81 FR 96089 - Self-Regulatory Organizations; ISE Mercury, LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To Permit Nasdaq Execution Services, LLC To Become an Affiliated Member of the Exchange To Perform Certain Routing and Other Functions
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 250 (December 29, 2016)
Federal Register Volume 81, Issue 250 (December 29, 2016)
| Page Range | 96089-96092 | |
| FR Document | 2016-31478 |
[Federal Register Volume 81, Number 250 (Thursday, December 29, 2016)] [Notices] [Pages 96089-96092] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-31478] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79663; File No. SR-ISEMercury-2016-22] Self-Regulatory Organizations; ISE Mercury, LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To Permit Nasdaq Execution Services, LLC To Become an Affiliated Member of the Exchange To Perform Certain Routing and Other Functions December 22, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on December 9, 2016, ISE Mercury, LLC (``ISE Mercury'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change. On December 20, 2016, the Exchange filed Amendment No. 1 to the proposed rule change, which amended and replaced the Form 19b-4, and Exhibit 1 thereto, in their entirety. On December 20, 2016, the Exchange filed Amendment No. 2 to the proposed rule change.\3\ The proposed rule change, as modified by Amendment Nos. 1 and 2, is 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, as modified by Amendment Nos. 1 and 2, from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ Amendment No. 2 amended the description of one of the inbound routing conditions that would apply. Specifically, the Exchange modified the third condition to specify that the report that FINRA will provided to the Exchange's chief regulatory officer on a quarterly basis will quantify all alerts, of which the Exchange or FINRA (rather than solely FINRA) are aware, that identify Nasdaq Execution Services, LLC as a participant that has potentially violated Commission or Exchange rules. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to (1) permit the Exchange to receive inbound orders in options routed through Nasdaq Execution Services, LLC (``NES'') from certain affiliated exchanges, as described in detail below, by establishing procedures designed to prevent potential informational advantages resulting from the affiliation with NES; and (2) grant the Exchange an exemption to permit NES, an affiliate of the Exchange, to become a Member of the Exchange in order to perform certain routing an [sic] other functions on behalf of the Exchange. 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 the Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the filing is to permit ISE Mercury to receive inbound orders in options routed through Nasdaq Execution Services, LLC (``NES'') from certain affiliated exchanges, as described herein and establish procedures designed to prevent potential informational advantages resulting from the affiliation between ISE Mercury and NES. The Exchange requests approval to permit NES, an affiliate of the Exchange, to become a Member of the Exchange in order to perform inbound routing on behalf of the Exchange. The Exchange is also filing to permit ISE Gemini [sic] to route outbound orders through NES either directly or indirectly through a third party routing broker-dealer \4\ to other market centers and perform other functions regarding the cancellation of orders and the maintenance of a NES error account.\5\ --------------------------------------------------------------------------- \4\ The ability to route orders to other exchanges using either the Exchange's affiliated broker-dealer (NES) or a third party unaffiliated broker-dealer, which the Exchange may choose to use, is for efficiency and potential cost savings. \5\ The ability to route orders to other exchanges using either the Exchange's affiliated broker-dealer (NES) or a third party unaffiliated broker-dealer, which the Exchange may choose to use, is for efficiency and potential cost savings. See ISE-2016-27 (not published) which amends ISE Chapter 19, Rules 1901, 1903, 1904 and 1905. The ISE rule changes impact ISE Mercury because Chapter 19 is incorporated by reference into the ISE Mercury Rulebook. --------------------------------------------------------------------------- Restriction on Affiliation NES is a broker-dealer owned and operated by Nasdaq, Inc. NES is affiliated with International Securities Exchange, LLC (``ISE''), ISE Gemini, ISE Mercury LLC,\6\ NASDAQ PHLX LLC (``Phlx''), The NASDAQ Options Market LLC (``NOM'') and NASDAQ BX, Inc. (``BX''). For purposes of this filing the term ``Affiliated Entities'' shall refer to ISE, ISE Gemini, Phlx, NOM and BX (collectively ``Affiliated Entities''). Currently, NES is a member of Phlx, NOM and BX (collectively ``Nasdaq Exchanges'') and provides all options routing functions for Phlx, NOM and BX.\7\ --------------------------------------------------------------------------- \6\ ISE, ISE Gemini and ISE Mercury are collectively referred to as ``ISE Exchanges.'' \7\ See Phlx Rule 1080(m) and Nasdaq and BX Rules at Chapter VI, Section 11. --------------------------------------------------------------------------- Today, Phlx Rule 985 (Affiliation and Ownership Restrictions), The NASDAQ Stock Market LLC (``Nasdaq'') Rule 2160 (Restrictions on Affiliation) \8\ and BX Rule 2140 (Restrictions on Affiliation) currently prohibit the Nasdaq Exchanges or any entity with which it is affiliated from, directly or indirectly, acquiring or maintaining an ownership interest in, or engaging in a business venture with, a Nasdaq Exchange member or an affiliate of a Nasdaq Exchange member in the absence of an effective filing under 19(b) of the Act. Specifically, in connection with prior filings, the Commission has expressed concern that the affiliation of an exchange with one of its members raises the potential for unfair competitive advantage and potential conflicts of interest between an exchange's self-regulatory obligations and its commercial interests.\9\ NES performs [[Page 96090]] similar functions for the Nasdaq Exchanges and is a member of those three markets respectively.