81 FR 96114 - Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing of Proposed Rule Change To Amend Various Rules in Connection With a System Migration to Nasdaq INET Technology
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 250 (December 29, 2016)
Federal Register Volume 81, Issue 250 (December 29, 2016)
| Page Range | 96114-96123 | |
| FR Document | 2016-31489 |
[Federal Register Volume 81, Number 250 (Thursday, December 29, 2016)] [Notices] [Pages 96114-96123] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-31489] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79677; File No. SR-ISEGemini-2016-17] Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing of Proposed Rule Change To Amend Various Rules in Connection With a System Migration to Nasdaq INET Technology 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 16, 2016, ISE Gemini, LLC (``ISE Gemini'' or ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of the Substance of the Proposed Rule Change The Exchange proposes to amend various rules in connection with a system migration to Nasdaq INET technology. The text of the proposed rule change is available on the Exchange's Web site at www.ise.com, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and the 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 [[Page 96115]] 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 this rule change is to amend certain rules to reflect the ISE Gemini technology migration to a Nasdaq, Inc. (``Nasdaq'') supported architecture. INET is the proprietary core technology utilized across Nasdaq's global markets and utilized on The NASDAQ Options Market LLC (``NOM''), NASDAQ PHLX LLC (``Phlx'') and NASDAQ BX, Inc. (``BX'') (collectively, ``Nasdaq Exchanges''). The migration of ISE Gemini to the Nasdaq INET architecture would result in higher performance, scalability, and more robust architecture. With this system migration, the Exchange intends to adopt certain trading functionality currently utilized at Nasdaq Exchanges. The functionality being adopted is described in this filing. The Exchange is also separately filing \3\ a rule change to amend the Exchange's Opening Process. ISE Gemini will replace its current opening process at Rule 701 with Phlx's Opening Process.\4\ --------------------------------------------------------------------------- \3\ See SR-ISEGemini-2016-18 (not yet published). \4\ See Phlx Rule 1017. See also Securities Exchange Act Release No. 79274 (November 9, 2016), 81 FR 80694 (November 16, 2016) (SR- Phlx-2017-79) (notice of Filing of Partial Amendment No. 2 and Order Granting Approval of a Proposed Rule Change, as Modified by Partial Amendment No. 2, to Amend PHLX Rule 1017, Openings in Options). --------------------------------------------------------------------------- The Exchange intends to begin implementation of the proposed rule changes in Q1 2017. The migration will be on a symbol by symbol basis, and the Exchange will issue an alert to members in the form of an Options Trader Alert to provide notification of the symbols that will migrate and the relevant dates. Generally With the re-platform, the Exchange will now be built on the Nasdaq INET architecture, which allows certain trading system functionality to be performed in parallel. The Exchange believes that this architecture change will improve the member experience by reducing overall latency compared to the current ISE Gemini system because of the manner in which the system is segregated into component parts to handle processing. Trading Halts Cancellation of Quotes The Exchange proposes to amend ISE Gemini Rule 702 entitled ``Trading Halts.'' Specifically, the Exchange proposes to amend Rule 702(a)(2) to note that during a halt, the Exchange will maintain existing orders on the book, but not existing quotes prior to the halt, accept orders and quotes, and process cancels and modifications for quotes and orders, except that existing quotes are cancelled. Today, ISE Gemini maintains existing orders and quotes during a trading halt. With respect to cancels and modifications, this behavior will not change. ISE Gemini does not have a quote purge today, so this functionality will be changed with the adoption of this trading rule. The Exchange believes that purging quotes upon a halt will remove uncertainty for market participants. The Exchange proposes to conform the treatment of quotes and orders on ISE Gemini to Phlx Rule 1047(f) in conjunction with the replatform of ISE Gemini. The Exchange desires to handle halts in a similar manner as Phlx. Limit Up-Limit Down The Exchange also proposes to add new ISE Gemini Rule 702(d) to replace rule text currently contained in ISE Gemini Rule 703A entitled ``Trading During Limit Up-Limit Down States in Underlying Securities.'' Proposed ISE Gemini Rule 702(d) is similar to language currently in Phlx Rule 1047(d), which provides for Exchange handling due to extraordinary market volatility. Currently ISE Gemini Rule 703A(a) and (b) provides modified order handling procedures when a security underlying an options class traded on the Exchange enters a Limit State or Straddle State under the Plan to Address Extraordinary Market Volatility (the ``Plan'').\5\ Specifically, during a Limit State or Straddle State: (1) Incoming Market Orders are automatically rejected, and all unexecuted Market Orders pending in the System are cancelled, and (2) incoming Stop Orders (which become Market Orders if elected) are automatically rejected, and unexecuted Stop Orders pending in the System cannot be elected and will be held until the end of the Limit State or Straddle State. In addition, ISE Gemini Rule 703A(c) provides that when the security underlying an option class is in a Limit State or Straddle State, the maximum quotation spread requirements for market maker quotes contained in ISE Gemini Rule 803(b)(5) and the continuous quotation requirements contained in ISE Gemini Rule 804(e) shall be suspended.