81 FR 91221 - Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change To Amend ISE Rule 723 and To Make Pilot Program Permanent

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 242 (December 16, 2016)

Page Range		91221-91227
FR Document		2016-30257
Federal Register, Volume 81 Issue 242 (Friday, December 16, 2016)
[Federal Register Volume 81, Number 242 (Friday, December 16, 2016)]
[Notices]
[Pages 91221-91227]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-30257]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79530; File No. SR-ISE-2016-29]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change To Amend ISE Rule 723 and 
To Make Pilot Program Permanent

December 12, 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 December 12, 2016, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``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 Exchange. 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 ISE Rule 723, concerning its Price

[[Page 91222]]

Improvement Mechanism (``PIM''). Certain aspects of PIM are currently 
operating on a pilot basis (``Pilot''), which was initially approved by 
the Commission in 2004,\3\ and which is set to expire on January 18, 
2017.\4\ The Pilot concerns (i) the termination of the exposure period 
by unrelated orders; and (ii) no minimum size requirement of orders 
eligible for PIM. ISE seeks to make the Pilot permanent, and also 
proposes to change the requirements for providing price improvement for 
Agency Orders of less than 50 option contracts.
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    \3\ See Securities Exchange Act Release No. 50819 (December 8, 
2004), 69 FR 75093 (December 15, 2004) (SR-ISE-2003-06) (``PIM 
Approval Order'').
    \4\ See Securities Exchange Act Release No. 78344 (July 15, 
2016), 81 FR 47459 (July 21, 2016) (SR-ISE-2016-17).
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.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 purpose of this proposed rule change is to make permanent 
certain pilots within Rule 723, relating to PIM. Paragraph .03 of the 
Supplementary Material to Rule 723 provides that there is no minimum 
size requirement for orders to be eligible for PIM. Paragraph .05 
concerns the termination of the exposure period by unrelated orders. In 
addition, ISE proposes to modify the requirements for PIM auctions 
involving less than 50 contracts (other than auctions involving Complex 
Orders) where the National Best Bid and Offer (``NBBO'') is only $0.01 
wide.
Background
    The Exchange adopted PIM in 2004 as a price-improvement mechanism 
on the Exchange.\5\ The PIM is a process that allows Electronic Access 
Members (``EAM'') to provide price improvement opportunities for a 
transaction wherein the Member seeks to execute an agency order as 
principal or execute an agency order against a solicited order (a 
``Crossing Transaction''). A Crossing Transaction is comprised of the 
order the EAM 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.
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    \5\ In addition to the PIM Approval Order and the most recent 
extension cited above, the following proposed rule changes have been 
submitted in connection with PIM. See Securities Exchange Act 
Release Nos. 52027 (July 13, 2005), 70 FR 41804 (July 20, 2005) (SR-
ISE-2005-30); 54146 (July 14, 2006), 71 FR 41490 (July 21, 2006) 
(SR-ISE-2006-39); 56106 (July 19, 2007), 72 FR 40914 (July 25, 2007) 
(SR-ISE-2007-62); 56156 (July 27, 2007), 72 FR 43305 (August 3, 
2007) (SR-ISE-2007-66); 58197 (July 18, 2008), 73 FR 43810 (July 28, 
2008) (SR-ISE-2008-60); 60333 (July 17, 2009), 74 FR 36792 (July 24, 
2009) (SR-ISE-2009-52); 62513 (July 16, 2010), 75 FR 43221 (July 23, 
2010) (SR-ISE-2010-75); 64931 (July 20, 2011), 76 FR 44642 (July 26, 
2011) (SR-ISE-2011-41); 67202 (June 14, 2012), 77 FR 36589 (June 19, 
2012) (SR-ISE-2012-54); 69853 (June 25, 2013), 78 FR 39390 (July 1, 
2013) (SR-ISE-2013-41); 72467 (June 25, 2014), 79 FR 37377 (July 1, 
2014) (SRISE-2014-33); 75482 (July 17, 2015), 80 FR 43807 (July 23, 
2015) (SR-ISE-2015-23).
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    Rule 723 sets forth the criteria pursuant to which the PIM is 
initiated. Specifically, a Crossing Transaction must be entered only at 
a price that is equal to or better than the national best bid or offer 
(``NBBO'') and better than the limit order or quote on the ISE order 
book on the same side of the Agency Order. The Crossing Transaction may 
be priced in one-cent increments. The Crossing Transaction may not be 
canceled, but the price of the Counter-Side Order may be improved 
during the exposure period.
    Rule 723 also sets forth requirements relating to the exposure of 
orders in PIM and the termination of the exposure period. Upon entry of 
a Crossing Transaction into the Price Improvement Mechanism, a 
broadcast message that includes the series, price and size of the 
Agency Order, and whether it is to buy or sell, will be sent to all 
Members. This broadcast message will not be included in the ISE 
disseminated best bid or offer and will not be disseminated through 
OPRA. Members will be given 500 milliseconds to indicate the size and 
price at which they want to participate in the execution of the Agency 
Order (``Improvement Orders''). Improvement Orders may be entered by 
all Members for their own account or for the account of a Public 
Customer in one-cent increments at the same price as the Crossing 
Transaction or at an improved price for the Agency Order, and for any 
size up to the size of the Agency Order. During the exposure period, 
Improvement Orders may not be canceled, but may be modified to (1) 
increase the size at the same price, or (2) improve the price of the 
Improvement Order for any size up to the size of the Agency Order. 
During the exposure period, responses (including the Counter Side 
Order, Improvement Orders, and any changes to either) submitted by 
Members shall not be visible to other auction participants. The 
exposure period will automatically terminate (i) at the end of the 500 
millisecond period, (ii) upon the receipt of a market or marketable 
limit order on the Exchange in the same series, or (iii) upon the 
receipt of a nonmarketable limit order in the same series on the same 
side of the market as the Agency Order that would cause the price of 
the Crossing Transaction to be outside of the best bid or offer on the 
Exchange.
    Rule 723 also describes how orders will be executed at the end of 
the exposure period. Specifically, at the end of the exposure period, 
the Agency Order will be executed in full at the best prices available, 
taking into consideration orders and quotes in the Exchange market, 
Improvement Orders, and the Counter-Side Order. The Agency Order will 
receive executions at multiple price levels if there is insufficient 
size to execute the entire order at the best price. At a given price, 
Priority Customer interest is executed in full before Professional 
Orders and any other interest of Members (i.e., proprietary interest 
from Electronic Access Members and Exchange market makers).
    After Priority Customer interest at a given price, Professional 
Orders and Members' interest will participate in the execution of the 
Agency Order based upon the percentage of the total number of contracts 
available at the price that is represented by the size of the Members' 
interest.
    In the case where the Counter-Side Order is at the same price as 
Members' interest (after Priority Customer interest at a given price), 
the Counter-Side order will be allocated the greater of one (1) 
contract or forty percent (40%) of the initial size of the Agency Order 
before other Member interest is executed. Upon entry of Counter-Side 
orders, Members can elect to automatically match the price and size of 
orders, quotes and responses received during the exposure period up to 
a specified

[[Page 91223]]