\10\ --------------------------------------------------------------------------- \8\ NOM is a facility of Nasdaq. \9\ Securities Exchange Act Release Nos. 71416 (January 28, 2014), 79 FR 6244 (February 3, 2014) (SR-Phlx-2014-05); 71419 (January 28, 2014), 79 FR 6247 (February 3, 2014) (SR-NASDAQ-2014- 007); and 714121 (January 28, 2014), 79 FR 6264 (February 3, 2014) (SR-BX-2014-003). \10\ See Securities Exchange Act Release Nos. 59721 (April 7, 2009), 74 FR 17245 (April 14, 2009) (SR-Phlx-2009-32); 59779 (April 16, 2009) 74 FR 18600 (April 23, 2009) (SR-Phlx-2009-32, Amendment No. 1) notice of filing of proposed rule change relating to enhanced electronic trading platform for options); 61667 (March 5, 2010), 75 FR 11964 (March 12, 2016)(SR-Phlx-2010-36)(notice of filing and immediate effectiveness of proposed rule changes to establish procedures to prevent information advantages resulting from the affiliation between Phlx and NES); and 71416 (January 28, 2014), 79 FR 6244 (February 3, 2014) (SR-Phlx-2014-05)(notice of filing and immediate effectiveness of proposed rule change to inbound routing of options orders). Nasdaq Options Services was the affiliated broker-dealer prior to a rule change to utilize NES, another affiliated broker-dealer of Nasdaq. See also Securities Exchange Act Release Nos. 63769 (January 25, 2011), 76 FR 5423 (January 31, 2011) (SR-BX-2011-003); 63859 (February 7, 2011), 76 FR 8391 (February 14, 2011) (SR-BX-2011-007) (notice of filing of proposed rule change relating to permanent approval of the BX and NES inbound routing relationship); 71420 (January 28, 2014), 79 FR 6256 (February 3, 2014)(SR-BX-2014-004)(notice of filing and immediate effectiveness of proposed rule change to inbound routing). See also Securities Exchange Act Release Nos. 65554 (October 13, 2011), 76 FR 65311 (October 20, 2011)(SR-NASDAQ-2011-142); 71418 (January 28, 2014), 79 FR 6262 (February 3, 2014)(SR-NASDAQ-2014-008)(notice of filing and immediate effectiveness of proposed rule change to inbound routing). --------------------------------------------------------------------------- Similarly, NES would be prohibited from becoming an ISE Mercury member pursuant to ISE Mercury Rule 309, titled ``Limitation on Affiliation between the Exchange and Members,'' without Commission approval. Specifically, a Member may not become an affiliate of the Exchange, or any facility of the Exchange, or any entity with which the Exchange or any facility of the Exchange is affiliated such as the Affiliated Entities. This rule change requests permission from the Commission to allow NES, an affiliate of ISE Mercury to become a Member of ISE Mercury for the purpose of performing certain functions, including, but not limited to receiving inbound orders from one of the Affiliated Entities. In order for NES to be a Member of ISE Mercury, the Exchange proposes to permit the acceptance of inbound orders that NES routes in its capacity as a facility of the Affiliated Exchanges \11\ subject to certain limitations and conditions as follows: --------------------------------------------------------------------------- \11\ The Exchange notes that ISE and ISE Gemini are separately filing rule changes to permit NES to be a Member of ISE and ISE Mercury [sic] for the purpose of performing certain routing and other functions, including, but not limited to receiving inbound orders from other entities that are affiliated with NES such as the Affiliated Entities. See SR-ISE-2016-27 and SR-ISEMercury-2016-22 [sic] (both not published). ---------------------------------------------------------------------------First, ISE Mercury shall maintain a Regulatory Services Agreement (``RSA'') with FINRA, as well as an agreement pursuant to Rule 17d-2 under the Act (``17d-2 Agreement'').\12\ Pursuant to the RSA and the 17d-2 Agreement, FINRA will be allocated regulatory responsibilities to review NES's compliance with certain Exchange rules.\13\ Pursuant to the RSA, however, ISE Mercury retains ultimate responsibility for enforcing its rules with respect to NES. --------------------------------------------------------------------------- \12\ 17 CFR 240.17d-2. FINRA will review NES' compliance for certain common rules. The RSA with FINRA specifies the types of business activities that NES may undertake and it also indicates the obligations to which NES is subject under the RSA. Among other things, NES must maintain a certain amount of net capital pursuant to SEC Rule 15c3-1(a)(1)(ii) and operate pursuant to SEC Rule 15c3- 3(k)(2)(ii). NES is permitted to route orders in options to the appropriate market center for execution in accordance with member order and requirements. \13\ NES is also subject to independent oversight by FINRA, its designated examining authority, for compliance with financial responsibility requirements. --------------------------------------------------------------------------- Second, FINRA will monitor NES for compliance with the Exchange's trading rules, and will collect and maintain certain related information.\14\ --------------------------------------------------------------------------- \14\ Pursuant to the RSA, both FINRA and ISE Mercury shall collect and maintain all alerts, complaints, investigations and enforcement actions in which NES (in its capacity as a facility of the Affiliated Entities) is identified as a participant that has potentially violated applicable Commission or Exchange rules. The Exchange and FINRA shall retain these records in an easily accessible manner in order to facilitate any potential review conducted by the Commission's Office of Compliance Inspections and Examinations. --------------------------------------------------------------------------- Third, FINRA will provide a report to the Exchange's chief regulatory officer (``CRO''), on a quarterly basis, that: (i) Quantifies all alerts (of which the Exchange or FINRA is aware) that identify NES as a participant that has potentially violated Commission or Exchange rules, and (ii) lists all investigations that identify NES as a participant that has potentially violated Commission or Exchange rules. Fourth, ISE Mercury has in place Rule 309. The Exchange proposes to adopt a new paragraph (b) to Rule 309 to state that Nasdaq, Inc., as the holding company owning ISE Mercury and NES, to [sic] establish and maintain procedures and internal controls reasonably designed to ensure that NES does not develop or implement changes to its system, based on non-public information obtained regarding planned changes to ISE Mercury's system, obtained as a result of its affiliation with the Exchange, until such information is available generally to similarly situated Exchange Members, in connection with the provision of inbound order routing to the Exchange.\15\ --------------------------------------------------------------------------- \15\ Similarly, Phlx Rule 985 also prohibits a Phlx member from being or becoming an affiliate of Phlx, or an affiliate of an entity affiliated with Phlx, in the absence of an effective filing under Section 19(b). See Phlx Rule 985(b)(1)(B). Phlx filed a rule proposal and received approval based on meeting the four conditions specified above to protect the independence of the Exchange's regulatory responsibility with respect to NES, and has demonstrated that NES cannot use any information advantage it may have because of its affiliation with the Exchange. --------------------------------------------------------------------------- The Exchange also proposes to add the letter ``(a)'' in front of the existing paragraph in Rule 309. Inbound Routing ISE Mercury Rule 309 is being amended to add rule language similar to Phlx Rule 985(c)(2). This new rule text provides that Nasdaq, Inc. which owns NES and ISE Mercury, shall establish and maintain procedures and internal controls reasonably designed to ensure that NES does not develop or implement changes to its system on the basis of non-public information regarding planned changes to the Exchange's systems, obtained as a result of its affiliation with the Exchange, until such information is available generally to Exchange members in connection with the provision of inbound routing to the Exchange. By meeting the conditions described above under Restrictions on Affiliation, ISE Mercury will have set up mechanisms that protect the independence of ISE Mercury's regulatory responsibilities, with respect to NES, as well as demonstrate that NES cannot use any information advantage it may have because of its affiliation with ISE Mercury. The Exchange has approval from Financial Regulatory Authority (``FINRA'') \16\ and The Options Clearing Corporation (``OCC'') \17\ for NES to perform these functions. --------------------------------------------------------------------------- \16\ The Membership Agreement as between NES and FINRA, dated January 15, 2014, provides that NES may ``[e]ngage in the following types of business: Route orders in equities and options to the appropriate market center for execution in accordance with member order and requirements.'' \17\ On December 5, 2013 OCC provided NES membership approval. --------------------------------------------------------------------------- The Exchange notes that the Nasdaq Exchanges are separately filing rule changes to permit NES to route orders inbound from ISE Mercury to the Nasdaq Exchanges.