\6\ --------------------------------------------------------------------------- \5\ Unless otherwise specified, capitalized terms used in this rule filing are based on the defined terms of the Plan. As set forth in more detail in the Plan, Price Bands consisting of a Lower Price Band and an Upper Price Band for each NMS Stock are calculated by the Processors (Section V(A) of the Plan). When the National Best Bid (Offer) is below (above) the Lower (Upper) Price Band, the Processors shall disseminate such National Best Bid (Offer) with an appropriate flag identifying it as unexecutable. When the National Best Bid (Offer) is equal to the Upper (Lower) Price Band, the Processors shall distribute such National Best Bid (Offer) with an appropriate flag identifying it as a Limit State Quotation (Section VI(A) of the Plan). All trading centers in NMS stocks must maintain written policies and procedures that are reasonably designed to prevent the display of offers below the Lower Price Band and bids above the Upper Price Band for NMS stocks. Notwithstanding this requirement, the Processor shall display an offer below the Lower Price Band or a bid above the Upper Price Band, but with a flag that it is non-executable. Such bids or offers shall not be included in the National Best Bid or National Best Offer calculations (Section VI(A)(3) of the Plan). Trading in an NMS stock immediately enters a Limit State if the National Best Offer (Bid) equals but does not cross the Lower (Upper) Price Band (Section VI(B)(1) of the Plan. Trading for an NMS stock exits a Limit State if, within 15 seconds of entering the Limit State, all Limit State Quotations were executed or canceled in their entirety. If the market does not exit a Limit State within 15 seconds, then the Primary Listing Exchange would declare a five-minute trading pause pursuant to Section VII of the Plan, which would be applicable to all markets trading the security. The primary listing market would declare a Trading Pause in an NMS stock; upon notification by the primary listing market, the Processor would disseminate this information to the public. No trades in that NMS stock could occur during the trading pause, but all bids and offers may be displayed (Section VII(A) of the Plan). In addition, the Plan defines a Straddle State as when the National Best Bid (Offer) is below (above) the Lower (Upper) Price Band and the NMS stock is not in a Limit State. For example, assume the Lower Price Band for an NMS Stock is $ 9.50 and the Upper Price Band is $ 10.50, such NMS stock would be in a Straddle State if the National Best Bid were below $ 9.50, and therefore unexecutable, and the National Best Offer were above $ 9.50 (including a National Best Offer that could be above $ 10.50). If an NMS stock is in a Straddle State and trading in that stock deviates from normal trading characteristics, the Primary Listing Exchange may declare a trading pause for that NMS stock if such Trading Pause would support the Plan's goal to address extraordinary market volatility. \6\ The time periods associated with Limit States and Straddle States are not considered by the Exchange when evaluating whether a market maker complied with the continuous quotation requirements contained in Rule 804(e). --------------------------------------------------------------------------- With the re-platform, the Exchange will adopt opening limitation, Market Order and Stop Order handling consistent with handling today on Phlx.\7\ Specifically, proposed ISE Gemini Rule 702(d) will provide that during a Limit State and Straddle State in the Underlying NMS stock: (i) The Exchange will not open an affected option, (ii) provided the Exchange has [[Page 96116]] opened an affected option for trading, the Exchange shall reject Market Orders, as defined in ISE Gemini Rule 715(a), and shall notify Members of the reason for such rejection, and (iii) provided the Exchange has opened an affected option for trading, the Exchange will elect Stop Orders if the condition is met, and, because they become Market Orders, shall cancel them back and notify Members of the reason for such rejection. The language in proposed ISE Gemini Rule 703(d)(iv) concerning the maximum quotation spread requirements for market maker quotes and the continuous quotation requirements suspensions are the same language currently contained in ISE Gemini Rule 703A(c). --------------------------------------------------------------------------- \7\ See proposed ISE Gemini Rule 702(d)(ii) and (iii) [sic]. --------------------------------------------------------------------------- These amendments differ in certain respects from the manner in which ISE Gemini operates today during a Limit State or Straddle State. The current ISE Gemini rule does not address the opening. The Exchange proposes to adopt rule text to provide for how the Exchange shall treat the opening rotation.