-Regulatory Organization’s
mechanisms in under 100 milliseconds.
submission, all subsequent Statement of the Terms of Substance of
Finally, the proposed rule change offers
amendments, all written statements the Proposed Rule Change
the same exposure period to all
with respect to the proposed rule
members and would not impose a The Exchange proposes to amend
change that are filed with the
competitive burden on any particular Rules 716 (Block Trades) and 723 (Price
Commission, and all written
participant. Improvement Mechanism for Crossing
communications relating to the
Transactions) to reduce the response
C. Self-Regulatory Organization’s proposed rule change between the
times in the Block Order Mechanism,
Statement on Comments on the Commission and any person, other than
Facilitation Mechanism, Solicited Order
Proposed Rule Change Received From those that may be withheld from the
Mechanism, and Price Improvement
Members, Participants, or Others public in accordance with the
Mechanism. The text of the proposed
The Exchange has not solicited, and provisions of 5 U.S.C. 552, will be
rule change is available on the
does not intend to solicit, comments on available for Web site viewing and
Exchange’s Web site at http://
this proposed rule change. The printing in the Commission’s Public
www.ise.com, at the principal office of
Exchange has not received any Reference Room, 100 F Street NE.,
the Exchange, and at the Commission’s
unsolicited written comments from Washington, DC 20549, on official
Public Reference Room.
members or other interested parties. business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the II. Self-Regulatory Organization’s
III. Date of Effectiveness of the filing also will be available for Statement of the Purpose of, and
Proposed Rule Change and Timing for inspection and copying at the principal Statutory Basis for, the Proposed Rule
asabaliauskas on DSK3SPTVN1PROD with NOTICES

Commission Action office of the Exchange. All comments Change
Within 45 days of the publication date received will be posted without change; In its filing with the Commission, the
of this notice in the Federal Register or the Commission does not edit personal self-regulatory organization included
within such longer period up to 90 days identifying information from statements concerning the purpose of,
(i) as the Commission may designate if submissions. You should submit only
it finds such longer period to be information that you wish to make 16 17 CFR 200.30–3(a)(12).
available publicly. All submissions 1 15 U.S.C. 78s(b)(1).
15 15 U.S.C. 78f(b)(8). should refer to File Number SR–ISE– 2 17 CFR 240.19b–4.