limit price or without specifying a limit price. In this case, the 
Counter-Side order will be allocated its full size at each price point, 
or at each price point within its limit price if a limit is specified, 
until a price point is reached where the balance of the order can be 
fully executed. At such price point, the Counter-Side order shall be 
allocated the greater of one contract or forty percent (40%) of the 
original size of the Agency Order, but only after Priority Customer 
Orders at such price point are executed in full. Thereafter, all other 
orders, Responses, and quotes at the price point will participate in 
the execution of the Agency Order based upon the percentage of the 
total number of contracts available at the price that is represented by 
the size of the order, Response or quote. An election to automatically 
match better prices cannot be cancelled or altered during the exposure 
period.
    When a market order or marketable limit order on the opposite side 
of the market from the Agency Order ends the exposure period, it will 
participate in the execution of the Agency Order at the price that is 
mid-way between the best counter-side interest and the NBBO, so that 
both the market or marketable limit order and the Agency Order receive 
price improvement. Transactions will be rounded, when necessary, to the 
$0.01 increment that favors the Agency Order.
The Pilot
    As described above, two components of PIM are currently operating 
on a pilot basis: (i) The termination of the exposure period by 
unrelated orders; and (ii) no minimum size requirement of orders 
entered into PIM. The pilot has been extended until January 18, 
2017.\6\
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    \6\ See note 4 above.
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    As described in greater detail below, during the pilot period the 
Exchange has been required to submit, and has been submitting, certain 
data periodically as required by the Commission, to provide supporting 
evidence that, among other things, there is meaningful competition for 
all size orders within the PIM, that there is significant price 
improvement for all orders executed through the PIM, and that there is 
an active and liquid market functioning on the Exchange both within PIM 
and outside of the Auction mechanism. The Exchange has also analyzed 
the impact of certain aspects of the Pilot; for example, situation in 
which PIM is terminated prematurely by an unrelated order.
    The Exchange now seeks to have the Pilot approved on a permanent 
basis. In addition, the Exchange proposes to modify the scope of PIM so 
that, with respect to PIM orders for less than 50 option contracts, 
members will be required to receive price improvement of at least one 
minimum price improvement increment over the NBBO if the NBBO is only 
$0.01 wide. For orders of 50 contracts or more, or if the difference in 
the NBBO is greater than $0.01, and for Complex Orders, the 
requirements for price improvement remain the same.
Price Improvement for Orders Under 50 Contracts
    Currently, the PIM may be initiated if all of the following 
conditions are met. A Crossing Transaction must be entered only at a 
price that is equal to or better than the NBBO and better than the 
limit order or quote on the ISE order book on the same side of the 
Agency Order. The Crossing Transaction may be priced in one-cent 
increments. The Crossing Transaction may not be canceled, but the price 
of the Counter-Side Order may be improved during the exposure period.
    ISE proposes to amend Rule 723(b) to require Electronic Access 
Members to provide at least $0.01 price improvement for an Agency Order 
if that order is for less than 50 contracts and if the difference 
between the NBBO is $0.01. For the period beginning January 19, 2017 
until a date specified by the Exchange in a Regulatory Information 
Circular, which date shall be no later than July 15, 2017, ISE will 
adopt a member conduct standard to implement this requirement.\7\ Under 
this provision, ISE is proposing to amend the Auction Eligibility 
Requirements to require that, if the Agency Order is for less than 50 
option contracts, and if the difference between the NBBO is $0.01, an 
Electronic Access Member shall not enter a Crossing Transaction unless 
such Crossing Transaction is entered at a price that is one minimum 
price improvement increment better than the NBBO on the opposite side 
of the market from the Agency Order, and better than any limit order on 
the limit order book on the same side of the market as the Agency 
Order. This requirement will apply regardless of whether the Agency 
Order is for the account of a public customer, or where the Agency 
Order is for the account of a broker dealer or any other person or 
entity that is not a Public Customer.
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    \7\ The Exchange notes that its indirect parent company, U.S. 
Exchange Holdings, Inc. has been acquired by Nasdaq, Inc. See 
Securities Exchange Act Release No. 78119 (June 21, 2016), 81 FR 
41611 (June 27, 2016) (SR-ISE-2016-11). Pursuant to this 
acquisition, ISE platforms are migrating to Nasdaq platforms, 
including the platform that operates PIM. ISE intends to retain the 
proposed member conduct standard requiring price improvement for 
options orders of under 50 contracts where the difference between 
the NBBO is $0.01 until the ISE platforms and the corresponding 
symbols are migrated to the platforms operated by Nasdaq, Inc.
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    To enforce this requirement, ISE also proposes to amend Rule 1614 
(Imposition of Fines for Minor Rule Violations). Specifically, ISE will 
add Rule 1614(d)(4), which will provide that any Member who enters an 
order into PIM for less than 50 contracts, while the National Best Bid 
or Offer spread is $0.01, must provide price improvement of at least 
one minimum price improvement increment better than the NBBO on the 
opposite side of the market from the Agency Order, which increment may 
not be smaller than $0.01. Failure to provide such price improvement 
will result in members being subject to the following fines: $500 for 
the second offense, $1,000 for the third offense, and $2,500 for the 
fourth offense. Subsequent offenses will subject the member to formal 
disciplinary action. The Exchange will review violations on a monthly 
cycle to assess these violations. This provision shall also be in 
effect for the period beginning January 19, 2017 until a date specified 
by the Exchange in a Regulatory Information Circular, which date shall 
be no later than until September 15, 2017.\8\
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    \8\ As noted above, ISE will be eliminating the member conduct 
standard requiring price improvement for options orders of under 50 
contracts, where the difference between the NBBO is $0.01, by July 
15, 2017. However, ISE Mercury, LLC (``ISE Mercury'') is filing a 
rule change that adopts a similar member conduct standard, and that 
references proposed ISE Rule 1614(d)(4) as the means for enforcing 
its member conduct standard. ISE Mercury is proposing that its 
member conduct standard shall be in effect until a date specified by 
the Exchange in a Regulatory Information Circular, which date shall 
be no later than September 15, 2017. Accordingly, ISE is proposing 
that the date for eliminating Rule 1614(d)(4) shall be specified by 
the Exchange in a Regulatory Information Circular, which date shall 
be no later than until September 15, 2017.
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    The Exchange will conduct electronic surveillance of PIM to ensure 
that members comply with the proposed price improvement requirements 
for option orders of less than 50 contracts. Specifically, using an 
electronic surveillance system that produces alerts of potentially 
unlawful PIM orders, the Exchange will perform a frequent review of 
member firm activity to identify instances of apparent violations. Upon 
discovery of an apparent violation, the Exchange will attempt to 
contact the appropriate member firm to communicate the specifics of the 
apparent violation with the intent to assist the member firm in

[[Page 91224]]

preventing submission of subsequent problematic orders. The Exchange 
will review the alerts monthly and determine the applicability of the 
MRVP and appropriate penalty. The Exchange is not limited to the 
application of the MRVP, and may at its discretion, choose to escalate 
a matter for processing through the Exchange's disciplinary program.
    The Exchange is also proposing a systems-based mechanism to 
implement this price improvement requirement, which shall be effective 
following the migration of a symbol to INET, the platform operated by 
Nasdaq, Inc. that will also operate the PIM. Under this provision, if 
the Agency Order is for less than 50 option contracts, and if the 
difference between the National Best Bid and National Best Offer 
(``NBBO'') is $0.01, the Crossing Transaction must be entered at one 
minimum price improvement increment better than the NBBO on the 
opposite side of the market from the Agency Order and better than the 
limit order or quote on the ISE order book on the same side of the 
Agency Order.
    The Exchange believes that these changes to PIM may provide 
additional opportunities for Agency Orders of under 50 option contracts 
to receive price improvement over the NBBO where the difference in the 
NBBO is $0.01. ISE notes that the statistics for the current pilot, 
which include, among other things, price improvement for orders of less 
than 50 option contracts under the current auction eligibility 
requirements, show relatively small amounts of price improvement for 
such orders. ISE believes that the proposed requirements will therefore 
increase the price improvement that orders of under 50 option contracts 
may receive in PIM.
    The Exchange will retain the current requirements for auction 
eligibility where the Agency Order is for 50 option contracts or more, 
or if the difference between the NBBO is greater than $0.01. 
Accordingly, the Exchange is amending the Auction Eligibility 
Requirements to state that, if the PIM Order is for 50 option contracts 
or more or if the difference between the NBBO is greater than $0.01, 
the Crossing Transaction must be entered only at a price that is equal 
to or better than the NBBO and better than the limit order or quote on 
the ISE order book on the same side as the Agency Order.
No Minimum Size Requirement
    Supplemental Material .03 to Rule 723 provides that, as part of the 
current Pilot, there will be no minimum size requirement for orders to 
be eligible for the Auction.\9\ The Exchange proposed the no-minimum 
size requirement for the PIM because it believed that this would 
provide small customer orders with the opportunity to participate in 
the PIM and to receive corresponding price improvement. In initially 
approving the PIM, the Commission noted that the no minimum size 
requirement provided an opportunity for more market participants to 
participate in the auction. The Commission also stated that it would 
evaluate PIM during the Pilot Period to determine whether it would be 
beneficial to customers and to the options market as a whole to approve 
any proposal requesting permanent approval to permit orders of fewer 
than 50 contracts to be submitted to the PIM.\10\
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    \9\ The provision relating to the no minimum size requirement 
also requires the Exchange to submit certain data, periodically as 
required by the Commission, to provide supporting evidence that, 
among other things, there is meaningful competition for all size 
orders within the PIM, that there is significant price improvement 
for all orders executed through the PIM, and that there is an active 
and liquid market functioning on the Exchange outside of the PIM. 
Any raw data which is submitted to the Commission will be provided 
on a confidential basis.
    \10\ See PIM Approval Order, supra note 3.
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    As noted above, throughout the Pilot, the Exchange has been 
required to submit certain data periodically to provide supporting 
evidence that, among other things, there is meaningful competition for 
all size orders within the PIM, that there is significant price 
improvement for all orders executed through the PIM, and that there is 
an active and liquid market functioning on the Exchange both within PIM 
and outside of the Auction mechanism.
    The Exchange believes that the data gathered since the approval of 
the Pilot establishes that there is liquidity and competition both 
within PIM and outside of PIM, and that there are opportunities for 
significant price improvement within PIM.\11\
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    \11\ Specifically, the Exchange gathered and reported nine 
separate data fields relating to simple PIM orders of fewer than 50 
contracts, including (1) the number of orders of fewer than 50 
contracts entered into the PIM; (2) the percentage of all orders of 
fewer than 50 contracts sent to ISE that are entered into the PIM; 
(3) the spread in the option, at the time an order of fewer than 50 
contracts is submitted to the PIM; and (4) of PIM trades, the 
percentage done at the NBBO plus $.01, plus $.02, plus $.03, etc. 
See PIM Approval Order, supra note 3.
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    In the period between January and June 2016, the PIM executed a 
total of 7.12 million contracts, which represented 2.86% of total ISE 
contract volume and 0.35% of industry volume. The percent of ISE volume 
traded in PIM ranged from 2.24% in June 2016 to 3.59% in February 2016. 
For complex orders, in January 2016, 25,854 complex orders of greater 
than 50 contracts were entered into PIM, which represents 0.18% of 
total ISE volume.
    The Exchange compiled price improvement data in simple PIM orders 
from January through June 2016 that divides the data into the following 
groups: (1) Orders of over 50 contracts where the Agency Order was on 
behalf of a Public Customer and ISE was at the NBBO; (2) orders of over 
50 contracts where the Agency Order was on behalf of a Public Customer 
and ISE was not at the NBBO; (3) orders of over 50 contracts where the 
Agency Order was on behalf of a non-customer and ISE was at the NBBO; 
(4) orders of over 50 contracts where the Agency Order was on behalf of 
a non-customer and ISE was not at the NBBO; (5) orders of 50 contracts 
or less where the Agency Order was on behalf of a Public Customer and 
ISE was at the NBBO; (6) orders of 50 contracts or less where the 
Agency Order was on behalf of a Public Customer and ISE was not at the 
NBBO; (7) orders of 50 contracts or less where the Agency Order was on 
behalf of a non-customer and ISE was at the NBBO; and (8) orders of 50 
contracts or less where the Agency Order was on behalf of a non-
customer and ISE was not at the NBBO.
    For January 2016, where the order was on behalf of a Public 
Customer, the order was for 50 contracts or less, and ISE was at the 
NBBO, the most contracts traded (194,249) occurred when the spread was 
between $0.05 and $0.10.\12\ Of these, the greatest number of contracts 
(43,888) received no price improvement. There was an average number of 
five participants when the spread was between $0.05 and $0.10. When the 
spread was $0.01 for this same category, a total of 17,202 contracts 
traded; 16,032 contracts received no price improvement, and 1,170 
received $0.01 price improvement. There was an average number of three 
participants when the spread was $0.01.
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    \12\ This discussion of January 2016 data is intended to be 
illustrative of data that was gathered between January 2016 and July 
2016. The complete underlying data for January 2016 through June 
2016 for these eight categories is attached as Exhibit 3a for simple 
orders entered in PIM, and Exhibit 3b for complex orders entered in 
PIM.
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    In comparison, in January 2016, where the order was on behalf of a 
Public Customer, and the order was for greater than 50 contracts, and 
ISE was at the NBBO, the most contracts traded (14,078) occurred where 
the spread was between $0.10 and $0.20. Of those contracts, the 
greatest number of