\8\ The opening in an option will not commence in the event that the underlying NMS stock is open, but has entered into a Limit State or Straddle State. If this occurs, the opening will only commence and complete if the underlying NMS stock stays out of a Limit or Straddle State. Accordingly, proposed ISE Gemini Rule 702(d)(i) [sic] will provide that the Exchange will not open an affected option. As a result, if an opening process is occurring, it will cease and then start the opening process from the beginning once the Limit State or Straddle State is no longer occurring. --------------------------------------------------------------------------- \8\ See note 3 above. --------------------------------------------------------------------------- In addition, ISE Gemini currently cancels Market Orders pending in the System upon initiation of a Limit or Straddle State. Under the proposal to adopt the Phlx rule and implementation of the Limit Up- Limit Down procedures, Market Orders pending in the System will continue to be processed regardless of the Limit or Straddle State. The Exchange believes this is a reasonable handling of Market Orders in the system since these orders are only pending in the System if they are exposed at the NBBO pursuant to Supplementary Material .02 to Rule 1901. If at the end of the exposure period the affected underlying is in a Limit or Straddle State, the Market Order will be cancelled with no execution occurring. If at the end of the exposure period the underlying is no longer in a Limit or Straddle State, the Market Order will be handled under the normal operation of the rules. Lastly, ISE Gemini does not currently elect Stop Orders that are pending in the System during a Limit or Straddle State. Under the proposal, and in-line with the Phlx implementation, Stop Orders that are pending in the System during a Limit or Straddle State will be elected, if conditions for such election are met, however because they become Market Orders will be cancelled back to the Member with a reason for such rejection. While the implementation of Market and Stop Order handling varies from ISE Gemini today, both the current and proposed Rule provide for protections from erroneous executions in a highly volatile period.\9\ The Exchange believes consistency across the six options markets operated by Nasdaq, Inc. provides clarity for Members as to how their orders, as well as the opening process, will be handled in a Limit or Straddle State. --------------------------------------------------------------------------- \9\ The Exchange is introducing a Phlx protection, Acceptable Trade Range, into ISE [sic] Rules as discussed within this rule change. --------------------------------------------------------------------------- Auction Handling During a Trading Halt The Exchange proposes to amend various rules to add detail to ISE Gemini rules to account for the impact of a trading halt on the Exchange's auction mechanisms. The Exchange proposes to memorialize within ISE Gemini Rule 723, entitled ``Price Improvement Mechanism for Crossing Transactions'' the manner in which a trading halt will impact an order entered into PIM once it is migrated to the INET architecture. Today, if a trading halt is initiated after an order is entered into the Price Improvement Mechanism (``PIM'') on ISE Gemini, such auction is terminated and eligible interest is executed. The Exchange proposes to amend today's current behavior and instead terminate the auction and not execute eligible interest when a trading halt occurs. In the event of a trading halt, terminating the auction and not executing eligible interest will provide certainty to participants in regard to how their interest will be handled. Memorializing the manner in which the system will handle orders entered into PIM during a trading halt will provide transparency for the benefit of members and investors. The Exchange proposes an amendment to ISE Gemini Rule 716, entitled ``Block Trades'' to memorialize that if a trading halt is initiated after an order is entered into the Block Order Mechanism, Facilitation Mechanism, or Solicited Order Mechanism, such auction will also be automatically terminated without execution. This is the current behavior today on ISE Gemini and will not be changing. As discussed above, Phlx Rule 1047(c) provides that in the event the Exchange halts trading, all trading in the affected option shall be halted. This is interpreted to restrict executions after a halt unless there is a specific rule specifying that such trades should take place. The Exchange is proposing to add more specificity into the relevant rules. With respect to Block Order Mechanism, Facilitation Mechanism, or Solicited Order Mechanism, the Exchange notes that the current behavior is consistent with Phlx Rule 1047(c) generally, where all trading in the affected option shall be halted.\10\ In the event of a trading halt, terminating these auction mechanisms and not executing eligible interest will provide certainty to participants in regard to how their interest will be handled. Memorializing the manner in which the system will handle orders during a trading halt will provide transparency for the benefit of members and investors. --------------------------------------------------------------------------- \10\ See Phlx Rule 1047(c). --------------------------------------------------------------------------- Market Order Spread Protection The Exchange proposes to amend ISE Gemini Rule 711, entitled ``Acceptance of Quotes and Orders'' to adopt a new mandatory risk protection entitled Market Order Spread Protection. ISE Gemini does not have a similar feature today. This mandatory feature is currently offered on NOM to protect Market Orders from being executed in very wide markets.