VerDate Sep<11>2014 18:57 Nov 23, 2016 Jkt 241001 PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 E:\FR\FM\25NON1.SGM 25NON1
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and basis for, the proposed rule change side of the market.6 Further, responses With respect to the Facilitation
and discussed any comments it received within the PIM (i.e., Improvement Mechanism, Solicited Order
on the proposed rule change. The text Orders), are also broadcast to market Mechanism, and PIM, the Exchange
of these statements may be examined at participants during the auction. Orders believes the proposed rule change could
the places specified in Item IV below. entered into any of these mechanisms provide more customer orders an
The Exchange has prepared summaries, currently are exposed to all market opportunity for price improvement
set forth in sections A, B, and C below, participants for 500 milliseconds, giving because it will reduce the market risk
of the most significant aspects of such them an opportunity to enter additional for all members executing trades in
statements. trading interest before the orders are these mechanisms. Members that submit
automatically executed. Under the orders into such mechanisms to initiate
A. Self-Regulatory Organization’s proposal, the Exchange would an auction (‘‘Initiating Members’’) are
Statement of the Purpose of, and determine an appropriate exposure required to guarantee an execution at
Statutory Basis for, the Proposed Rule period for each of the four auction the NBBO or a better price, and are
Change mechanisms that is no less than 100 subject to market risk while the order is
1. Purpose milliseconds and no more than 1 exposed in one of the mechanisms to
second, consistent with exposure other members. While other members
The purpose of the proposed rule periods permitted on other exchanges are also subject to market risk, the
change is to amend the time period such as NASDAQ BX (‘‘BX’’) and Initiating Member is most exposed
allowed for member submission of NASDAQ PHLX (‘‘Phlx’’).7 When because the market can move against
responses in the Block Order approving the previous change to them during the auction period and they
Mechanism, Facilitation Mechanism, exposure periods in these mechanisms have guaranteed the customer an
Solicited Order Mechanism, and Price on its affiliated market, ISE, the execution at the NBBO or better based
Improvement Mechanism (‘‘PIM’’) from Securities and Exchange Commission on the market prices prior to the
500 milliseconds (1⁄2 of one second) to concluded that reducing these time commencement of the auction. In
a time period designated by the periods was consistent with the today’s fast-paced markets, big price
Exchange of no less than 100 Securities Exchange Act of 1934 (the changes can occur in 100 milliseconds
milliseconds (1⁄10 of one second) and no ‘‘Act’’).8 or less, leaving the Initiating Members
more than 1 second.3 The Exchange is not proposing any vulnerable to trading losses due to their
change to the requirement in Rule choice to seek price improvement for
Rule 716 contains the requirements their customer. The Initiating Member
applicable to the execution of orders 717(d) and (e) that requires an
Electronic Access Member (‘‘EAM’’) to acts in a critical role in the price
using the Block Order Mechanism, improvement process and their
Facilitation Mechanism, and Solicited expose its customer’s order on the book
for at least one second before either willingness to guarantee the customer
Order Mechanism. The Block Order an execution at the NBBO or a better
Mechanism allows members to obtain executing such agency order as
principal or against orders solicited price is keystone to the customer order
liquidity for the execution of a block- gaining the opportunity for price
size order,4 and the Facilitation and from members and non-members, unless
the EAM submits the agency order to improvement. Therefore, limiting
Solicited Order Mechanisms allow Initiating Members’ market risk by
members to enter cross transactions the Facilitation Mechanism, Solicited
Order Mechanism, or PIM.9 The reducing the exposure time in the
seeking price improvement.5 Rule 723 mechanisms should increase the
contains the requirements applicable to Exchange believes this exception for the
Facilitation Mechanism, Solicited Order likelihood that an Initiating Member
the execution of orders using the PIM. would seek price improvement for its
The PIM allows members to enter cross Mechanism and PIM is appropriate
because the customer order is customer by entering such orders into
transactions of any size. The one of the mechanisms.
Facilitation, Solicited Order guaranteed an execution at the National
Best Bid/Offer (‘‘NBBO’’) or a better Additionally, the Exchange does not
Mechanisms and PIM allow for believe that requiring the auction to run
members to designate certain customer price through the Facilitation
Mechanism, Solicited Order Mechanism for 500 milliseconds is necessary in
orders for price improvement and today’s market where, generally,
submit such orders into one of the and PIM. Additionally, members are
informed about the agency order starting members’ systems have the capability to
mechanisms with a matching contra respond within 100 milliseconds or
the auction through receipt of the
order. Once the order is submitted, the faster. As such, reducing the response
broadcast. Members have the
Exchange commences an auction by time in the Block Order Mechanism is
opportunity to compete for participation
broadcasting a message to all members appropriate as members no longer need
in the execution of the customer order
that includes the series, price, size and 500 milliseconds to respond to the
by responding to the broadcast with
their best priced responses. auction. Reducing the auction time for
3 While the Exchange intends to decrease the time the Block Order Mechanism from 500
period allowed for responses, the proposed rule milliseconds to as low as 100
6 Members may choose to hide the size, side, and
would also allow the Exchange to increase this time
period up to 1 second, which is the time period price when entering orders into the Block Order milliseconds will allow members the
previously allowed for the submission of responses Mechanism. opportunity to seek out liquidity in an
on its affiliated market, the International Securities 7 See Securities Exchange Act Release No. 76301 expedient manner that is consistent
asabaliauskas on DSK3SPTVN1PROD with NOTICES

Exchange, LLC (‘‘ISE’’). See Securities Exchange Act (October 29, 2015), 80 FR 68347 (November 4, 2015) with system capabilities.
Release No. 58224 (July 25, 2008), 73 FR 44303 (SR–BX–2015–032) and Securities Exchange Act
(July 30, 2008) (SR–ISE–2007–94). Release No. 77557 (April 7, 2016), 81 FR 21935
Furthermore, although the Exchange
4 Block-size orders are orders for 50 contracts or (April 13, 2016) (SR–PHLX–2016–40). currently plans to reduce the time
more. See Rule 716(a). 8 See Exchange Act Release No. 68849 (February period allowed for the submission of
5 Only block-size orders can be entered into the 6, 2013), 78 FR 9973 (February 12, 2013) (SR–ISE– auction responses to 100 milliseconds,
Facilitation Mechanism, whereas only orders for 2012–100). the Exchange believes that it is
500 contracts or more can be entered into the 9 Since EAMs submitting orders into the Block