[[Page 91225]]

contracts (6,254) received price improvement of $0.05 to $0.10, and 44 
contracts received no price improvement. There was an average number of 
6 participants where the spread was between $0.10 and $0.20.
    In January 2016, where the order was on behalf of a Public 
Customer, the order was for 50 contracts or less, and ISE was not at 
the NBBO, the most contracts traded (76,326) occurred when the spread 
was between $0.05 and $0.10. Of these contracts, the greatest number of 
contracts (18,008) received no price improvement. There was an average 
number of four participants when the spread was between $0.05 and 
$0.10. In comparison, when the spread was $0.01 in this same category, 
a total of 17,687 contracts traded; 17,270 of those contracts received 
no price improvement, and 417 of those contracts received $0.01 price 
improvement. There was an average number of three participants when the 
spread was $0.01.
    In comparison, in January 2016, where the order was on behalf of a 
Public Customer, the order was for greater than 50 contracts, and ISE 
was not at the NBBO, the most contracts traded (10,541) occurred when 
the spread was between $0.10 and $0.20. Of these contracts, the 
greatest number (3,738) received price improvement of $0.05 to $0.10. 
There was an average number of 6 participants where the spread was 
between $0.10 and $0.20.
    In January 2016, the greatest number of complex orders traded 
(2,139) traded when the spread was at $0.05. Of those orders, 181 
represented orders of 50 or fewer contracts. During that period, the 
highest percentage (29.30%) of orders of greater than 50 contracts 
received $0.01 price improvement, and the highest percentage (20.4%) 
received no price improvement. For orders of greater than 50 contracts, 
the greatest number of orders (436) executed where there were no 
participants (besides the Electronic Access Member that entered the 
order). For orders of less than 50 contracts, the greatest number of 
orders (15) executed when there were no participants.
    ISE believes that the data gathered during the Pilot period 
indicates that there is meaningful competition in PIM auctions for all 
size orders, there is an active and liquid market functioning on the 
Exchange outside of the auction mechanism, and that, coupled with the 
proposed requirements for price improvement for options orders of under 
50 contracts, there are opportunities for significant price improvement 
for orders executed through PIM. The Exchange therefore believes that 
it is appropriate to approve the no-minimum size requirement on a 
permanent basis.
Early Conclusion of the PIM Auction
    Supplemental Material .05 to Rule 723 provides that Rule 723(c)(5) 
and Rule 723(d)(4), which relate to the termination of the exposure 
period by unrelated orders shall be part of the current Pilot. Rule 
723(c)(5) provides that the exposure period will automatically 
terminate (i) at the end of the 500 millisecond period,\13\ (ii) upon 
the receipt of a market or marketable limit order on the Exchange in 
the same series, or (iii) upon the receipt of a nonmarketable limit 
order in the same series on the same side of the market as the Agency 
Order that would cause the price of the Crossing Transaction to be 
outside of the best bid or offer on the Exchange. Rule 723(d)(4) 
provides that, when a market order or marketable limit order on the 
opposite side of the market from the Agency Order ends the exposure 
period, it will participate in the execution of the Agency Order at the 
price that is mid-way between the best counter-side interest and the 
NBBO, so that both the market or marketable limit order and the Agency 
Order receive price improvement. Transactions will be rounded, when 
necessary, to the $.01 increment that favors the Agency Order.\14\
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    \13\ As initially approved, this provision of Rule 723(c)(5) 
provided that the exposure period would automatically terminate at 
the end of the three second period. See Securities Exchange Act 
Release No. 49323 (February 26, 2004), 69 FR 10087 (March 3, 2004) 
(Notice of filing for SR-ISE-2003-06). This exposure period was 
subsequently reduced to one second, and then to the current 500 
milliseconds. See Securities Exchange Act Release Nos. 58224 (July 
25, 2008), 73 FR 44303 (July 30, 2008) (SR-ISE-2007-94); 68849 
(February 6, 2013), 78 FR 9973 (February 12, 2013) (SR-ISE-2012-
100). The Exchange notes that it is proposing to further modify the 
exposure period to a time period of no less than 100 milliseconds 
and no more than one second. See Securities Exchange Act Release No. 
79352 (November 18, 2016), 81 FR 85277 (November 25, 2016) (SR-ISE-
2016-26).
    \14\ When the Pilot was initially approved, there were two 
sections of Rule 723(d) that were approved on a pilot basis. Rule 
723(d)(5) was approved on a pilot basis, which was subsequently re-
numbered as current Rule 723(d)(4). See Securities Exchange Act 
Release No. 72554 (July 8, 2014), 79 FR 40830 (July 14, 2014) (SR-
ISE-2014-35). Rule 723(d)(6) was also approved on a pilot basis, but 
was subsequently deleted as that functionality was no longer offered 
on the Exchange. See Securities Exchange Act Release No. 68570 
(January 3, 2013) (SR-ISE-2012-82).
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    As with the no minimum size requirement, the Exchange has gathered 
data on these three conditions to assess the effect of early PIM 
Auction conclusions on the Pilot.\15\
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    \15\ The Exchange agreed to gather and submit the following data 
on this part of the Pilot: (1) The number of times that a market or 
marketable limit order in the same series on the same side of the 
market as the Agency Order prematurely ended the PIM auction, and 
the number of times such orders were entered by the same (or 
affiliated) firm that initiated the PIM that was terminated; (2) the 
percentage of PIM early terminations due to the receipt of a market 
or marketable limit order in the same series on the same side of the 
market that occurred within a \1/2\ second of the start of the PIM 
auction; the percentage that occurred within one second of the start 
of the PIM auction; the percentage that occurred within one and \1/
2\ second of the start of the PIM auction; the percentage that 
occurred within 2 seconds of the start of the PIM auction; the 
percentage that occurred within 2 and \1/2\ seconds of the PIM 
auction; and the average amount of price improvement provided to the 
Agency Order where the PIM is terminated early at each of these time 
periods; (3) the number of times that a market or marketable limit 
order in the same series on the opposite side of the market as the 
Agency Order prematurely ended the PIM auction and at what time the 
unrelated order ended the PIM auction, and the number of times such 
orders were entered by the same (or affiliated) firm that initiated 
the PIM that was terminated; (4) the percentage of PIM early 
terminations due to the receipt of a market or marketable limit 
order in the same series on the opposite side of the market that 
occurred within a \1/2\ second of the start of the PIM auction; the 
percentage that occurred within one second of the start of the PIM 
auction; the percentage that occurred within one and \1/2\ second of 
the start of the PIM auction; the percentage that occurred within 2 
seconds of the start of the PIM auction; the percentage that 
occurred within 2 and \1/2\ seconds of the PIM auction; and the 
average amount of price improvement provided to the Agency Order 
where the PIM is terminated early at each of these time periods; (5) 
the number of times that a nonmarketable limit order in the same 
series on the same side of the market as the Agency Order that would 
cause the price of the Crossing Transaction to be outside of the 
best bid or offer on the Exchange prematurely ended the PIM auction 
and at what time the unrelated order ended the PIM auction, and the 
number of times such orders were entered by the same (or affiliated) 
firm that initiated the PIM that was terminated; (6) the percentage 
of PIM early terminations due to the receipt of a market or 
marketable limit order in the same series on the same side of the 
market as the Agency Order that would cause the price of the 
Crossing Transaction to be outside of the best bid or offer on the 
Exchange that occurred within a \1/2\ second of the start of the PIM 
auction; the percentage that occurred within one second of the start 
of the PIM auction; the percentage that occurred within one and \1/
2\ second of the start of the PIM auction; the percentage that 
occurred within 2 seconds of the start of the PIM auction; the 
percentage that occurred within 2 and \1/2\ seconds of the PIM 
auction; and the average amount of price improvement provided to the 
Agency Order where the PIM is terminated early at each of these time 
periods; and (7) the average amount of price improvement provided to 
the Agency Order when the PIM auction is not terminated early (i.e., 
runs the full three seconds). See PIM Approval Order, supra note 3.
---------------------------------------------------------------------------

    For the period from January 2016 through June 2016, there were a 
total of 673 early terminated auctions. The number of orders in early 
terminated PIM auctions constituted 0.15% of total PIM orders. There 
were a total of 9,595 contracts that traded through early terminated 
auctions. The number of contracts in early terminated PIM auctions 
represented 0.13% of total PIM contracts. Of the early terminated 
auctions, 49.93% of those auctions