\11\ --------------------------------------------------------------------------- \11\ See NOM Rules at Chapter VI, Section 6(c). NOM's current rule states, ``System Orders that are Market Orders will be rejected if the best of the NBBO and the internal market BBO (the ``Reference BBO'') is wider than a preset threshold at the time the order is received by the System.'' NOM has two order types, Price-Improving and Post-Only Orders, which result in non-displayed pricing that may cause the internal market BBO to be better than the NBBO. ISE Gemini does not have similar non-displayed order types and therefore the reference to the internal market BBO is not necessary. --------------------------------------------------------------------------- Pursuant to proposed ISE Gemini Rule 711(c), if the NBBO is wider than a preset threshold at the time a Market Order is received, the order will be rejected. For example, if the Market Order Spread Protection is set to $20.00, and a Market Order to buy is received while the NBBO is $1.00-$50.00, such Market Order will be rejected. The proposed feature would assist with the maintenance of fair and orderly markets by mitigating the risks associated with errors resulting in executions at prices that are away from the Best Bid or Offer and potentially erroneous. Further the proposal protects investors from potentially receiving executions away [[Page 96117]] from the prevailing prices at any given time. The Exchange proposes this feature to avoid a series of improperly priced aggressive orders transacting in the Order Book. Today, the NOM threshold is set at $5. ISE Gemini will initially set the threshold to $5. Similar to NOM, the Exchange will notify Members of the threshold with a notice, and, thereafter, Members will be notified of any subsequent changes to the threshold. NOM set the differential at $5 to match the bid/ask differential permitted for quotes on the Exchange.\12\ ISE Gemini has a similar $5 differential.\13\ Thus, the presence of a quote on the Exchange will ensure the NBBO is at least $5 wide. The Exchange believes the presence of a quote on the Exchange, or a bid/ask differential of the NBBO, which is no more than $5 wide affords Market Orders proper protection against erroneous execution and in the event a bid/ask differential is more than $5, then a Market Order is rejected. The threshold is appropriate because it seeks to capture improperly priced Market Orders and reject them to reduce the risk of, and to potentially prevent, the automatic execution of Market Orders at prices that may be considered erroneous. The Exchange's proposed threshold is a reasonable measure to ensure prices remain within the reasonable limits. This protection will bolster the normal resilience and market behavior that persistently produces robust reference prices. This feature should create a level of protection that prevents Market Orders from entering the Order Book outside of an acceptable range for the Market Order to execute. --------------------------------------------------------------------------- \12\ See Chapter VII, Section 6(d)(ii) of NOM Rules which describes the bid/ask differentials. Options on equities (including Exchange-Traded Fund Shares), and on index options must be quoted with a difference not to exceed $5 between the bid and offer regardless of the price of the bid, including before and during the opening. However, respecting in-the-money series where the market for the underlying security is wider than $5, the bid/ask differential may be as wide as the quotation for the underlying security on the primary market. The Exchange may establish differences other than the above for one or more series or classes of options. \13\ See ISE Gemini Rule 803(b)(4). --------------------------------------------------------------------------- Finally, the Market Order Spread Protection will be the same for all options traded on the Exchange, and is applicable to all Members that submit Market Orders. Acceptable Trade Range The Exchange proposes to amend Rule 714, entitled ``Automatic Execution of Orders,'' at ISE Gemini Rule 714(b)(1) to remove the current Price Level Protection rule and adopt Phlx's Acceptable Trade Range.\14\ The Exchange is proposing to adopt similar functionality which is currently utilized on Phlx in connection with the replatform of ISE Gemini. Today, ISE Gemini places a limit on the number of price levels at which an incoming order or quote to sell (buy) will be executed automatically when there are no bids (offers) from other exchanges at any price for the options series. Orders and quotes are executed at each successive price level until the maximum number of price levels is reached, and any balance is either handled by the Primary Market Maker pursuant to Rule 803(c)(1) (in the case of Priority Customer Orders) or canceled (in the case of Professional Orders). The number of price levels, may be between one (1) and ten (10). The Exchange determines the number of price levels from time-to- time on a class-by-class basis. --------------------------------------------------------------------------- \14\ See Phlx Rule 1080(p). --------------------------------------------------------------------------- ISE Gemini proposes to replace the current Price Level Protection with Phlx's Acceptable Trade Range.\15\ The proposed Acceptable Trade Range is a mechanism to prevent the system from experiencing dramatic price swings by creating a level of protection that prevents the market from moving beyond set thresholds. The thresholds consist of a reference price plus (minus) set dollar amounts based on the nature of the option and the premium of the option. --------------------------------------------------------------------------- \15\ The Exchange notes that the version of Acceptable Trade Range to be implemented on ISE Gemini will not include the posting period functionality available today on Phlx. The proposed rules reflect this change. --------------------------------------------------------------------------- The system will calculate an Acceptable Trade Range to limit the range of prices at which an order or quote will be allowed to execute. To bolster the normal resilience and market behavior that persistently produces robust reference prices, ISE Gemini is proposing to create a level of protection that prevents the market from moving beyond set thresholds. The Acceptable Trade Range is calculated (upon receipt of a new order or quote) by taking the reference price, plus or minus a value to be determined by the Exchange (i.e., the reference price - (x) for sell orders/quotes and the reference price + (x) for buy orders).