\18\ --------------------------------------------------------------------------- \18\ See SR-NASDAQ-2016-169, SR-Phlx-2016-120 and SR-BX-2016-068 (not published). --------------------------------------------------------------------------- Outbound Routing ISE has rules in place in Chapter 19 related to routing orders, which rules impact routing on ISE Mercury because those rules are incorporated by [[Page 96091]] reference. Today, ISE Mercury utilizes Linkage Handlers \19\ to route orders. These Linkage Handlers are unaffiliated with ISE Mercury. The Exchange proposes to have NES route, either directly to other options exchanges or indirectly through third-party routing brokers on behalf of ISE Mercury.\20\ With the proposal, regardless of whether a third- party routing broker is utilized, all options routing will go through NES, however the Exchange could determine to direct NES to route orders to certain exchanges through a routing broker rather than routing an order directly. In those cases, orders are submitted to the third-party routing broker through NES, and the third-party routing broker routes the orders to the routing destination in its name.\21\ Specifically, within that proposal ISE proposes to amend Rule 1903 to adopt new language similar to Phlx Rule 1080(m).\22\ --------------------------------------------------------------------------- \19\ A Linkage Handler is a broker that is unaffiliated with the Exchange with which the Exchange has contracted to provide Routing Services, as that term is defined in Rule 1903, by routing ISO(s) to other exchange(s) as agent on behalf of Public Customer and Non- Customer Orders according to the requirements of Rule 1901 (prohibition on trade-throughs) and Rule 1902 (prohibition on locked and crossed markets). See Supplementary Material .03 to ISE Rule 1901. \20\ See SR-ISE-2016-27 (not published). This proposed rule change proposes to replace Linkage Handlers with NES for the purpose of outbound routing and to establish rules for the cancellation or [sic] orders and maintenance of an error account. \21\ Id. \22\ Id. --------------------------------------------------------------------------- ISE also proposed to amend Rule 1904 to replace the rule text with rule text similar to Phlx Rule 1080(m)(v) to provide general authority for ISE or NES to cancel orders in order to maintain fair and orderly markets when technical system issues are occurring, and set forth the manner in which error positions may be handled by the ISE or NES.\23\ --------------------------------------------------------------------------- \23\ Id. --------------------------------------------------------------------------- Rule 1901 is being amended to remove references to Linkage Handlers along with other references in Rules 1903.\24\ Finally Rule 1905 concerning error accounts is being deleted within that proposal.\25\ --------------------------------------------------------------------------- \24\ Id. \25\ Id. --------------------------------------------------------------------------- The Exchange is proposing that NES be permitted to perform the same functions pursuant to the same conditions with respect to the outbound routing of orders, cancellation or orders, and the handling of error positions as set forth in the ISE proposal. The Exchange also proposes to amend Rule 705 to remove the rule text in Rule 705(d)(4) which provided an exception to the limits on compensation for Linkage Handlers. NES is replacing the Linkage Handlers for purposes of routing options orders from the ISE Exchanges. Today, Phlx does not have a similar provision and ISE is removing it from this rule. Implementation The Exchange notes that with respect to the Rules in Chapter 19, Rules 1901, 1903, 1904 and 1905, these rules impact not only the ISE market but also ISE Mercury because Chapter 19 is incorporated by reference into the ISE Mercury Rulebook. ISE Mercury will be implemented in Q3 2017 on a symbol by symbol basis. The Exchange will add notations in the ISE Mercury Rulebook to cross reference the amended rule text and make clear the implementation date. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\26\ in general, and furthers the objectives of Section 6(b)(5) of the Act,\27\ in particular, in that it is designed to promote just and equitable principles of trade, 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, because the proposed rule change will allow the Exchange to receive inbound orders from each Affiliated Entity through NES, acting in its capacity as a facility of the respective Affiliated Entity, in a manner consistent with prior approvals and established protections. The Exchange believes that these conditions establish mechanisms that protect the independence of the Exchange's regulatory responsibility with respect to NES, as well as ensure that NES cannot use any information it may have because of its affiliation with the Exchange to its advantage. --------------------------------------------------------------------------- \26\ 15 U.S.C. 78f(b). \27\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- Further, the Exchange notes that its proposal is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system because ISE Mercury will have set up mechanisms that protect the independence of ISE Mercury's regulatory responsibilities, with respect to NES, as well as demonstrate that NES cannot use any information advantage it may have because of its affiliation with ISE Mercury. The Exchange will not be granting any preferential access to information from the Exchange's Order Book to NES. As an affiliated routing broker, NES would not be treated differently than any other unaffiliated routing broker. The proposal should remove impediments to and perfect the mechanism of a free and open market and a national market system by providing customer order protection and by facilitating trading at away exchanges so customer orders trade at the best market price. The proposal should also protect investors and the public interest by fostering compliance with the Options Order Protection and Locked/Crossed Market Plan. In addition, the Exchange believes that the proposal is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers, because of the specific protections pertaining to the routing broker, in light of the potential conflict of interest where the member routing broker could have access to information regarding other members' orders or the routing of those orders. These protections include the Exchange's control over all routing logic as well as the confidentiality of routing information.