[[Page 91226]]

received price improvement, and 37.31% of contracts that traded in an 
early-terminated auction received price improvement. Of the PIM 
auctions that terminated early and received price improvement from 
January 2016 through June 2016, the total amount of price improvement 
received was $185.11.
    For complex orders, in January 2016, one order terminated early, 
and the PIM period upon termination was greater than or equal to 0.5 
seconds. That order received $0.005 price improvement.
    Based on the data gathered during the pilot, the Exchange does not 
anticipate that any of these conditions will occur with significant 
frequency in either simple or complex orders, or will otherwise 
significantly affect the functioning of the PIM. The Exchange also 
notes 49.93% of auctions in simple orders that terminated early 
received price improvement, and that, for simple orders, 37.31% of the 
contracts in auctions that terminated early received price improvement, 
with a total price improvement of $185.11. The Exchange therefore 
believes it is appropriate to approve this aspect of the Pilot on a 
permanent basis.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\16\ in general and with 
Section 6(b)(5) of the Act,\17\ in that it is designed to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest; and is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers, or to regulate by virtue of any authority conferred by the Act 
matters not related to the purposes of the Act or the administration of 
the Exchange.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f.
    \17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is also 
consistent with Section 6(b)(8) of the Act \18\ in that it does not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    Specifically, the Exchange believes that PIM, including the rules 
to which the Pilot applies, results in increased liquidity available at 
improved prices, with competitive final pricing out of the complete 
control of the Electronic Access Member that initiated the auction. The 
Exchange believes that PIM promotes and fosters competition and affords 
the opportunity for price improvement to more options contracts. The 
Exchange believes that the changes to the PIM requiring price 
improvement of at least one minimum price improvement increment over 
the NBBO for Agency Orders of less than 50 option contracts where the 
difference in the NBBO is $0.01 will provide further price improvement 
for those orders, and thereby encourage additional submission of those 
orders into PIM. The Exchange believes that the proposal, which 
subjects members to the Minor Rule Violation Plan for failing to 
provide the required price improvement, coupled with the Exchange's 
surveillance efforts, are designed to facilitate members' compliance 
with the proposed requirement.
    The Exchange believes that approving the Pilot on a permanent basis 
is also consistent with the Act. With respect to the no minimum size 
requirement, the Exchange believes that the data gathered during the 
Pilot period indicates that there is meaningful competition in the PIM 
for all size orders, there is an active and liquid market functioning 
on the Exchange outside of the auction mechanism, and that there are 
opportunities for significant price improvement for orders executed 
through PIM, including for small customer orders.
    With respect to the early termination of the PIM, the Exchange 
believes that it is appropriate to terminate an auction (i) at the end 
of the 500 millisecond period, (ii) upon the receipt of a market or 
marketable limit order on the Exchange in the same series, or (iii) 
upon the receipt of a nonmarketable limit order in the same series on 
the same side of the market as the Agency Order that would cause the 
price of the Crossing Transaction to be outside of the best bid or 
offer on the Exchange. Based on the data gathered during the pilot, the 
Exchange does not anticipate that any of these conditions will occur 
with significant frequency for either simple or complex orders, or will 
otherwise disrupt the functioning of the PIM. The Exchange also notes 
that a significant percentage of contracts in auctions that terminated 
early received price improvement. The Exchange also believes that it is 
consistent with the Act to require that, when a market order or 
marketable limit order on the opposite side of the market from the 
Agency Order ends the exposure period, it will participate in the 
execution of the Agency Order at the price that is mid-way between the 
best counter-side interest and the NBBO, so that both the market or 
marketable limit order and the Agency Order receive price improvement.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposal will apply to all 
Exchange members, and participation in the PIM process is completely 
voluntary. Based on the data collected by the Exchange during the 
Pilot, the Exchange believes that there is meaningful competition in 
the PIM for all size orders, there are opportunities for significant 
price improvement for orders executed through PIM, and that there is an 
active and liquid market functioning on the Exchange outside of the 
PIM. The Exchange believes that requiring increased price improvement 
for Agency Orders may encourage competition by attracting additional 
orders to participate in the PIM. The Exchange believes that approving 
the Pilot on a permanent basis will not significantly impact 
competition, as the Exchange is proposing no other change to the Pilot 
beyond implementing it on a permanent basis.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (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.

[[Page 91227]]

Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please 
include File Number SR-ISE-2016-29 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2016-29. 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-2016-29 and should be 
submitted on or before January 6, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-30257 Filed 12-15-16; 8:45 am]
 BILLING CODE 8011-01-P
Federal Register / Vol. 81, No. 242 / Friday, December 16, 2016 / Notices 91221

impediments to and perfect the public interest, the proposed rule proposed rule change between the
mechanisms of a free and open market change has become effective pursuant to Commission and any person, other than
and a national market system, by Section 19(b)(3)(A) of the Act 11 and those that may be withheld from the
allowing the Exchange and the Rule 19b–4(f)(6)(iii) thereunder.12 public in accordance with the
Commission additional time to analyze At any time within 60 days of the provisions of 5 U.S.C. 552, will be
the impact of the Pilot Program while filing of such proposed rule change, the available for Web site viewing and
also allowing the Exchange to continue Commission summarily may printing in the Commission’s Public
to compete for order flow with other temporarily suspend such rule change if Reference Section, 100 F Street NE.,
exchanges in option issues trading as it appears to the Commission that such Washington, DC 20549–1090 on official
part of the Pilot Program. action is necessary or appropriate in the business days between the hours of
public interest, for the protection of 10:00 a.m. and 3:00 p.m. Copies of the
B. Self-Regulatory Organization’s investors, or otherwise in furtherance of filing also will be available for
Statement on Burden on Competition the purposes of the Act. If the inspection and copying at the principal
The Exchange does not believe that Commission takes such action, the office of the Exchange. All comments
the proposed rule change would impose Commission shall institute proceedings received will be posted without change;
any burden on competition that is not under Section 19(b)(2)(B) 13 of the Act to the Commission does not edit personal
necessary or appropriate in furtherance determine whether the proposed rule identifying information from
of the purposes of the Act. Specifically, change should be approved or submissions. You should submit only
the Exchange believes that, by extending disapproved. information that you wish to make
the expiration of the Pilot Program, the available publicly. All submissions
IV. Solicitation of Comments
proposed rule change would allow for should refer to File Number SR–
further analysis of the Pilot Program and Interested persons are invited to NYSEArca–2016–156 and should be
a determination of how the Program submit written data, views, and submitted on or before January 6, 2017.
should be structured in the future. In arguments concerning the foregoing,
For the Commission, by the Division of
doing so, the proposed rule change including whether the proposed rule Trading and Markets, pursuant to delegated
would also serve to promote regulatory change is consistent with the Act. authority.14
clarity and consistency, thereby Comments may be submitted by any of Eduardo A. Aleman,
reducing burdens on the marketplace the following methods:
Assistant Secretary.
and facilitating investor protection. The Electronic Comments [FR Doc. 2016–30252 Filed 12–15–16; 8:45 am]
Pilot Program is an industry-wide
• Use the Commission’s Internet BILLING CODE 8011–01–P
initiative supported by all other option
comment form (http://www.sec.gov/
exchanges. The Exchange believes that
rules/sro.shtml); or
extending the Pilot Program would • Send an email to rule- SECURITIES AND EXCHANGE
allow for continued competition comments@sec.gov. Please include File COMMISSION
between Exchange market participants Number SR–NYSEArca–2016–156 on
trading similar products as their [Release No. 34–79530; File No. SR–ISE–
the subject line. 2016–29]
counterparts on other exchanges, while
at the same time allowing the Exchange Paper Comments Self-Regulatory Organizations;
to continue to compete for order flow • Send paper comments in triplicate International Securities Exchange,
with other exchanges in option issues to Secretary, Securities and Exchange LLC; Notice of Filing of Proposed Rule
trading as part of the Pilot Program. Commission, 100 F Street NE., Change To Amend ISE Rule 723 and To
C. Self-Regulatory Organization’s Washington, DC 20549–1090. Make Pilot Program Permanent
Statement on Comments on the All submissions should refer to File
December 12, 2016.
Proposed Rule Change Received From Number SR–NYSEArca–2016–156. This
file number should be included on the Pursuant to Section 19(b)(1) of the
Members, Participants, or Others Securities Exchange Act of 1934 (the
subject line if email is used. To help the
No written comments were solicited ‘‘Act’’),1 and Rule 19b–4 thereunder,2
Commission process and review your
or received with respect to the proposed notice is hereby given that on December
comments more efficiently, please use
rule change. 12, 2016, the International Securities
only one method. The Commission will
III. Date of Effectiveness of the post all comments on the Commission’s Exchange, LLC (the ‘‘Exchange’’ or the
Proposed Rule Change and Timing for Internet Web site (http://www.sec.gov/ ‘‘ISE’’) filed with the Securities and
Commission Action rules/sro.shtml). Copies of the Exchange Commission (‘‘Commission’’)
submission, all subsequent the proposed rule change as described
The Exchange has filed the proposed in Items I, II, and III below, which Items
rule change pursuant to Section amendments, all written statements
with respect to the proposed rule have been prepared by the Exchange.
19(b)(3)(A)(iii) of the Act 9 and Rule The Commission is publishing this
19b–4(f)(6) thereunder.10 Because the change that are filed with the
Commission, and all written notice to solicit comments on the
proposed rule change does not: (i) proposed rule change from interested
Significantly affect the protection of communications relating to the
persons.
investors or the public interest; (ii)
impose any significant burden on
11 15 U.S.C. 78s(b)(3)(A). I. Self-Regulatory Organization’s
12 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– Statement of the Terms of Substance of
mstockstill on DSK3G9T082PROD with NOTICES

competition; and (iii) become operative 4(f)(6)(iii) requires the Exchange to give the
prior to 30 days from the date on which Commission written notice of the Exchange’s intent
the Proposed Rule Change
it was filed, or such shorter time as the to file the proposed rule change along with a brief The Exchange proposes to amend ISE
Commission may designate if consistent description and the text of the proposed rule
change, at least five business days prior to the date
Rule 723, concerning its Price
with the protection of investors and the of filing of the proposed rule change, or such
14 17 CFR 200.30–3(a)(12).
shorter time as designated by the Commission. The
9 15 U.S.C. 78s(b)(3)(A)(iii). Exchange has satisfied this pre-filing requirement. 1 15 U.S.C. 78s(b)(1).
10 17 CFR 240.19b–4(f)(6). 13 15 U.S.C. 78s(b)(2)(B). 2 17 CFR 240.19b–4.