\16\ Upon receipt of a new order, the reference price is the National Best Bid (``NBB'') for sell orders/quotes and the National Best Offer (``NBO'') for buy orders/quotes. If an order or quote reaches the outer limit of the Acceptable Trade Range (the ``Threshold Price'') without being fully executed, then any unexecuted balance will be cancelled. The proposed Acceptable Trade Range would work as follows: Prior to executing orders received by ISE Gemini, an Acceptable Trade Range is calculated to determine the range of prices at which orders/quotes may be executed.\17\ When an order is initially received, the threshold is calculated by adding (for buy orders/quotes) or subtracting (for sell orders/quotes) a value,\18\ as discussed below, to the National Best Offer for buy orders/quotes or the National Best Bid for sell orders/quotes to determine the range of prices that are valid for execution. A buy (sell) order or quote will be allowed to execute up (down) to and including the maximum (minimum) price within the Acceptable Trade Range. --------------------------------------------------------------------------- \16\ The Acceptable Trade Range settings are tied to the option premium. \17\ The Acceptable Trade Range will not be available for all- or-none orders. Today, ISE Gemini's Price Level Protection rule is not available for all-or-none orders. The Exchange has determined that it would be difficult, from a technical standpoint, to apply this feature to those orders because their particular contingency makes it difficult to automate their handling. \18\ The value that is to be added to/subtracted from the reference price will be set by ISE Gemini and posted on its Web site. --------------------------------------------------------------------------- For example, in a thinly traded option: Away Exchange Quotes: ---------------------------------------------------------------------------------------------------------------- Exchange Bid size Bid price Offer price Offer size ---------------------------------------------------------------------------------------------------------------- NOM............................................. 10 $1.00 $1.05 10 NYSE Arca....................................... 10 1.00 1.05 10 NYSE MKT........................................ 10 1.00 1.10 10 BOX............................................. 10 1.00 1.15 10 ---------------------------------------------------------------------------------------------------------------- ISE Gemini Price Levels: [[Page 96118]] ---------------------------------------------------------------------------------------------------------------- Exchange Bid size Bid price Offer price Offer size ---------------------------------------------------------------------------------------------------------------- ISE Gemini orders............................... 10 $1.00 $1.05 10 ISE Gemini orders............................... .............. .............. 1.10 10 ISE Gemini orders............................... .............. .............. 1.40 10 ISE Gemini orders............................... .............. .............. 5.00 10 ---------------------------------------------------------------------------------------------------------------- If ISE Gemini receives a routable market order to buy 80 contracts, the System will respond as described below:10 contracts will be executed at $1.05 against ISE Gemini 10 contracts will be executed at $1.05 against NOM 10 contracts will be executed at $1.05 against NYSE Arca 10 contracts will be executed at $1.10 against ISE Gemini 10 contracts will be executed at $1.10 against NYSE MKT 10 contracts will be executed at $1.15 against BOX After these executions, there are no other known valid away exchange quotes. The National Best Bid/Offer (``NBBO'') is therefore comprised of the remaining interest on the ISE Gemini book, specifically 10 contracts at $1.40 and 10 contracts at $5.00. In the absence of an Acceptable Trade Range mechanism, the order would execute against the remaining interest at $1.40 and $5.00, resulting in potential harm to investors. ISE Gemini will set the parameters of the mechanism at levels that will ensure that it is triggered quite infrequently. Importantly, the Acceptable Trade Range is neutral with respect to away markets, an order may route to other destinations to access liquidity priced within the Acceptable Trade Range provided the order is designated as routable. The options premium will be the dominant factor in determining the Acceptable Trade Range. Generally, options with lower premiums tend to be more liquid and have tighter bid/ask spreads; options with higher premiums have wider spreads and less liquidity. Accordingly, a table consisting of several steps based on the premium of the option will be used to determine how far the market for a given option will be allowed to move. This table or tables would be listed on the NASDAQTrader.com Web site and any periodic updates to the table would be announced via an Options Trader Alert. For example, looking at some SPY May 2013 Call options on May 1st of 2013: Bid/Offer of SPY May 160 Call (at or near-the-money): $1.23 x $1.24 (several hundred contracts on bid and offer) Bid/Offer of SPY May 105 Call (deep in-the-money): $54.10 x $54.26 (11 contracts on each side) The deep in-the-money calls (May 105 calls) have a wider spread ($54.10 - $54.26 = $0.16) compared to a spread of $0.01 for the at-the-money calls (May 160 calls). Therefore, it is appropriate to have different thresholds for the