\28\ --------------------------------------------------------------------------- \28\ See proposed Rule 1903(e). --------------------------------------------------------------------------- The Exchange believes that its proposal related to the cancellation of orders and error account is consistent with the Act because NES's or the Exchange's ability to cancel orders during a technical or systems issue and to maintain an error account facilitates the smooth and efficient operations of the market.\29\ Specifically, the Exchange believes that allowing NES or the Exchange to cancel orders during a technical or systems issue would allow the Exchange to maintain fair and orderly markets.\30\ Moreover, the Exchange believes that allowing NES to assume error positions in an error account and to liquidate those positions, subject to the conditions set forth in the proposed amendments to Rule 1904 would be the least disruptive means to correct these errors, except in cases where NES can assign all such error positions to all affected members of the Exchange.\31\ Overall, the proposed amendments are designed to ensure full trade certainty for market participants and to avoid disrupting the clearance and settlement process.\32\ The proposed amendments are also designed to provide a consistent methodology for handling error positions in a manner that does not discriminate among members.\33\ The proposed amendments are also consistent with Section 6 of the [[Page 96092]] Act insofar as they would require NES to establish controls to restrict the flow of any confidential information between the third-party broker and NES/the Exchange associated with the liquidation of error positions.\34\ --------------------------------------------------------------------------- \29\ See SR-ISE-2016-27 (not published). \30\ Id. \31\ Id. \32\ Id. \33\ Id. \34\ Id. --------------------------------------------------------------------------- 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. Receiving orders through NES does not raise any issues of intra-market competition because it involves inbound routing from an affiliated exchange. This proposal provides that Nasdaq, which owns NES and the Exchange, shall establish and maintain procedures and internal controls reasonably designed to ensure that NES does not develop or implement changes to its system on the basis of non-public information regarding planned changes to the Exchange's systems, obtained as a result of its affiliation with the Exchange, until such information is available generally to similarly situated Exchange members and member organizations in connection with the provision of inbound routing to the Exchange. Utilizing NES as the routing broker does not create any undue burden on inter-market competition because NES cannot use any information advantage it may have because of its affiliation with ISE Mercury. The Exchange will not be granting any preferential access to information from the Exchange's Order Book to NES. As an affiliated routing broker, NES would not be treated differently than any other unaffiliated routing broker. The proposal does not result in a burden on competition among exchanges, because there are many competing options exchanges that provide routing services, including through an affiliate. Further, the proposal does not raise issues of intra-market competition, because the Exchange's decision to route through a particular routing broker would impact all participants equally. With respect to the proposal to establish error accounts, the Exchange's proposal does not result in a burden on competition among exchanges because NES' or the Exchange's ability to cancel orders during a technical or systems issue and to maintain an error account facilitates the smooth and efficient operations of the market for all impacted members. The proposals regarding assumption of error positions and [sic] to liquidation of those positions ensures certainty for all impacted market participants. The proposal does not discriminate among Members.\35\ --------------------------------------------------------------------------- \35\ See SR-ISE-2016-27 (not published). --------------------------------------------------------------------------- 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, as modified by Amendment Nos. 1 and 2, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-ISEMercury-2016-22 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-ISEMercury-2016-22. 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 such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-ISEMercury-2016-22, and should be submitted on or before January 19, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\36\ --------------------------------------------------------------------------- \36\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2016-31478 Filed 12-28-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Notices 96089
available for Web site viewing and modified by Amendment Nos. 1 and 2, outbound orders through NES either
printing in the Commission’s Public is described in Items I, II, and III below, directly or indirectly through a third
Reference Room, 100 F Street NE., which Items have been prepared by the party routing broker-dealer 4 to other
Washington, DC 20549 on official Exchange. The Commission is market centers and perform other
business days between the hours of publishing this notice to solicit functions regarding the cancellation of
10:00 a.m. and 3:00 p.m. Copies of such comments on the proposed rule change, orders and the maintenance of a NES
filing also will be available for as modified by Amendment Nos. 1 and error account.5
inspection and copying at the principal 2, from interested persons.
Restriction on Affiliation
office of the Exchange. All comments I. Self-Regulatory Organization’s
received will be posted without change; NES is a broker-dealer owned and
Statement of the Terms of Substance of operated by Nasdaq, Inc. NES is
the Commission does not edit personal the Proposed Rule Change
identifying information from affiliated with International Securities
submissions. You should submit only The Exchange proposes to (1) permit Exchange, LLC (‘‘ISE’’), ISE Gemini, ISE
information that you wish to make the Exchange to receive inbound orders Mercury LLC,6 NASDAQ PHLX LLC
available publicly. All submissions in options routed through Nasdaq (‘‘Phlx’’), The NASDAQ Options Market
should refer to File Number SR– Execution Services, LLC (‘‘NES’’) from LLC (‘‘NOM’’) and NASDAQ BX, Inc.
NASDAQ–2016–169, and should be certain affiliated exchanges, as (‘‘BX’’). For purposes of this filing the
submitted on or before January 19, 2017. described in detail below, by term ‘‘Affiliated Entities’’ shall refer to
establishing procedures designed to ISE, ISE Gemini, Phlx, NOM and BX
For the Commission, by the Division of prevent potential informational (collectively ‘‘Affiliated Entities’’).