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Improvement Mechanism (‘‘PIM’’). Exchange.5 The PIM is a process that for their own account or for the account
Certain aspects of PIM are currently allows Electronic Access Members of a Public Customer in one-cent
operating on a pilot basis (‘‘Pilot’’), (‘‘EAM’’) to provide price improvement increments at the same price as the
which was initially approved by the opportunities for a transaction wherein Crossing Transaction or at an improved
Commission in 2004,3 and which is set the Member seeks to execute an agency price for the Agency Order, and for any
to expire on January 18, 2017.4 The Pilot order as principal or execute an agency size up to the size of the Agency Order.
concerns (i) the termination of the order against a solicited order (a During the exposure period,
exposure period by unrelated orders; ‘‘Crossing Transaction’’). A Crossing Improvement Orders may not be
and (ii) no minimum size requirement Transaction is comprised of the order canceled, but may be modified to (1)
of orders eligible for PIM. ISE seeks to the EAM represents as agent (the increase the size at the same price, or (2)
make the Pilot permanent, and also ‘‘Agency Order’’) and a counter-side improve the price of the Improvement
proposes to change the requirements for order for the full size of the Agency Order for any size up to the size of the
providing price improvement for Order (the ‘‘Counter-Side Order’’). The Agency Order. During the exposure
Agency Orders of less than 50 option Counter-Side Order may represent period, responses (including the
contracts. interest for the Member’s own account, Counter Side Order, Improvement
The text of the proposed rule change or interest the Member has solicited Orders, and any changes to either)
is available on the Exchange’s Web site from one or more other parties, or a submitted by Members shall not be
at http://nasdaq.cchwallstreet.com, at combination of both. visible to other auction participants.
the principal office of the Exchange, and Rule 723 sets forth the criteria The exposure period will automatically
at the Commission’s Public Reference pursuant to which the PIM is initiated. terminate (i) at the end of the 500
Room. Specifically, a Crossing Transaction millisecond period, (ii) upon the receipt
must be entered only at a price that is of a market or marketable limit order on
II. Self-Regulatory Organization’s
equal to or better than the national best the Exchange in the same series, or (iii)
Statement of the Purpose of, and
bid or offer (‘‘NBBO’’) and better than upon the receipt of a nonmarketable
Statutory Basis for, the Proposed Rule
the limit order or quote on the ISE order limit order in the same series on the
Change
book on the same side of the Agency same side of the market as the Agency
In its filing with the Commission, the Order. The Crossing Transaction may be Order that would cause the price of the
Exchange included statements priced in one-cent increments. The Crossing Transaction to be outside of
concerning the purpose of and basis for Crossing Transaction may not be the best bid or offer on the Exchange.
the proposed rule change and discussed canceled, but the price of the Counter- Rule 723 also describes how orders
any comments it received on the Side Order may be improved during the will be executed at the end of the
proposed rule change. The text of these exposure period. exposure period. Specifically, at the end
statements may be examined at the Rule 723 also sets forth requirements of the exposure period, the Agency
places specified in Item IV below. The relating to the exposure of orders in PIM Order will be executed in full at the best
Exchange has prepared summaries, set and the termination of the exposure prices available, taking into
forth in sections A, B, and C below, of period. Upon entry of a Crossing consideration orders and quotes in the
the most significant aspects of such Transaction into the Price Improvement Exchange market, Improvement Orders,
statements. Mechanism, a broadcast message that and the Counter-Side Order. The
A. Self-Regulatory Organization’s includes the series, price and size of the Agency Order will receive executions at
Statement of the Purpose of, and Agency Order, and whether it is to buy multiple price levels if there is
Statutory Basis for, the Proposed Rule or sell, will be sent to all Members. This insufficient size to execute the entire
Change broadcast message will not be included order at the best price. At a given price,
in the ISE disseminated best bid or offer Priority Customer interest is executed in
1. Purpose and will not be disseminated through full before Professional Orders and any
The purpose of this proposed rule OPRA. Members will be given 500 other interest of Members (i.e.,
change is to make permanent certain milliseconds to indicate the size and proprietary interest from Electronic
pilots within Rule 723, relating to PIM. price at which they want to participate Access Members and Exchange market
Paragraph .03 of the Supplementary in the execution of the Agency Order makers).
Material to Rule 723 provides that there (‘‘Improvement Orders’’). Improvement After Priority Customer interest at a
is no minimum size requirement for Orders may be entered by all Members given price, Professional Orders and
orders to be eligible for PIM. Paragraph Members’ interest will participate in the
.05 concerns the termination of the 5 In addition to the PIM Approval Order and the execution of the Agency Order based
most recent extension cited above, the following upon the percentage of the total number
exposure period by unrelated orders. In proposed rule changes have been submitted in
addition, ISE proposes to modify the of contracts available at the price that is
connection with PIM. See Securities Exchange Act
requirements for PIM auctions involving Release Nos. 52027 (July 13, 2005), 70 FR 41804 represented by the size of the Members’
less than 50 contracts (other than (July 20, 2005) (SR–ISE–2005–30); 54146 (July 14, interest.
auctions involving Complex Orders) 2006), 71 FR 41490 (July 21, 2006) (SR–ISE–2006– In the case where the Counter-Side
39); 56106 (July 19, 2007), 72 FR 40914 (July 25, Order is at the same price as Members’
where the National Best Bid and Offer 2007) (SR–ISE–2007–62); 56156 (July 27, 2007), 72
(‘‘NBBO’’) is only $0.01 wide. FR 43305 (August 3, 2007) (SR–ISE–2007–66);
interest (after Priority Customer interest
58197 (July 18, 2008), 73 FR 43810 (July 28, 2008) at a given price), the Counter-Side order
Background (SR–ISE–2008–60); 60333 (July 17, 2009), 74 FR will be allocated the greater of one (1)
36792 (July 24, 2009) (SR–ISE–2009–52); 62513 contract or forty percent (40%) of the
mstockstill on DSK3G9T082PROD with NOTICES

The Exchange adopted PIM in 2004 as
(July 16, 2010), 75 FR 43221 (July 23, 2010) (SR–
a price-improvement mechanism on the ISE–2010–75); 64931 (July 20, 2011), 76 FR 44642
initial size of the Agency Order before
(July 26, 2011) (SR–ISE–2011–41); 67202 (June 14, other Member interest is executed.
3 See Securities Exchange Act Release No. 50819 2012), 77 FR 36589 (June 19, 2012) (SR–ISE–2012– Upon entry of Counter-Side orders,
(December 8, 2004), 69 FR 75093 (December 15, 54); 69853 (June 25, 2013), 78 FR 39390 (July 1, Members can elect to automatically
2004) (SR–ISE–2003–06) (‘‘PIM Approval Order’’). 2013) (SR–ISE–2013–41); 72467 (June 25, 2014), 79
4 See Securities Exchange Act Release No. 78344 FR 37377 (July 1, 2014) (SRISE–2014–33); 75482
match the price and size of orders,
(July 15, 2016), 81 FR 47459 (July 21, 2016) (SR– (July 17, 2015), 80 FR 43807 (July 23, 2015) (SR– quotes and responses received during
ISE–2016–17). ISE–2015–23). the exposure period up to a specified

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limit price or without specifying a limit modify the scope of PIM so that, with regardless of whether the Agency Order
price. In this case, the Counter-Side respect to PIM orders for less than 50 is for the account of a public customer,
order will be allocated its full size at option contracts, members will be or where the Agency Order is for the
each price point, or at each price point required to receive price improvement account of a broker dealer or any other
within its limit price if a limit is of at least one minimum price person or entity that is not a Public
specified, until a price point is reached improvement increment over the NBBO Customer.
where the balance of the order can be if the NBBO is only $0.01 wide. For To enforce this requirement, ISE also
fully executed. At such price point, the orders of 50 contracts or more, or if the proposes to amend Rule 1614
Counter-Side order shall be allocated difference in the NBBO is greater than (Imposition of Fines for Minor Rule
the greater of one contract or forty $0.01, and for Complex Orders, the Violations). Specifically, ISE will add
percent (40%) of the original size of the requirements for price improvement Rule 1614(d)(4), which will provide that
Agency Order, but only after Priority remain the same. any Member who enters an order into
Customer Orders at such price point are PIM for less than 50 contracts, while the
Price Improvement for Orders Under 50 National Best Bid or Offer spread is
executed in full. Thereafter, all other
Contracts $0.01, must provide price improvement
orders, Responses, and quotes at the
price point will participate in the Currently, the PIM may be initiated if of at least one minimum price
execution of the Agency Order based all of the following conditions are met. improvement increment better than the
upon the percentage of the total number A Crossing Transaction must be entered NBBO on the opposite side of the
of contracts available at the price that is only at a price that is equal to or better market from the Agency Order, which
represented by the size of the order, than the NBBO and better than the limit increment may not be smaller than
Response or quote. An election to order or quote on the ISE order book on $0.01. Failure to provide such price
automatically match better prices the same side of the Agency Order. The improvement will result in members
cannot be cancelled or altered during Crossing Transaction may be priced in being subject to the following fines:
the exposure period. one-cent increments. The Crossing $500 for the second offense, $1,000 for
When a market order or marketable Transaction may not be canceled, but the third offense, and $2,500 for the
limit order on the opposite side of the the price of the Counter-Side Order may fourth offense. Subsequent offenses will
market from the Agency Order ends the be improved during the exposure subject the member to formal
exposure period, it will participate in period. disciplinary action. The Exchange will
the execution of the Agency Order at the ISE proposes to amend Rule 723(b) to review violations on a monthly cycle to
price that is mid-way between the best require Electronic Access Members to assess these violations. This provision
counter-side interest and the NBBO, so provide at least $0.01 price shall also be in effect for the period
that both the market or marketable limit improvement for an Agency Order if beginning January 19, 2017 until a date
order and the Agency Order receive that order is for less than 50 contracts specified by the Exchange in a
price improvement. Transactions will be and if the difference between the NBBO Regulatory Information Circular, which
rounded, when necessary, to the $0.01 is $0.01. For the period beginning date shall be no later than until
increment that favors the Agency Order. January 19, 2017 until a date specified September 15, 2017.8
The Pilot by the Exchange in a Regulatory The Exchange will conduct electronic
Information Circular, which date shall surveillance of PIM to ensure that
As described above, two components be no later than July 15, 2017, ISE will members comply with the proposed
of PIM are currently operating on a pilot adopt a member conduct standard to price improvement requirements for
basis: (i) The termination of the implement this requirement.7 Under option orders of less than 50 contracts.
exposure period by unrelated orders; this provision, ISE is proposing to Specifically, using an electronic
and (ii) no minimum size requirement amend the Auction Eligibility surveillance system that produces alerts
of orders entered into PIM. The pilot has Requirements to require that, if the of potentially unlawful PIM orders, the
been extended until January 18, 2017.6 Agency Order is for less than 50 option Exchange will perform a frequent
As described in greater detail below, contracts, and if the difference between review of member firm activity to
during the pilot period the Exchange the NBBO is $0.01, an Electronic Access identify instances of apparent
has been required to submit, and has Member shall not enter a Crossing violations. Upon discovery of an
been submitting, certain data Transaction unless such Crossing apparent violation, the Exchange will
periodically as required by the Transaction is entered at a price that is attempt to contact the appropriate
Commission, to provide supporting one minimum price improvement member firm to communicate the
evidence that, among other things, there increment better than the NBBO on the specifics of the apparent violation with
is meaningful competition for all size opposite side of the market from the the intent to assist the member firm in
orders within the PIM, that there is Agency Order, and better than any limit
significant price improvement for all order on the limit order book on the 8 As noted above, ISE will be eliminating the