Solicited Order Mechanism. See Rule 716(d) and Mechanism do not have the contra order, Rule
appropriate to provide the flexibility to
(e). 717(d) and (e) does not apply. choose a response period of up to 1

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85282 Federal Register / Vol. 81, No. 227 / Friday, November 25, 2016 / Notices

second as this is consistent with the response back to the Exchange within will be able to sufficiently maintain an
rules of other options markets.10 100 milliseconds. audit trail for order and trade
The Exchange’s members operate Also in consideration of this proposed information with the reduction in the
electronic systems that enable them to rule change, the Exchange reviewed all auction duration. Further, although the
react and respond to orders in a executions occurring in the mechanisms Exchange and its members are fully
meaningful way in fractions of a second. by its Members from March 28, 2016– capable of handling a response time of
The Exchange anticipates that its April 25, 2016. This review of 100 milliseconds, the Exchange
members will continue to compete executions in the mechanisms indicates proposes to reduce the auction time
within the proposed auction duration that approximately 98% of responses over a period of weeks ending at 100
designated by the Exchange. In that resulted in price improving milliseconds. This will ensure a smooth
particular, the Exchange believes that executions at the conclusion of an implementation of the faster timers and
the proposed auction response times— auction were submitted within 500 that the Exchange’s and its members’
which will be no less than 100 milliseconds. Approximately 94% of systems are working properly given the
milliseconds and no more than 1 responses that resulted in price faster response times.
second—will continue to provide improving executions at the conclusion Upon effectiveness of the proposal,
members with sufficient time to respond of an auction were submitted within 100 and at least six weeks prior to
to, compete for, and provide price milliseconds of the initial order, and implementation of the proposed rule
improvement for orders, and will 83% were submitted within 50 change, the Exchange will issue a
milliseconds of the initial order. circular to members, informing them of
provide investors and other market
Accordingly, the Exchange believes the implementation date of the
participants with more timely
that an auction time as low as 100 reduction of the auction from 500
executions, and reduce their market
milliseconds will continue to provide milliseconds to the auction time
risk. members with sufficient time to respond designated by the Exchange to allow
Reducing the duration of the auctions to, compete for, and provide price members the opportunity to perform
from 500 milliseconds to as low as 100 improvement for orders, and will systems changes. This will give
milliseconds will benefit members provide investors and other market members an opportunity to make any
trading in the mechanisms. It is in these participants with more timely necessary modifications to coincide
members’ best interest to minimize the executions, and reduce their market with the implementation date. The
auction time while continuing to allow risk. Moreover, Supplementary Material Exchange also represents that it will
members adequate time to electronically .04 to Rule 723 provides that the PIM issue a circular at least four weeks prior
respond. Both the order being exposed will not run simultaneously with or to any future changes, as permitted by
and the members’ responses are subject overlap another PIM in the same series. its rules, to the auction time.
to market risk during the auction. While As a result, members may be unable to
a limited number of members wait to initiate PIMs on behalf of their 2. Statutory Basis
respond until later in the auction, customers. Reducing the auction time to The Exchange believes that the
presumably to minimize their market as low as 100 milliseconds will decrease proposed rule change is consistent with
risk, in more than 94% of executions the likelihood that an auction is the requirements of the Act, and the
occurring in the mechanisms members underway when a customer order is rules and regulations thereunder that
respond within the first 100 received. Accordingly, the Exchange are applicable to a national securities
milliseconds. The Exchange believes believes it is likely that the number of exchange, and, in particular, with the
that an auction time as low as 100 PIM transactions will increase, thereby requirements of Section 6(b) of the
milliseconds will continue to provide providing customers a greater Act.12 In particular, the proposal is
market participants with sufficient time opportunity to benefit from price consistent with Section 6(b)(5) of the
to respond, compete, and provide price improvement. Act,13 because it is designed to promote
improvement for orders and will The Exchange believes that the just and equitable principles of trade,
provide investors and other market information outlined above regarding remove impediments to and perfect the
participants with more timely price improving transactions in the mechanisms of a free and open market
executions, thereby reducing their mechanisms and the feedback provided and a national market system and, in
market risk.11 by members provides substantial general, to protect investors and the
To substantiate that members can support for its assertion that reducing public interest.
receive, process, and communicate a the auction from 500 milliseconds to as In particular, the proposed rule
response to an auction broadcast within low as 100 milliseconds will continue to change will provide investors with more
100 milliseconds, the Exchange provide members with sufficient time to timely execution of their options orders,
surveyed all members that responded to ensure competition for orders entered while ensuring that there is an adequate
an auction in the period beginning July into the mechanisms, and could provide exposure of orders in the mechanisms.
1, 2015 and ending January 15, 2016. customer orders with additional Additionally, the proposed change will
The Exchange received responses from opportunities for price improvement. allow more investors the opportunity to
all of the 15 members surveyed, and With regard to the impact of this receive price improvement through the
each member confirmed that they can proposal on system capacity, the mechanisms, and will reduce market
receive, process, and communicate a Exchange has analyzed its capacity and risk for members using the mechanisms.
represents that it has the necessary
asabaliauskas on DSK3SPTVN1PROD with NOTICES