two options. For instance, it may make sense to have a $0.05 threshold for the at-the-money strikes (Premium < $2) and a $0.50 threshold for the deep in-the-money strikes (Premium > $10). To consider another example, the May 2013 ORCL put options on May 1st of 2013: Bid/Offer of ORCL 33 May Put (at or near-the-money): $0.33 x $0.34 (100 x 500) Bid/Offer of ORCL 44 May Put (deep in-the-money): $10.40 x $10.55 (50 x 200) Even though ORCL has a much lower share price than SPY, and is a different type of security (it is a common stock of a technology company whereas SPY is an ETF based on the S&P 500 Index), the pattern is the same. The option with the lower premium has a very narrow spread of $0.01 with significant size displayed whereas the higher premium option has a wide spread ($0.15) and less size displayed. The Acceptable Trade Range settings will be tied to the option premium. However, other factors will be considered when determining the exact settings. For example, acceptable ranges may change if market- wide volatility is as high as it was during the financial crisis in 2008 and 2009, or if overall liquidity is low based on historical trends. These different market conditions may present the need to adjust the threshold amounts from time to time to ensure a well- functioning market. Without adjustments, the market may become too constrained or conversely, prone to wide price swings. As stated above, the Exchange would publish the Acceptable Trade Range table or tables on the Exchange Web site. The Exchange does not foresee updating the table(s) often or intraday, although the exchange may determine to do so in extreme circumstances. The Exchange will provide sufficient advanced notice of changes to the Acceptable Trade Range table, generally the prior day, to its membership via an Exchange alert. The Acceptable Trade Range settings would generally be the same across all options traded on ISE Gemini, although ISE Gemini proposes to maintain flexibility to set them separately based on characteristics of the underlying security. For instance, Google is a stock with a high share price ($824.57 closing price on April 30, 2013). Google options therefore may require special settings due to the risk involved in actively quoting options on such a high-priced stock. Option spreads on Google are wider and the size available at the best bid and offer is smaller. Google could potentially need a wider threshold setting compared to other lower-priced stocks. There are other options that fit into this category (e.g. AAPL) which makes it necessary to have threshold settings that have flexibility based on the underlying security. Additionally, it is generally observed that options subject to the Penny Pilot program quote with tighter spreads than options not subject to the Penny Pilot. Currently, ISE Gemini expects to set Acceptable Trade Ranges for three categories of options: (1) Penny Pilot Options trading in one cent increments for options trading at less than $3.00 and increments of five cents for options trading at $3.00 or more, (2) Penny Pilot Options trading in one-cent increments for all prices, and (3) Non-Penny Pilot Options. The Phlx rule contains language that references a posting period.\19\ Specifically, the Phlx Rule provides if an order/quote reaches the outer limit of the Acceptable Trade Range (the ``Threshold Price'') without being fully executed, it will be posted at the Threshold Price for a brief period, not to exceed one second (``Posting Period''), to allow more liquidity to be collected, unless a Quote Exhaust has occurred, in which case the Quote Exhaust process in Phlx Rule 1082(a)(ii)(B)(3) will ensue, triggering a new Reference Price.\20\ The Exchange [[Page 96119]] will not post interest that exceeds the outer limit of the Acceptable Trade Range, rather the interest will be cancelled. Only if the order limit does not exceed the Acceptable Trade Range will it post on the Exchange, if not otherwise executed. Further, the Phlx rule provides for the re-pricing of that order or quote and calculation of a new Acceptable Trade Range. Consistent with the current treatment of orders and quotes under ISE Gemini rules, the Exchange is not adopting the posting period. Unlike Phlx, ISE Gemini does not offer a general continuous re-pricing mechanism, and does not consider iterations in its current functionality.\21\ ISE Gemini would cancel rather than reprice orders which exceed the outer limit of the Acceptable Trade Range. Orders which do not exceed the outer limit of the Acceptable Trade Range will post to the order book and will reside on the order book at such price until they are either executed in full or cancelled by the Member. Additionally, resting orders do not re-price on the order book as they do today on Phlx. For these reasons, the unexecuted balance which exceeds the outer limit of the Acceptable Trade Range will be cancelled, rather than posted to the order book. --------------------------------------------------------------------------- \19\ See Phlx Rule 1080(p)(1)(B). \20\ The Quote Exhaust process occurs when the Exchange's disseminated market at a particular price level includes a quote, and such market is exhausted by an inbound contra-side quote or order, and following such exhaustion, contracts remain to be executed from such quote or order through the initial execution price. \21\ With respect to trade-throughs and locked and crossed markets, a Phlx order will not be executed at a price that trades through another market or is displayed at a price that would lock or cross another market. If, at the time of entry, an order that the entering party has elected not to make eligible for routing would cause a locked or crossed market violation or would cause a