orders executed through the PIM, and same side of the market as the Agency member conduct standard requiring price
that there is an active and liquid market Order. This requirement will apply
improvement for options orders of under 50
functioning on the Exchange both contracts, where the difference between the NBBO
is $0.01, by July 15, 2017. However, ISE Mercury,
within PIM and outside of the Auction 7 The Exchange notes that its indirect parent LLC (‘‘ISE Mercury’’) is filing a rule change that
mechanism. The Exchange has also company, U.S. Exchange Holdings, Inc. has been adopts a similar member conduct standard, and that
analyzed the impact of certain aspects of acquired by Nasdaq, Inc. See Securities Exchange references proposed ISE Rule 1614(d)(4) as the
Act Release No. 78119 (June 21, 2016), 81 FR 41611 means for enforcing its member conduct standard.
mstockstill on DSK3G9T082PROD with NOTICES

the Pilot; for example, situation in
(June 27, 2016) (SR–ISE–2016–11). Pursuant to this ISE Mercury is proposing that its member conduct
which PIM is terminated prematurely by acquisition, ISE platforms are migrating to Nasdaq standard shall be in effect until a date specified by
an unrelated order. platforms, including the platform that operates PIM. the Exchange in a Regulatory Information Circular,
The Exchange now seeks to have the ISE intends to retain the proposed member conduct which date shall be no later than September 15,
Pilot approved on a permanent basis. In standard requiring price improvement for options 2017. Accordingly, ISE is proposing that the date
orders of under 50 contracts where the difference for eliminating Rule 1614(d)(4) shall be specified by
addition, the Exchange proposes to between the NBBO is $0.01 until the ISE platforms the Exchange in a Regulatory Information Circular,
and the corresponding symbols are migrated to the which date shall be no later than until September
6 See note 4 above. platforms operated by Nasdaq, Inc. 15, 2017.

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91224 Federal Register / Vol. 81, No. 242 / Friday, December 16, 2016 / Notices

preventing submission of subsequent the Auction.9 The Exchange proposed 3.59% in February 2016. For complex
problematic orders. The Exchange will the no-minimum size requirement for orders, in January 2016, 25,854 complex
review the alerts monthly and the PIM because it believed that this orders of greater than 50 contracts were
determine the applicability of the MRVP would provide small customer orders entered into PIM, which represents
and appropriate penalty. The Exchange with the opportunity to participate in 0.18% of total ISE volume.
is not limited to the application of the the PIM and to receive corresponding The Exchange compiled price
MRVP, and may at its discretion, choose price improvement. In initially improvement data in simple PIM orders
to escalate a matter for processing approving the PIM, the Commission from January through June 2016 that
through the Exchange’s disciplinary noted that the no minimum size divides the data into the following
program. requirement provided an opportunity groups: (1) Orders of over 50 contracts
The Exchange is also proposing a for more market participants to where the Agency Order was on behalf
systems-based mechanism to implement participate in the auction. The of a Public Customer and ISE was at the
this price improvement requirement, Commission also stated that it would NBBO; (2) orders of over 50 contracts
which shall be effective following the evaluate PIM during the Pilot Period to where the Agency Order was on behalf
migration of a symbol to INET, the determine whether it would be of a Public Customer and ISE was not
platform operated by Nasdaq, Inc. that beneficial to customers and to the at the NBBO; (3) orders of over 50
will also operate the PIM. Under this options market as a whole to approve contracts where the Agency Order was
provision, if the Agency Order is for less any proposal requesting permanent on behalf of a non-customer and ISE
than 50 option contracts, and if the approval to permit orders of fewer than was at the NBBO; (4) orders of over 50
difference between the National Best 50 contracts to be submitted to the contracts where the Agency Order was
Bid and National Best Offer (‘‘NBBO’’) PIM.10 on behalf of a non-customer and ISE
is $0.01, the Crossing Transaction must As noted above, throughout the Pilot, was not at the NBBO; (5) orders of 50
be entered at one minimum price the Exchange has been required to contracts or less where the Agency
improvement increment better than the submit certain data periodically to Order was on behalf of a Public
NBBO on the opposite side of the provide supporting evidence that, Customer and ISE was at the NBBO; (6)
market from the Agency Order and among other things, there is meaningful orders of 50 contracts or less where the
better than the limit order or quote on competition for all size orders within Agency Order was on behalf of a Public
the ISE order book on the same side of the PIM, that there is significant price Customer and ISE was not at the NBBO;
the Agency Order. improvement for all orders executed (7) orders of 50 contracts or less where
The Exchange believes that these through the PIM, and that there is an the Agency Order was on behalf of a
changes to PIM may provide additional active and liquid market functioning on non-customer and ISE was at the NBBO;
opportunities for Agency Orders of the Exchange both within PIM and and (8) orders of 50 contracts or less
under 50 option contracts to receive outside of the Auction mechanism. where the Agency Order was on behalf
price improvement over the NBBO The Exchange believes that the data of a non-customer and ISE was not at
where the difference in the NBBO is gathered since the approval of the Pilot the NBBO.
establishes that there is liquidity and For January 2016, where the order
$0.01. ISE notes that the statistics for the
competition both within PIM and was on behalf of a Public Customer, the
current pilot, which include, among
outside of PIM, and that there are order was for 50 contracts or less, and
other things, price improvement for
opportunities for significant price ISE was at the NBBO, the most contracts
orders of less than 50 option contracts
improvement within PIM.11 traded (194,249) occurred when the
under the current auction eligibility
In the period between January and spread was between $0.05 and $0.10.12
requirements, show relatively small
June 2016, the PIM executed a total of Of these, the greatest number of
amounts of price improvement for such
7.12 million contracts, which contracts (43,888) received no price
orders. ISE believes that the proposed
represented 2.86% of total ISE contract improvement. There was an average
requirements will therefore increase the
volume and 0.35% of industry volume. number of five participants when the
price improvement that orders of under
The percent of ISE volume traded in spread was between $0.05 and $0.10.
50 option contracts may receive in PIM.
PIM ranged from 2.24% in June 2016 to When the spread was $0.01 for this
The Exchange will retain the current
same category, a total of 17,202
requirements for auction eligibility
9 The provision relating to the no minimum size contracts traded; 16,032 contracts
where the Agency Order is for 50 option
requirement also requires the Exchange to submit received no price improvement, and
contracts or more, or if the difference certain data, periodically as required by the 1,170 received $0.01 price
between the NBBO is greater than $0.01. Commission, to provide supporting evidence that, improvement. There was an average
Accordingly, the Exchange is amending among other things, there is meaningful
competition for all size orders within the PIM, that number of three participants when the
the Auction Eligibility Requirements to
there is significant price improvement for all orders spread was $0.01.
state that, if the PIM Order is for 50 executed through the PIM, and that there is an In comparison, in January 2016,
option contracts or more or if the active and liquid market functioning on the where the order was on behalf of a
difference between the NBBO is greater Exchange outside of the PIM. Any raw data which
Public Customer, and the order was for
than $0.01, the Crossing Transaction is submitted to the Commission will be provided on
a confidential basis. greater than 50 contracts, and ISE was
must be entered only at a price that is 10 See PIM Approval Order, supra note 3. at the NBBO, the most contracts traded
equal to or better than the NBBO and 11 Specifically, the Exchange gathered and
(14,078) occurred where the spread was
better than the limit order or quote on reported nine separate data fields relating to simple between $0.10 and $0.20. Of those
the ISE order book on the same side as PIM orders of fewer than 50 contracts, including (1)
mstockstill on DSK3G9T082PROD with NOTICES

the number of orders of fewer than 50 contracts contracts, the greatest number of
the Agency Order.
entered into the PIM; (2) the percentage of all orders
No Minimum Size Requirement of fewer than 50 contracts sent to ISE that are 12 This discussion of January 2016 data is

entered into the PIM; (3) the spread in the option, intended to be illustrative of data that was gathered
Supplemental Material .03 to Rule at the time an order of fewer than 50 contracts is between January 2016 and July 2016. The complete
723 provides that, as part of the current submitted to the PIM; and (4) of PIM trades, the underlying data for January 2016 through June 2016
percentage done at the NBBO plus $.01, plus $.02, for these eight categories is attached as Exhibit 3a
Pilot, there will be no minimum size plus $.03, etc. See PIM Approval Order, supra note for simple orders entered in PIM, and Exhibit 3b for
requirement for orders to be eligible for 3. complex orders entered in PIM.