Trading and Markets, pursuant to delegated
authority.16
advantages resulting from the affiliation Currently, NES is a member of Phlx,
with NES; and (2) grant the Exchange an NOM and BX (collectively ‘‘Nasdaq
Eduardo A. Aleman,
exemption to permit NES, an affiliate of Exchanges’’) and provides all options
Assistant Secretary. the Exchange, to become a Member of routing functions for Phlx, NOM and
[FR Doc. 2016–31477 Filed 12–28–16; 8:45 am] the Exchange in order to perform certain BX.7
BILLING CODE 8011–01–P routing an [sic] other functions on Today, Phlx Rule 985 (Affiliation and
behalf of the Exchange. Ownership Restrictions), The NASDAQ
Stock Market LLC (‘‘Nasdaq’’) Rule 2160
SECURITIES AND EXCHANGE II. Self-Regulatory Organization’s (Restrictions on Affiliation) 8 and BX
COMMISSION Statement of the Purpose of, and Rule 2140 (Restrictions on Affiliation)
Statutory Basis for, the Proposed Rule currently prohibit the Nasdaq
[Release No. 34–79663; File No. SR– Change
ISEMercury–2016–22] Exchanges or any entity with which it
In its filing with the Commission, the is affiliated from, directly or indirectly,
Self-Regulatory Organizations; ISE Exchange included statements acquiring or maintaining an ownership
Mercury, LLC; Notice of Filing of concerning the purpose of and basis for interest in, or engaging in a business
Proposed Rule Change, as Modified by the proposed rule change and discussed venture with, a Nasdaq Exchange
Amendment Nos. 1 and 2, To Permit any comments it received on the member or an affiliate of a Nasdaq
Nasdaq Execution Services, LLC To proposed rule change. The text of these Exchange member in the absence of an
Become an Affiliated Member of the statements may be examined at the effective filing under 19(b) of the Act.
Exchange To Perform Certain Routing places specified in Item IV below. The Specifically, in connection with prior
and Other Functions Exchange has prepared summaries, set filings, the Commission has expressed
forth in sections A, B, and C below, of concern that the affiliation of an
December 22, 2016. the most significant aspects of such exchange with one of its members raises
Pursuant to Section 19(b)(1) of the statements. the potential for unfair competitive
Securities Exchange Act of 1934 advantage and potential conflicts of
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 A. Self-Regulatory Organization’s
Statement of the Purpose of, and the interest between an exchange’s self-
notice is hereby given that on December regulatory obligations and its
9, 2016, ISE Mercury, LLC (‘‘ISE Statutory Basis for, the Proposed Rule
Change commercial interests.9 NES performs
Mercury’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission 1. Purpose 4 The ability to route orders to other exchanges
(‘‘Commission’’) the proposed rule using either the Exchange’s affiliated broker-dealer
The purpose of the filing is to permit
change. On December 20, 2016, the (NES) or a third party unaffiliated broker-dealer,
ISE Mercury to receive inbound orders which the Exchange may choose to use, is for
Exchange filed Amendment No. 1 to the
in options routed through Nasdaq efficiency and potential cost savings.
proposed rule change, which amended
Execution Services, LLC (‘‘NES’’) from 5 The ability to route orders to other exchanges
and replaced the Form 19b–4, and using either the Exchange’s affiliated broker-dealer
certain affiliated exchanges, as
Exhibit 1 thereto, in their entirety. On (NES) or a third party unaffiliated broker-dealer,
described herein and establish which the Exchange may choose to use, is for
December 20, 2016, the Exchange filed
procedures designed to prevent efficiency and potential cost savings. See ISE–2016–
Amendment No. 2 to the proposed rule
potential informational advantages 27 (not published) which amends ISE Chapter 19,
change.3 The proposed rule change, as Rules 1901, 1903, 1904 and 1905. The ISE rule
resulting from the affiliation between
changes impact ISE Mercury because Chapter 19 is
16 17 CFR 200.30–3(a)(12).
ISE Mercury and NES. The Exchange incorporated by reference into the ISE Mercury
asabaliauskas on DSK3SPTVN1PROD with NOTICES
1 15 U.S.C. 78s(b)(1). requests approval to permit NES, an Rulebook.
2 17 CFR 240.19b–4. affiliate of the Exchange, to become a 6 ISE, ISE Gemini and ISE Mercury are
3 Amendment No. 2 amended the description of Member of the Exchange in order to collectively referred to as ‘‘ISE Exchanges.’’
7 See Phlx Rule 1080(m) and Nasdaq and BX
one of the inbound routing conditions that would perform inbound routing on behalf of
apply. Specifically, the Exchange modified the third Rules at Chapter VI, Section 11.
the Exchange. The Exchange is also 8 NOM is a facility of Nasdaq.
condition to specify that the report that FINRA will
provided to the Exchange’s chief regulatory officer filing to permit ISE Gemini [sic] to route 9 Securities Exchange Act Release Nos. 71416
on a quarterly basis will quantify all alerts, of which (January 28, 2014), 79 FR 6244 (February 3, 2014)
the Exchange or FINRA (rather than solely FINRA) LLC as a participant that has potentially violated (SR–Phlx–2014–05); 71419 (January 28, 2014), 79
are aware, that identify Nasdaq Execution Services, Commission or Exchange rules. Continued
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![96090 Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Notices
similar functions for the Nasdaq • First, ISE Mercury shall maintain a the provision of inbound order routing
Exchanges and is a member of those Regulatory Services Agreement (‘‘RSA’’) to the Exchange.15
three markets respectively.10 with FINRA, as well as an agreement The Exchange also proposes to add
Similarly, NES would be prohibited pursuant to Rule 17d–2 under the Act the letter ‘‘(a)’’ in front of the existing
from becoming an ISE Mercury member (‘‘17d–2 Agreement’’).12 Pursuant to the paragraph in Rule 309.
pursuant to ISE Mercury Rule 309, titled RSA and the 17d–2 Agreement, FINRA Inbound Routing
‘‘Limitation on Affiliation between the will be allocated regulatory
Exchange and Members,’’ without responsibilities to review NES’s ISE Mercury Rule 309 is being
Commission approval. Specifically, a compliance with certain Exchange amended to add rule language similar to
Member may not become an affiliate of rules.13 Pursuant to the RSA, however, Phlx Rule 985(c)(2). This new rule text
the Exchange, or any facility of the ISE Mercury retains ultimate provides that Nasdaq, Inc. which owns
Exchange, or any entity with which the NES and ISE Mercury, shall establish
responsibility for enforcing its rules
Exchange or any facility of the Exchange and maintain procedures and internal
with respect to NES.
is affiliated such as the Affiliated controls reasonably designed to ensure
• Second, FINRA will monitor NES that NES does not develop or implement
Entities. This rule change requests for compliance with the Exchange’s
permission from the Commission to changes to its system on the basis of
trading rules, and will collect and non-public information regarding
allow NES, an affiliate of ISE Mercury maintain certain related information.14 planned changes to the Exchange’s
to become a Member of ISE Mercury for
the purpose of performing certain • Third, FINRA will provide a report systems, obtained as a result of its
to the Exchange’s chief regulatory affiliation with the Exchange, until such
functions, including, but not limited to
officer (‘‘CRO’’), on a quarterly basis, information is available generally to
receiving inbound orders from one of
that: (i) Quantifies all alerts (of which Exchange members in connection with
the Affiliated Entities.
the Exchange or FINRA is aware) that the provision of inbound routing to the
In order for NES to be a Member of
identify NES as a participant that has Exchange.