Finally, as mentioned above, other
10 See
systems capacity to handle the potential exchanges such as BX and Phlx, have
note 7 supra.
11 With Block Orders, the member enters one side
additional traffic associated with the already amended their rules to permit
of the order in an effort to find contra-side liquidity. additional transactions that may occur response times consistent with those
While this order is exposed, the member is exposed with the implementation of the proposed here—i.e., no less than 100
to market risk. Therefore, reducing the exposure proposed reduction in the auction
time will reduce the market risk for Block Orders
milliseconds and no more than 1
just as it will reduce the market risk with respect
duration to no less than 100
to orders entered into the Facilitation Mechanism, milliseconds. Additionally, the 12 15 U.S.C. 78f(b).
Solicited Order Mechanism, and PIM. Exchange represents that its systems 13 15 U.S.C. 78f(b)(5).

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Federal Register / Vol. 81, No. 227 / Friday, November 25, 2016 / Notices 85283

second.14 As such, the Exchange C. Self-Regulatory Organization’s Commission and any person, other than
believes the proposed rule change Statement on Comments on the those that may be withheld from the
would help perfect the mechanism for a Proposed Rule Change Received From public in accordance with the
free and open national market system, Members, Participants, or Others provisions of 5 U.S.C. 552, will be
and generally help protect investors’ The Exchange has not solicited, and available for Web site viewing and
and the public’s interest. printing in the Commission’s Public
does not intend to solicit, comments on
Reference Room, 100 F Street NE.,
The Exchange believes the proposed this proposed rule change. The
Washington, DC 20549, on official
rule change is not unfairly Exchange has not received any
business days between the hours of
discriminatory because the auction unsolicited written comments from
10:00 a.m. and 3:00 p.m. Copies of the
duration would be the same for all members or other interested parties.
filing also will be available for
members. All members in the III. Date of Effectiveness of the inspection and copying at the principal
mechanisms have today, and will Proposed Rule Change and Timing for office of the Exchange. All comments
continue to have, an equal opportunity Commission Action received will be posted without change;
to receive the broadcast and respond the Commission does not edit personal
Within 45 days of the publication date
with their best prices during the identifying information from
of this notice in the Federal Register or
auction. Additionally, the Exchange within such longer period up to 90 days submissions. You should submit only
believes the reduction in the auction (i) as the Commission may designate if information that you wish to make
duration reduces the market risk for all it finds such longer period to be available publicly. All submissions
members. The reduction in time period appropriate and publishes its reasons should refer to File Number SR–
reduces the market risk for the Initiating for so finding or (ii) as to which the self- ISEGemini–2016–14 and should be
Member as well as any members regulatory organization consents, the submitted on or before December 16,
providing orders in response to a Commission will: 2016.
broadcast. Moreover, based on the (A) By order approve or disapprove For the Commission, by the Division of
feedback the Exchange received from its such proposed rule change, or Trading and Markets, pursuant to delegated
members, the Exchange believes that a (B) institute proceedings to determine authority.16
reduction in the auction period to a low whether the proposed rule change Brent J. Fields,
of 100 milliseconds would not impair should be disapproved. Secretary.