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contracts (6,254) received price the no-minimum size requirement on a For the period from January 2016
improvement of $0.05 to $0.10, and 44 permanent basis. through June 2016, there were a total of
contracts received no price 673 early terminated auctions. The
Early Conclusion of the PIM Auction
improvement. There was an average number of orders in early terminated
number of 6 participants where the Supplemental Material .05 to Rule PIM auctions constituted 0.15% of total
spread was between $0.10 and $0.20. 723 provides that Rule 723(c)(5) and PIM orders. There were a total of 9,595
In January 2016, where the order was Rule 723(d)(4), which relate to the contracts that traded through early
on behalf of a Public Customer, the termination of the exposure period by terminated auctions. The number of
order was for 50 contracts or less, and unrelated orders shall be part of the contracts in early terminated PIM
ISE was not at the NBBO, the most current Pilot. Rule 723(c)(5) provides auctions represented 0.13% of total PIM
contracts traded (76,326) occurred when that the exposure period will contracts. Of the early terminated
the spread was between $0.05 and automatically terminate (i) at the end of auctions, 49.93% of those auctions
$0.10. Of these contracts, the greatest the 500 millisecond period,13 (ii) upon
number of contracts (18,008) received the receipt of a market or marketable market as the Agency Order prematurely ended the
no price improvement. There was an limit order on the Exchange in the same PIM auction, and the number of times such orders
were entered by the same (or affiliated) firm that
average number of four participants series, or (iii) upon the receipt of a initiated the PIM that was terminated; (2) the
when the spread was between $0.05 and nonmarketable limit order in the same percentage of PIM early terminations due to the
$0.10. In comparison, when the spread series on the same side of the market as receipt of a market or marketable limit order in the
was $0.01 in this same category, a total the Agency Order that would cause the same series on the same side of the market that
of 17,687 contracts traded; 17,270 of occurred within a 1⁄2 second of the start of the PIM
price of the Crossing Transaction to be auction; the percentage that occurred within one
those contracts received no price outside of the best bid or offer on the second of the start of the PIM auction; the
improvement, and 417 of those Exchange. Rule 723(d)(4) provides that, percentage that occurred within one and 1⁄2 second
contracts received $0.01 price when a market order or marketable limit of the start of the PIM auction; the percentage that
improvement. There was an average occurred within 2 seconds of the start of the PIM
order on the opposite side of the market auction; the percentage that occurred within 2 and
number of three participants when the from the Agency Order ends the 1⁄2 seconds of the PIM auction; and the average

spread was $0.01. exposure period, it will participate in amount of price improvement provided to the
In comparison, in January 2016, the execution of the Agency Order at the Agency Order where the PIM is terminated early at
where the order was on behalf of a each of these time periods; (3) the number of times
price that is mid-way between the best that a market or marketable limit order in the same
Public Customer, the order was for counter-side interest and the NBBO, so series on the opposite side of the market as the
greater than 50 contracts, and ISE was that both the market or marketable limit Agency Order prematurely ended the PIM auction
not at the NBBO, the most contracts order and the Agency Order receive and at what time the unrelated order ended the PIM
traded (10,541) occurred when the auction, and the number of times such orders were
price improvement. Transactions will be entered by the same (or affiliated) firm that initiated
spread was between $0.10 and $0.20. Of rounded, when necessary, to the $.01 the PIM that was terminated; (4) the percentage of
these contracts, the greatest number increment that favors the Agency PIM early terminations due to the receipt of a
(3,738) received price improvement of Order.14 market or marketable limit order in the same series
$0.05 to $0.10. There was an average As with the no minimum size on the opposite side of the market that occurred
number of 6 participants where the within a 1⁄2 second of the start of the PIM auction;
requirement, the Exchange has gathered the percentage that occurred within one second of
spread was between $0.10 and $0.20. data on these three conditions to assess the start of the PIM auction; the percentage that
In January 2016, the greatest number the effect of early PIM Auction occurred within one and 1⁄2 second of the start of
of complex orders traded (2,139) traded conclusions on the Pilot.15 the PIM auction; the percentage that occurred
when the spread was at $0.05. Of those within 2 seconds of the start of the PIM auction; the
percentage that occurred within 2 and 1⁄2 seconds
orders, 181 represented orders of 50 or 13 As initially approved, this provision of Rule
of the PIM auction; and the average amount of price
fewer contracts. During that period, the 723(c)(5) provided that the exposure period would improvement provided to the Agency Order where
highest percentage (29.30%) of orders of automatically terminate at the end of the three the PIM is terminated early at each of these time
second period. See Securities Exchange Act Release periods; (5) the number of times that a
greater than 50 contracts received $0.01 No. 49323 (February 26, 2004), 69 FR 10087 (March
price improvement, and the highest nonmarketable limit order in the same series on the
3, 2004) (Notice of filing for SR–ISE–2003–06). This same side of the market as the Agency Order that
percentage (20.4%) received no price exposure period was subsequently reduced to one would cause the price of the Crossing Transaction
improvement. For orders of greater than second, and then to the current 500 milliseconds. to be outside of the best bid or offer on the
50 contracts, the greatest number of See Securities Exchange Act Release Nos. 58224 Exchange prematurely ended the PIM auction and
(July 25, 2008), 73 FR 44303 (July 30, 2008) (SR– at what time the unrelated order ended the PIM
orders (436) executed where there were ISE–2007–94); 68849 (February 6, 2013), 78 FR auction, and the number of times such orders were
no participants (besides the Electronic 9973 (February 12, 2013) (SR–ISE–2012–100). The entered by the same (or affiliated) firm that initiated
Access Member that entered the order). Exchange notes that it is proposing to further the PIM that was terminated; (6) the percentage of
For orders of less than 50 contracts, the modify the exposure period to a time period of no PIM early terminations due to the receipt of a
less than 100 milliseconds and no more than one market or marketable limit order in the same series
greatest number of orders (15) executed second. See Securities Exchange Act Release No. on the same side of the market as the Agency Order
when there were no participants. 79352 (November 18, 2016), 81 FR 85277 that would cause the price of the Crossing
ISE believes that the data gathered (November 25, 2016) (SR–ISE–2016–26). Transaction to be outside of the best bid or offer on
during the Pilot period indicates that 14 When the Pilot was initially approved, there
the Exchange that occurred within a 1⁄2 second of
there is meaningful competition in PIM were two sections of Rule 723(d) that were the start of the PIM auction; the percentage that
approved on a pilot basis. Rule 723(d)(5) was occurred within one second of the start of the PIM
auctions for all size orders, there is an approved on a pilot basis, which was subsequently auction; the percentage that occurred within one
active and liquid market functioning on re-numbered as current Rule 723(d)(4). See and 1⁄2 second of the start of the PIM auction; the
the Exchange outside of the auction Securities Exchange Act Release No. 72554 (July 8, percentage that occurred within 2 seconds of the
mechanism, and that, coupled with the 2014), 79 FR 40830 (July 14, 2014) (SR–ISE–2014– start of the PIM auction; the percentage that
mstockstill on DSK3G9T082PROD with NOTICES

35). Rule 723(d)(6) was also approved on a pilot occurred within 2 and 1⁄2 seconds of the PIM
proposed requirements for price basis, but was subsequently deleted as that auction; and the average amount of price
improvement for options orders of functionality was no longer offered on the improvement provided to the Agency Order where
under 50 contracts, there are Exchange. See Securities Exchange Act Release No. the PIM is terminated early at each of these time
opportunities for significant price 68570 (January 3, 2013) (SR–ISE–2012–82). periods; and (7) the average amount of price
15 The Exchange agreed to gather and submit the improvement provided to the Agency Order when
improvement for orders executed following data on this part of the Pilot: (1) The the PIM auction is not terminated early (i.e., runs
through PIM. The Exchange therefore number of times that a market or marketable limit the full three seconds). See PIM Approval Order,
believes that it is appropriate to approve order in the same series on the same side of the supra note 3.

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91226 Federal Register / Vol. 81, No. 242 / Friday, December 16, 2016 / Notices

received price improvement, and liquidity available at improved prices, Agency Order ends the exposure period,
37.31% of contracts that traded in an with competitive final pricing out of the it will participate in the execution of the
early-terminated auction received price complete control of the Electronic Agency Order at the price that is mid-
improvement. Of the PIM auctions that Access Member that initiated the way between the best counter-side
terminated early and received price auction. The Exchange believes that PIM interest and the NBBO, so that both the
improvement from January 2016 promotes and fosters competition and market or marketable limit order and the
through June 2016, the total amount of affords the opportunity for price Agency Order receive price
price improvement received was improvement to more options contracts. improvement.
$185.11. The Exchange believes that the changes
For complex orders, in January 2016, to the PIM requiring price improvement B. Self-Regulatory Organization’s
one order terminated early, and the PIM of at least one minimum price Statement on Burden on Competition
period upon termination was greater improvement increment over the NBBO The Exchange does not believe that
than or equal to 0.5 seconds. That order for Agency Orders of less than 50 option the proposed rule change will impose
received $0.005 price improvement. contracts where the difference in the any burden on competition not
Based on the data gathered during the NBBO is $0.01 will provide further necessary or appropriate in furtherance
pilot, the Exchange does not anticipate price improvement for those orders, and of the purposes of the Act. The proposal
that any of these conditions will occur thereby encourage additional will apply to all Exchange members,
with significant frequency in either submission of those orders into PIM. and participation in the PIM process is
simple or complex orders, or will The Exchange believes that the completely voluntary. Based on the data
otherwise significantly affect the proposal, which subjects members to collected by the Exchange during the
functioning of the PIM. The Exchange the Minor Rule Violation Plan for failing Pilot, the Exchange believes that there is
also notes 49.93% of auctions in simple to provide the required price meaningful competition in the PIM for
orders that terminated early received improvement, coupled with the all size orders, there are opportunities
price improvement, and that, for simple Exchange’s surveillance efforts, are for significant price improvement for
orders, 37.31% of the contracts in designed to facilitate members’ orders executed through PIM, and that
auctions that terminated early received compliance with the proposed there is an active and liquid market
price improvement, with a total price requirement. functioning on the Exchange outside of
improvement of $185.11. The Exchange The Exchange believes that approving the PIM. The Exchange believes that
therefore believes it is appropriate to the Pilot on a permanent basis is also requiring increased price improvement
approve this aspect of the Pilot on a consistent with the Act. With respect to for Agency Orders may encourage
permanent basis. the no minimum size requirement, the competition by attracting additional
Exchange believes that the data gathered orders to participate in the PIM. The
2. Statutory Basis during the Pilot period indicates that Exchange believes that approving the
The Exchange believes that the there is meaningful competition in the Pilot on a permanent basis will not
proposed rule change is consistent with PIM for all size orders, there is an active significantly impact competition, as the
the provisions of Section 6 of the Act,16 and liquid market functioning on the Exchange is proposing no other change
in general and with Section 6(b)(5) of Exchange outside of the auction to the Pilot beyond implementing it on
the Act,17 in that it is designed to mechanism, and that there are a permanent basis.
promote just and equitable principles of opportunities for significant price
trade, to foster cooperation and improvement for orders executed C. Self-Regulatory Organization’s
coordination with persons engaged in through PIM, including for small Statement on Comments on the
regulating, clearing, settling, processing customer orders. Proposed Rule Change Received From
information with respect to, and With respect to the early termination Members, Participants, or Others
facilitating transactions in securities, to of the PIM, the Exchange believes that No written comments were either
remove impediments to and perfect the it is appropriate to terminate an auction solicited or received.
mechanism of a free and open market (i) at the end of the 500 millisecond
period, (ii) upon the receipt of a market III. Date of Effectiveness of the
and a national market system, and, in
or marketable limit order on the Proposed Rule Change and Timing for
general, to protect investors and the
Exchange in the same series, or (iii) Commission Action
public interest; and is not designed to
permit unfair discrimination between upon the receipt of a nonmarketable Within 45 days of the date of
customers, issuers, brokers, or dealers, limit order in the same series on the publication of this notice in the Federal
or to regulate by virtue of any authority same side of the market as the Agency Register or within such longer period (i)
conferred by the Act matters not related Order that would cause the price of the as the Commission may designate up to
to the purposes of the Act or the Crossing Transaction to be outside of 90 days of such date if it finds such
administration of the Exchange. the best bid or offer on the Exchange. longer period to be appropriate and
The Exchange believes that the Based on the data gathered during the publishes its reasons for so finding or
proposed rule change is also consistent pilot, the Exchange does not anticipate (ii) as to which the Exchange consents,
with Section 6(b)(8) of the Act 18 in that that any of these conditions will occur the Commission shall: (a) By order
it does not impose any burden on with significant frequency for either approve or disapprove such proposed
competition not necessary or simple or complex orders, or will rule change, or (b) institute proceedings
appropriate in furtherance of the otherwise disrupt the functioning of the to determine whether the proposed rule
PIM. The Exchange also notes that a
mstockstill on DSK3G9T082PROD with NOTICES