ISE Mercury, the Exchange proposes to By meeting the conditions described
permit the acceptance of inbound orders potentially violated Commission or
Exchange rules, and (ii) lists all above under Restrictions on Affiliation,
that NES routes in its capacity as a ISE Mercury will have set up
facility of the Affiliated Exchanges 11 investigations that identify NES as a
participant that has potentially violated mechanisms that protect the
subject to certain limitations and independence of ISE Mercury’s
conditions as follows: Commission or Exchange rules.
regulatory responsibilities, with respect
• Fourth, ISE Mercury has in place to NES, as well as demonstrate that NES
FR 6247 (February 3, 2014) (SR–NASDAQ–2014– Rule 309. The Exchange proposes to cannot use any information advantage it
007); and 714121 (January 28, 2014), 79 FR 6264 adopt a new paragraph (b) to Rule 309 may have because of its affiliation with
(February 3, 2014) (SR–BX–2014–003). to state that Nasdaq, Inc., as the holding
10 See Securities Exchange Act Release Nos. ISE Mercury.
59721 (April 7, 2009), 74 FR 17245 (April 14, 2009)
company owning ISE Mercury and NES, The Exchange has approval from
(SR–Phlx–2009–32); 59779 (April 16, 2009) 74 FR to [sic] establish and maintain Financial Regulatory Authority
18600 (April 23, 2009) (SR–Phlx–2009–32, procedures and internal controls (‘‘FINRA’’) 16 and The Options Clearing
Amendment No. 1) notice of filing of proposed rule reasonably designed to ensure that NES
change relating to enhanced electronic trading Corporation (‘‘OCC’’) 17 for NES to
platform for options); 61667 (March 5, 2010), 75 FR
does not develop or implement changes perform these functions.
11964 (March 12, 2016)(SR–Phlx–2010–36)(notice to its system, based on non-public The Exchange notes that the Nasdaq
of filing and immediate effectiveness of proposed information obtained regarding planned Exchanges are separately filing rule
rule changes to establish procedures to prevent changes to ISE Mercury’s system,
information advantages resulting from the changes to permit NES to route orders
affiliation between Phlx and NES); and 71416
obtained as a result of its affiliation with inbound from ISE Mercury to the
(January 28, 2014), 79 FR 6244 (February 3, 2014) the Exchange, until such information is Nasdaq Exchanges.18
(SR–Phlx–2014–05)(notice of filing and immediate available generally to similarly situated
effectiveness of proposed rule change to inbound Exchange Members, in connection with Outbound Routing
routing of options orders). Nasdaq Options Services
was the affiliated broker-dealer prior to a rule ISE has rules in place in Chapter 19
change to utilize NES, another affiliated broker- 12 17 CFR 240.17d–2. FINRA will review NES’ related to routing orders, which rules
dealer of Nasdaq. See also Securities Exchange Act compliance for certain common rules. The RSA impact routing on ISE Mercury because
Release Nos. 63769 (January 25, 2011), 76 FR 5423 with FINRA specifies the types of business
activities that NES may undertake and it also
those rules are incorporated by
(January 31, 2011) (SR–BX–2011–003); 63859
(February 7, 2011), 76 FR 8391 (February 14, 2011) indicates the obligations to which NES is subject
15 Similarly, Phlx Rule 985 also prohibits a Phlx
(SR–BX–2011–007) (notice of filing of proposed under the RSA. Among other things, NES must
rule change relating to permanent approval of the maintain a certain amount of net capital pursuant member from being or becoming an affiliate of Phlx,
BX and NES inbound routing relationship); 71420 to SEC Rule 15c3–1(a)(1)(ii) and operate pursuant or an affiliate of an entity affiliated with Phlx, in
(January 28, 2014), 79 FR 6256 (February 3, to SEC Rule 15c3–3(k)(2)(ii). NES is permitted to the absence of an effective filing under Section
2014)(SR–BX–2014–004)(notice of filing and route orders in options to the appropriate market 19(b). See Phlx Rule 985(b)(1)(B). Phlx filed a rule
immediate effectiveness of proposed rule change to center for execution in accordance with member proposal and received approval based on meeting
inbound routing). See also Securities Exchange Act order and requirements. the four conditions specified above to protect the
Release Nos. 65554 (October 13, 2011), 76 FR 65311 13 NES is also subject to independent oversight by independence of the Exchange’s regulatory
(October 20, 2011)(SR–NASDAQ–2011–142); 71418 FINRA, its designated examining authority, for responsibility with respect to NES, and has
(January 28, 2014), 79 FR 6262 (February 3, compliance with financial responsibility demonstrated that NES cannot use any information
2014)(SR–NASDAQ–2014–008)(notice of filing and requirements. advantage it may have because of its affiliation with
immediate effectiveness of proposed rule change to the Exchange.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
14 Pursuant to the RSA, both FINRA and ISE
16 The Membership Agreement as between NES
inbound routing). Mercury shall collect and maintain all alerts,
11 The Exchange notes that ISE and ISE Gemini complaints, investigations and enforcement actions and FINRA, dated January 15, 2014, provides that
are separately filing rule changes to permit NES to in which NES (in its capacity as a facility of the NES may ‘‘[e]ngage in the following types of
be a Member of ISE and ISE Mercury [sic] for the Affiliated Entities) is identified as a participant that business: Route orders in equities and options to
purpose of performing certain routing and other has potentially violated applicable Commission or the appropriate market center for execution in
functions, including, but not limited to receiving Exchange rules. The Exchange and FINRA shall accordance with member order and requirements.’’