trade- through violation, it will be re-priced to the current national best offer (for bids) or the current national best bid (for offers) and displayed at one minimum price variance above (for offers) or below (for bids) the national best price. See Phlx Rule 1080(m)(iv)(A). In the instance that the System automatically reprices an order or quote, the System would assign the orders or quote a new timestamp and the order or quote will be reprioritized within the Order Book in accordance with the priority rules in Phlx Rule 1014 (g). --------------------------------------------------------------------------- PMM Order Handling and Opening Obligations Today, PMMs are responsible for handling Priority Customer orders that are not automatically executed pursuant to ISE Gemini Rule 714(b)(1), i.e., the Price Level Protection, and to initiate the opening rotation in each series pursuant to ISE Gemini Rule 701. This responsibility is described in each of those rules, as well as in ISE Gemini Rule 803(c), which provides that: In addition to the obligations contained in this Rule for market makers generally, for options classes to which a market maker is the appointed Primary Market Maker, it shall have the responsibility to: (1) As soon as practical, address Priority Customer Orders that are not automatically executed pursuant to Rule 714(b)(1) in a manner consistent with its obligations under paragraph (b) of this Rule by either (i) executing all or a portion of the order at a price that at least matches the NBBO and that improves upon the Exchange's best bid (in the case of a sell order) or the Exchange's best offer (in the case of a buy order); or (ii) releasing all or a portion of the order for execution against bids and offers on the Exchange. (2) Initiate trading in each series pursuant to Rule 701. As described in more detail in the sections above, with the re- platform to Nasdaq technology, the Exchange is adopting Acceptable Trade Range and opening rotation functionality currently offered on NOM and Phlx, which do not contain similar requirements for the PMM. The Exchange therefore proposes to eliminate the PMM order handling and opening obligations in Rule 803(c). The Exchange believes that the elimination of the PMM obligation to initiate the opening rotation in this rule is appropriate because the proposed opening process \22\ is initiated by the receipt of an appropriate number of valid width Primary Market Maker or Competitive Market Maker quotes as outlined in proposed ISE Gemini Rule 701(c)(i). Similarly, the Acceptable Trade Range functionality will continue to provide an important protection to members without imposing any Primary Market Maker obligations. Today, Phlx does not have similar roles for a Specialist on its market. In connection with the replatform, the Exchange will conform its rules with those of Phlx with respect to the manner in which it operates the Opening Process. --------------------------------------------------------------------------- \22\ See note 3 above. --------------------------------------------------------------------------- Back-Up PMM The Exchange also proposes to amend ISE Gemini Supplementary Material .03 to Rule 803 to eliminate its Back-Up Primary Market Maker program. Today, any ISE Gemini Member that is approved to act in the capacity of a Primary Market Maker may voluntarily act as a ``Back-Up Primary Market Maker'' in options series in which it is quoting as a Competitive Market Maker. A Back-Up Primary Market Maker assumes all of the responsibilities and privileges of a Primary Market Maker under the Exchange's rules with respect to any series in which the appointed Primary Market Maker fails to have a quote in the System except that a Back-Up Primary Market Maker's quoting obligations are the same as the quoting obligations for Competitive Market Makers as described in ISE Gemini Rule 804(e)(2)(iii) and .02 of Supplementary Material to Rule 804.\23\ If more than one Competitive Market Maker that has volunteered to be a Back-Up Primary Market Maker is quoting in an options series at the time that a Primary Market Maker ceases quoting, the Competitive Market Maker with the largest offer at the lowest price in the series at that time will be chosen to be the Back-Up Primary Market Maker. In the event of a tie based on price and size, the Competitive Market Maker with time priority will be automatically chosen. The Back-Up Primary Market Maker is automatically restored to Competitive Market Maker status when the appointed Primary Market Maker initiates quoting in the series. The obligations of a Primary Market Maker include the initiation of a trading rotation pursuant to ISE Gemini Rule 701, quoting and other obligations pursuant to ISE Gemini Rules 803 and 804, and financial requirements pursuant to ISE Gemini Rule 809. The Exchange is proposing to amend the obligations of a PMM only with regard to the initiation of a trading rotation pursuant to ISE Gemini Rule 701. The quoting and financial requirements rules shall remain the same. --------------------------------------------------------------------------- \23\ The Exchange notes that the current rule text for Back-up Primary Market Maker on ISE Gemini does not indicate that quoting obligations for Back-up Primary Market Makers are the same as for Competitive Market Makers. This, however, has been the Exchanges practice, and the practice of its affiliated exchanges, including, the International Securities Exchange, LLC. See Securities Exchange Act Release No. 76936 (January 20, 2016), 81 FR 4347 (January 26, 2016) (SR-ISE-2016-02). --------------------------------------------------------------------------- With the re-platform, a Back-Up Primary Market Maker is no longer necessary since the order handling obligations present on ISE Gemini today are not going to be present in the new system. Furthermore, the proposed Opening Process,\24\ obviates the importance of such a role. The Opening Process describes the entry of quotes by both a Primary Market Maker and a Competitive Market Maker, provided they are Valid Width Quotes.