purposes of the Act. change should be disapproved.
Specifically, the Exchange believes significant percentage of contracts in
auctions that terminated early received IV. Solicitation of Comments
that PIM, including the rules to which
the Pilot applies, results in increased price improvement. The Exchange also Interested persons are invited to
believes that it is consistent with the submit written data, views, and
16 15 U.S.C. 78f. Act to require that, when a market order arguments concerning the foregoing,
17 15 U.S.C. 78f(b)(5). or marketable limit order on the including whether the proposed rule
18 15 U.S.C. 78f(b)(8). opposite side of the market from the change is consistent with the Act.

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Federal Register / Vol. 81, No. 242 / Friday, December 16, 2016 / Notices 91227

Comments may be submitted by any of SECURITIES AND EXCHANGE on the proposed rule change. The text
the following methods: COMMISSION of these statements may be examined at
the places specified in Item IV below.
Electronic Comments [Release No. 34–79531; File No. SR–BOX–
The self-regulatory organization has
2016–58]
• Use the Commission’s Internet prepared summaries, set forth in
comment form (http://www.sec.gov/ Self-Regulatory Organizations; BOX Sections A, B, and C below, of the most
rules/sro.shtml); or Options Exchange LLC; Notice of significant aspects of such statements.
Filing of Proposed Rule Change To
• Send an email to rule- A. Self-Regulatory Organization’s
Amend Interpretive Material to Rule Statement of the Purpose of, and
comments@sec.gov. Please include File
7150 (Price Improvement Period ‘‘PIP’’) Statutory Basis for, the Proposed Rule
Number SR–ISE–2016–29 on the subject and Interpretive Material to Rule 7245
line. Change
(Complex Order Price Improvement
Paper Comments Period ‘‘COPIP’’) To Make Permanent 1. Purpose
the Pilot Programs That Permit the The purpose of the proposed rule
• Send paper comments in triplicate Exchange To Have No Minimum Size change is to amend the BOX Rules to
to Brent J. Fields, Secretary, Securities Requirement for Orders Entered Into make permanent the pilot programs that
and Exchange Commission, 100 F Street the PIP (‘‘PIP Pilot Program’’) and permit the Exchange to have no
NE., Washington, DC 20549–1090. COPIP (‘‘COPIP Pilot Program’’) minimum size requirement for orders
All submissions should refer to File December 12, 2016. entered into the PIP (‘‘PIP Pilot
Number SR–ISE–2016–29. This file Pursuant to Section 19(b)(1) of the Program’’) and COPIP (‘‘COPIP Pilot
number should be included on the Securities Exchange Act of 1934 Program’’), collectively known as the
subject line if email is used. To help the (‘‘Act’’),1 and Rule 19b–4 thereunder,2 (‘‘Programs’’). In addition, BOX
Commission process and review your notice is hereby given that on December proposes to modify the requirements for
comments more efficiently, please use 9, 2016, BOX Options Exchange LLC the PIP where the National Best Bid and
only one method. The Commission will (the ‘‘Exchange’’) filed with the Offer (‘‘NBBO’’) is only $0.01 wide.
post all comments on the Commission’s Securities and Exchange Commission Background
Internet Web site (http://www.sec.gov/ (‘‘Commission’’) the proposed rule The PIP Pilot Program was approved
rules/sro.shtml). Copies of the change as described in Items I, II, and on a pilot basis with the establishment
submission, all subsequent III below, which Items have been of BOX and the PIP in January 2004 3
amendments, all written statements prepared by the self-regulatory
and the COPIP Pilot Program was
with respect to the proposed rule organization. The Commission is
approved on a pilot basis with
change that are filed with the publishing this notice to solicit
introduction of the COPIP in December
Commission, and all written comments on the proposed rule from
2013.4 Both Programs are scheduled to
communications relating to the interested persons.
proposed rule change between the I. Self-Regulatory Organization’s 3 See Securities Exchange Act Release Nos. 49068

Commission and any person, other than Statement of the Terms of Substance of (January 13, 2004), 69 FR 2775 (January 20, 2004)
those that may be withheld from the (SR–BSE–2003–04) (‘‘Order Granting Approval to
the Proposed Rule Change Proposed Rule Change and Amendment No. 3 and
public in accordance with the Notice of Filing and Order Granting Accelerated
provisions of 5 U.S.C. 552, will be The Exchange proposes to amend
Approval to Amendment No. 4 Thereto by the
available for Web site viewing and Interpretive Material to Rule 7150 (Price Boston Stock Exchange, Inc. Establishing Trading
printing in the Commission’s Public Improvement Period ‘‘PIP’’) and Rules for the Boston Options Exchange Facility’’);
Reference Room, 100 F Street NE., Interpretive Material to Rule 7245 66871 (April 27, 2012) 77 FR 26323 (May 3, 2012)
(Complex Order Price Improvement (File No. 10–206, In the Matter of the Application
Washington, DC 20549, on official of BOX Options Exchange LLC for Registration as
business days between the hours of Period ‘‘COPIP’’) to make permanent the a National Securities Exchange Findings, Opinion,
10:00 a.m. and 3:00 p.m. Copies of the pilot programs that permit the Exchange and Order of the Commission), 67255 (June 26,
to have no minimum size requirement 2012) 77 FR 39315 (July 2, 2013) (SR–BOX–2012–
filing also will be available for 009) (Notice of Filing and Immediate Effectiveness
for orders entered into the PIP (‘‘PIP
inspection and copying at the principal of a Proposal To Extend a Pilot Program That
Pilot Program’’) and COPIP (‘‘COPIP
office of the Exchange. All comments Permits BOX to Have No Minimum Size
Pilot Program’’). The text of the Requirement for Orders Entered Into the Price
received will be posted without change;
proposed rule change is available from Improvement Period), 69846 (June 25, 2013) 78 FR
the Commission does not edit personal 39365 (July 1, 2013) (SR–BOX–2013–33) (Notice of
the principal office of the Exchange, at
identifying information from Filing and Immediate Effectiveness of a Proposal To
the Commission’s Public Reference Extend a Pilot Program That Permits BOX to Have
submissions. You should submit only
Room and also on the Exchange’s No Minimum Size Requirement for Orders Entered
information that you wish to make
Internet Web site at http:// Into the Price Improvement Period), 72545 (July 7,
available publicly. All submissions 2014), 79 FR 40182 (July 11, 2014) (SR–BOX–2014–
boxexchange.com.
should refer to File Number SR–ISE– 19) (Notice of Filing and Immediate Effectiveness of
2016–29 and should be submitted on or II. Self-Regulatory Organization’s a Proposal To Extend a Pilot Program That Permits
Statement of the Purpose of, and BOX to Have No Minimum Size Requirement for
before January 6, 2017. Orders Entered Into the Price Improvement Period
Statutory Basis for, the Proposed Rule and Complex Order Price Improvement Period),
For the Commission, by the Division of
Change 75480 (July 17, 2015), 80 FR 43803 (July 23, 2015)
Trading and Markets, pursuant to delegated
(SR–BOX–2015–27) (Notice of Filing and
mstockstill on DSK3G9T082PROD with NOTICES

authority.19 In its filing with the Commission, the Immediate Effectiveness of a Proposal To Extend a
Eduardo A. Aleman, self-regulatory organization included Pilot Program That Permits BOX to Have No
statements concerning the purpose of, Minimum Size Requirement for Orders Entered Into
Assistant Secretary. the Price Improvement Period and Complex Order
and basis for, the proposed rule change
[FR Doc. 2016–30257 Filed 12–15–16; 8:45 am] Price Improvement Period).
and discussed any comments it received 4 See Securities Exchange Act Release No. 71148
BILLING CODE 8011–01–P
(December 19, 2013) 78 FR 78437 (December 26,
1 15 U.S.C. 78s(b)(1). 2013) (Notice of Filing of Amendment Nos. 1 and
19 17 CFR 200.30–3(a)(12). 2 17 CFR 240.19b–4. Continued

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Document Created: 2018-02-14 09:07:23
Document Modified: 2018-02-14 09:07:23
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 91221