members’ ability to compete in the [FR Doc. 2016–28309 Filed 11–23–16; 8:45 am]
IV. Solicitation of Comments
mechanisms. The Exchange believes BILLING CODE 8011–01–P
these results support the assertion that Interested persons are invited to
a reduction in the auction duration submit written data, views, and
would not be unfairly discriminatory arguments concerning the foregoing, SECURITIES AND EXCHANGE
and would benefit investors. including whether the proposed rule COMMISSION
change is consistent with the Act. [Release No. 34–79357; File Nos. SR–
B. Self-Regulatory Organization’s Comments may be submitted by any of NASDAQ–2016–127; SR–BX–2016–051; SR–
Statement on Burden on Competition the following methods: ISE–2016–22; SR–ISEGemini–2016–10; SR–
ISEMercury–2016–16; SR–PHLX–2016–93;
The Exchange believes the proposal is Electronic Comments SR–BSECC–2016–001; SR–SCCP–2016–01]
consistent with Section 6(b)(8) of the • Use the Commission’s Internet
Act15 in that it does not impose any comment form (http://www.sec.gov/ Self-Regulatory Organizations; The
burden on competition that is not rules/sro.shtml); or NASDAQ Stock Market LLC; NASDAQ
necessary or appropriate in furtherance • Send an email to rule-comments@ BX, Inc.; International Securities
of the purposes of the Act. The sec.gov. Please include File Number SR– Exchange, LLC; ISE Gemini, LLC; ISE
proposed rule change is not designed to ISEGemini–2016–14 on the subject line. Mercury, LLC; NASDAQ PHLX LLC;
address any aspect of competition, but Boston Stock Exchange Clearing
Paper Comments Corporation; Stock Clearing
instead would continue to provide
market participants with sufficient time • Send paper comments in triplicate Corporation of Philadelphia; Notice of
to respond, compete, and provide price to Brent J. Fields, Secretary, Securities Filing of Amendment No. 1 and Order
and Exchange Commission, 100 F Street Granting Accelerated Approval of the
improvement for orders in the
NE., Washington, DC 20549–1090. Proposed Rule Change, as Modified by
Exchange’s auction mechanisms. The
All submissions should refer to File Amendment No. 1, Amending Bylaws
proposed rule also provides investors of Nasdaq, Inc. To Implement Proxy
and other market participants with more Number SR–ISEGemini–2016–14. This
file number should be included on the Access
timely executions, thereby reducing
their market risk. As proposed, the rule subject line if email is used. To help the November 18, 2016.
does not impose an undue burden on Commission process and review your
comments more efficiently, please use I. Introduction
members because they are all currently
only one method. The Commission will On September 15, 2016, each of The
capable of responding to these
post all comments on the Commission’s NASDAQ Stock Market LLC (‘‘Nasdaq’’),
mechanisms in under 100 milliseconds.
Internet Web site (http://www.sec.gov/ NASDAQ BX, Inc. (‘‘BX’’), International
asabaliauskas on DSK3SPTVN1PROD with NOTICES

Finally, the proposed rule change offers
rules/sro.shtml). Copies of the Securities Exchange, LLC (‘‘ISE’’), ISE
the same exposure period to all submission, all subsequent Gemini, LLC (‘‘ISE Gemini’’), ISE
members and would not impose a amendments, all written statements Mercury, LLC (‘‘ISE Mercury’’),
competitive burden on any particular with respect to the proposed rule NASDAQ PHLX LLC (‘‘PHLX’’), Boston
participant. change that are filed with the Stock Exchange Clearing Corporation
Commission, and all written (‘‘BSECC’’), and Stock Clearing
14 See note 7 supra. communications relating to the
15 15 U.S.C. 78f(b)(8). proposed rule change between the 16 17 CFR 200.30–3(a)(12).

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Document Created: 2016-11-23 23:17:36
Document Modified: 2016-11-23 23:17:36
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 85280