17 On December 5, 2013 OCC provided NES
inbound orders from other entities that are affiliated retain these records in an easily accessible manner
with NES such as the Affiliated Entities. See SR– in order to facilitate any potential review conducted membership approval.
ISE–2016–27 and SR–ISEMercury–2016–22 [sic] by the Commission’s Office of Compliance 18 See SR–NASDAQ–2016–169, SR–Phlx–2016–
(both not published). Inspections and Examinations. 120 and SR–BX–2016–068 (not published).
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![Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Notices 96091
reference. Today, ISE Mercury utilizes Linkage Handlers for purposes of differently than any other unaffiliated
Linkage Handlers 19 to route orders. routing options orders from the ISE routing broker.
These Linkage Handlers are unaffiliated Exchanges. Today, Phlx does not have a The proposal should remove
with ISE Mercury. The Exchange similar provision and ISE is removing it impediments to and perfect the
proposes to have NES route, either from this rule. mechanism of a free and open market
directly to other options exchanges or and a national market system by
Implementation providing customer order protection
indirectly through third-party routing
brokers on behalf of ISE Mercury.20 The Exchange notes that with respect and by facilitating trading at away
With the proposal, regardless of whether to the Rules in Chapter 19, Rules 1901, exchanges so customer orders trade at
a third-party routing broker is utilized, 1903, 1904 and 1905, these rules impact the best market price. The proposal
all options routing will go through NES, not only the ISE market but also ISE should also protect investors and the
however the Exchange could determine Mercury because Chapter 19 is public interest by fostering compliance
to direct NES to route orders to certain incorporated by reference into the ISE with the Options Order Protection and
exchanges through a routing broker Mercury Rulebook. ISE Mercury will be Locked/Crossed Market Plan. In
rather than routing an order directly. In implemented in Q3 2017 on a symbol by addition, the Exchange believes that the
those cases, orders are submitted to the symbol basis. The Exchange will add proposal is not designed to permit
third-party routing broker through NES, notations in the ISE Mercury Rulebook unfair discrimination between
and the third-party routing broker routes to cross reference the amended rule text customers, issuers, brokers, or dealers,
the orders to the routing destination in and make clear the implementation because of the specific protections
its name.21 Specifically, within that date. pertaining to the routing broker, in light
proposal ISE proposes to amend Rule 2. Statutory Basis of the potential conflict of interest
1903 to adopt new language similar to where the member routing broker could
Phlx Rule 1080(m).22 The Exchange believes that its have access to information regarding
ISE also proposed to amend Rule 1904 proposal is consistent with Section 6(b) other members’ orders or the routing of
to replace the rule text with rule text of the Act,26 in general, and furthers the those orders. These protections include
similar to Phlx Rule 1080(m)(v) to objectives of Section 6(b)(5) of the Act,27 the Exchange’s control over all routing
provide general authority for ISE or NES in particular, in that it is designed to logic as well as the confidentiality of
to cancel orders in order to maintain fair promote just and equitable principles of routing information.28
and orderly markets when technical trade, to remove impediments to and The Exchange believes that its
system issues are occurring, and set perfect the mechanism of a free and proposal related to the cancellation of
forth the manner in which error open market and a national market orders and error account is consistent
positions may be handled by the ISE or system, and, in general to protect with the Act because NES’s or the
NES.23 investors and the public interest, Exchange’s ability to cancel orders
Rule 1901 is being amended to because the proposed rule change will during a technical or systems issue and
remove references to Linkage Handlers allow the Exchange to receive inbound to maintain an error account facilitates
along with other references in Rules orders from each Affiliated Entity the smooth and efficient operations of
1903.24 Finally Rule 1905 concerning through NES, acting in its capacity as a the market.29 Specifically, the Exchange
error accounts is being deleted within facility of the respective Affiliated believes that allowing NES or the
that proposal.25 Entity, in a manner consistent with Exchange to cancel orders during a
The Exchange is proposing that NES prior approvals and established technical or systems issue would allow
be permitted to perform the same protections. The Exchange believes that the Exchange to maintain fair and
functions pursuant to the same these conditions establish mechanisms orderly markets.30 Moreover, the
conditions with respect to the outbound that protect the independence of the Exchange believes that allowing NES to
routing of orders, cancellation or orders, Exchange’s regulatory responsibility assume error positions in an error
and the handling of error positions as with respect to NES, as well as ensure account and to liquidate those positions,
set forth in the ISE proposal. that NES cannot use any information it subject to the conditions set forth in the
The Exchange also proposes to amend may have because of its affiliation with proposed amendments to Rule 1904
Rule 705 to remove the rule text in Rule the Exchange to its advantage. would be the least disruptive means to
705(d)(4) which provided an exception Further, the Exchange notes that its correct these errors, except in cases
to the limits on compensation for proposal is designed to promote just and where NES can assign all such error
Linkage Handlers. NES is replacing the equitable principles of trade, to remove positions to all affected members of the
impediments to and perfect the Exchange.31 Overall, the proposed
19 A Linkage Handler is a broker that is mechanism of a free and open market amendments are designed to ensure full
unaffiliated with the Exchange with which the and a national market system because
Exchange has contracted to provide Routing trade certainty for market participants
Services, as that term is defined in Rule 1903, by
ISE Mercury will have set up and to avoid disrupting the clearance
routing ISO(s) to other exchange(s) as agent on mechanisms that protect the and settlement process.32 The proposed
behalf of Public Customer and Non-Customer independence of ISE Mercury’s amendments are also designed to
Orders according to the requirements of Rule 1901 regulatory responsibilities, with respect
(prohibition on trade-throughs) and Rule 1902 provide a consistent methodology for
(prohibition on locked and crossed markets). See
to NES, as well as demonstrate that NES handling error positions in a manner
Supplementary Material .03 to ISE Rule 1901. cannot use any information advantage it that does not discriminate among
asabaliauskas on DSK3SPTVN1PROD with NOTICES
20 See SR–ISE–2016–27 (not published). This may have because of its affiliation with members.33 The proposed amendments
proposed rule change proposes to replace Linkage ISE Mercury. The Exchange will not be are also consistent with Section 6 of the
Handlers with NES for the purpose of outbound granting any preferential access to
routing and to establish rules for the cancellation
or [sic] orders and maintenance of an error account. information from the Exchange’s Order 28 See proposed Rule 1903(e).
21 Id. Book to NES. As an affiliated routing 29 See SR–ISE–2016–27 (not published).
22 Id. broker, NES would not be treated 30 Id.
23 Id. 31 Id.
24 Id. 26 15 U.S.C. 78f(b). 32 Id.
25 Id. 27 15 U.S.C. 78f(b)(5). 33 Id.
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![96092 Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Notices
Act insofar as they would require NES and [sic] to liquidation of those change that are filed with the
to establish controls to restrict the flow positions ensures certainty for all Commission, and all written
of any confidential information between impacted market participants. The communications relating to the
the third-party broker and NES/the proposal does not discriminate among proposed rule change between the
Exchange associated with the Members.35 Commission and any person, other than
liquidation of error positions.34 those that may be withheld from the
C. Self-Regulatory Organization’s public in accordance with the
B. Self-Regulatory Organization’s Statement on Comments on the provisions of 5 U.S.C. 552, will be
Statement on Burden on Competition Proposed Rule Change Received From available for Web site viewing and
The Exchange does not believe that Members, Participants, or Others printing in the Commission’s Public
the proposed rule change will impose No written comments were either Reference Room, 100 F Street NE.,
any burden on competition not solicited or received. Washington, DC 20549 on official
necessary or appropriate in furtherance business days between the hours of
of the purposes of the Act. Receiving III. Date of Effectiveness of the
10:00 a.m. and 3:00 p.m. Copies of such
orders through NES does not raise any Proposed Rule Change and Timing for
filing also will be available for
issues of intra-market competition Commission Action
inspection and copying at the principal
because it involves inbound routing Within 45 days of the date of office of the Exchange. All comments
from an affiliated exchange. This publication of this notice in the Federal received will be posted without change;
proposal provides that Nasdaq, which Register or within such longer period (i) the Commission does not edit personal
owns NES and the Exchange, shall as the Commission may designate up to identifying information from
establish and maintain procedures and 90 days of such date if it finds such submissions. You should submit only
internal controls reasonably designed to longer period to be appropriate and information that you wish to make
ensure that NES does not develop or publishes its reasons for so finding or available publicly. All submissions
implement changes to its system on the (ii) as to which the Exchange consents, should refer to File Number SR–
basis of non-public information the Commission shall: (a) By order ISEMercury-2016–22, and should be
regarding planned changes to the approve or disapprove such proposed submitted on or before January 19, 2017.
Exchange’s systems, obtained as a result rule change, or (b) institute proceedings For the Commission, by the Division of
of its affiliation with the Exchange, until to determine whether the proposed rule Trading and Markets, pursuant to delegated
such information is available generally change should be disapproved. authority.36
to similarly situated Exchange members Eduardo A. Aleman,
and member organizations in IV. Solicitation of Comments
Assistant Secretary.
connection with the provision of Interested persons are invited to
[FR Doc. 2016–31478 Filed 12–28–16; 8:45 am]
inbound routing to the Exchange. submit written data, views, and
BILLING CODE 8011–01–P
Utilizing NES as the routing broker does arguments concerning the foregoing,
not create any undue burden on inter- including whether the proposed rule
market competition because NES cannot change, as modified by Amendment
SECURITIES AND EXCHANGE
use any information advantage it may Nos. 1 and 2, is consistent with the Act. COMMISSION
have because of its affiliation with ISE Comments may be submitted by any of
Mercury. The Exchange will not be the following methods: [Release No. 34–79665; File No. SR–ISE–
granting any preferential access to 2016–27]
information from the Exchange’s Order Electronic Comments
Book to NES. As an affiliated routing • Use the Commission’s Internet Self-Regulatory Organizations;
broker, NES would not be treated comment form (http://www.sec.gov/ International Securities Exchange,
differently than any other unaffiliated rules/sro.shtml); or LLC; Notice of Filing of Proposed Rule
routing broker. • Send an email to rule-comments@ Change, as Modified by Amendment
The proposal does not result in a sec.gov. Please include File Number SR– No. 1 Thereto, To Amend the
burden on competition among ISEMercury–2016–22 on the subject Exchange’s Rules Regarding Routing
exchanges, because there are many line. of Orders, Cancellation of Orders, and
competing options exchanges that Handling of Error Positions, and
Paper Comments Permit Nasdaq Execution Services,
provide routing services, including
through an affiliate. Further, the • Send paper comments in triplicate LLC To Become an Affiliated Member
proposal does not raise issues of intra- to Brent J. Fields, Secretary, Securities of the Exchange To Perform Certain
market competition, because the and Exchange Commission, 100 F Street Routing and Other Functions
Exchange’s decision to route through a NE., Washington, DC 20549–1090. December 22, 2016.
particular routing broker would impact All submissions should refer to File Pursuant to Section 19(b)(1) of the
all participants equally. Number SR–ISEMercury-2016–22. This Securities Exchange Act of 1934
With respect to the proposal to file number should be included on the (‘‘Act’’) 1 and Rule 19b–4 thereunder,2
establish error accounts, the Exchange’s subject line if email is used. To help the notice is hereby given that on December
proposal does not result in a burden on Commission process and review your 9, 2016, the International Securities
competition among exchanges because comments more efficiently, please use Exchange, LLC (‘‘ISE’’ or ‘‘Exchange’’)
NES’ or the Exchange’s ability to cancel only one method. The Commission will
asabaliauskas on DSK3SPTVN1PROD with NOTICES
filed with the Securities and Exchange
orders during a technical or systems post all comments on the Commission’s Commission (‘‘SEC’’ or ‘‘Commission’’)
issue and to maintain an error account Internet Web site (http://www.sec.gov/ the proposed rule change. On December
facilitates the smooth and efficient rules/sro.shtml). Copies of the 20, 2016, the Exchange filed
operations of the market for all submission, all subsequent Amendment No. 1 to the proposed rule
impacted members. The proposals amendments, all written statements
regarding assumption of error positions with respect to the proposed rule 36 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
34 Id. 35 See SR–ISE–2016–27 (not published). 2 17 CFR 240.19b–4.
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Document Created: 2016-12-29 01:58:35
Document Modified: 2016-12-29 01:58:35
| 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 96089 |
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