\25\ The Opening Process further describes alternative methods to open the market if such quotes are not entered at the opening by either of these market makers.\26\ The reliance on a market maker to initiate the opening process is [[Page 96120]] no longer present within the proposed rule.\27\ --------------------------------------------------------------------------- \24\ See note 3 above. \25\ A Valid Width Quote is a two-sided electronic quotation submitted by a Market Maker that consists of a bid/ask differential that is compliant with ISE Gemini proposed Rule 803(b)(4). See note 3 above. \26\ See note 3 above. \27\ Id. --------------------------------------------------------------------------- Market Maker Speed Bump The Exchange proposes to amend ISE Gemini Rule 804, entitled ``Market Maker Quotations'' to establish default parameters for certain risk functionality. The Exchange offers a risk protection mechanism for market maker quotes that removes a member's quotes in an options class if a specified number of curtailment events occur during a set time period (``Market Maker Speed Bump''). In addition, the Exchange offers a market-wide risk protection that removes a market maker's quotes across all classes if a number of curtailment events occur (``Market- Wide Speed Bump'').\28\ ISE Gemini Rule 804(g) currently requires that market makers set curtailment parameters for both the Market Maker Speed Bump and the Market-Wide Speed Bump. Today, if a market maker does not set these parameters their quotes are rejected by the trading system for each of the speed bumps mentioned herein. --------------------------------------------------------------------------- \28\ Market makers may request the Exchange to set the market wide parameter to apply to just ISE Gemini or across ISE Gemini and ISE. --------------------------------------------------------------------------- With the re-platform, the Exchange has determined to provide default curtailment parameters to assist market makers when they do not enter their own parameters into the system. The default parameters will be determined by the Exchange and announced to members. Rather than rejecting quotes, the default parameters would be instituted. The default parameters are important because market makers at ISE Gemini have quoting obligations as specified in ISE Gemini Rule 804. When a market maker's quotes are removed from the system, the time does not count toward the continuous quoting obligations. The Exchange believes that allowing for default settings would cause quotes not to be rejected and would assist market makers in meeting their quoting obligations because they would not have their quotes removed from the market. Today, Phlx indicates default parameters for its detection of loss of communication settings.\29\ --------------------------------------------------------------------------- \29\ Phlx Rule 1019(c). --------------------------------------------------------------------------- Anti-Internalization The Exchange proposes to amend the ISE Gemini Supplementary Material at .03 to Rule 804, entitled ``Market Maker Quotations'' to adopt an Anti-Internalization rule. Today, ISE Gemini's functionality prevents Immediate-or-Cancel (``IOC'') \30\ orders entered by a market maker from trading with the market maker's own quote.\31\ As implemented, if an IOC order entered by a market maker would trade with a quote entered by the same market maker, that order will instead be allocated to other interest at the same price, and the balance cancelled. The Exchange proposes to replace this self-trade protection functionality with Anti-Internalization functionality currently offered on Phlx.\32\ --------------------------------------------------------------------------- \30\ An IOC order is a limit order that is to be executed in whole or in part upon receipt. Any portion not so executed is to be treated as cancelled. See Rule 715(b)(3). \31\ This functionality is not memorialized in ISE Gemini's rules. \32\ Phlx Rule 1080(p)(2). --------------------------------------------------------------------------- Today, Phlx provides anti-internalization (``AIQ'') functionality to Specialists and Registered Options Traders (``collectively market makers''). Quotes and orders entered by Phlx market makers using the same badge \33\ are not executed against quotes and orders entered on the opposite side of the market using the same badge. This automatically prevents these quotes and orders from interacting with each other in the System. On Phlx, the system cancels the resting quote or order back to the entering party prior to execution. This functionality does not apply in any auction or with respect to complex transactions. --------------------------------------------------------------------------- \33\ A badge is the same as a market participant identifier (``MPID''). --------------------------------------------------------------------------- The Exchange proposes to adopt a similar rule that provides that quotes and orders entered by Market Makers using the same member identifier will not be executed against quotes and orders entered on the opposite side of the market by the same market maker using the same member identifier. In such a case, the system will cancel the resting quote or order back to the entering party prior to execution. This functionality shall not apply in any auction. AIQ is difficult to apply during auctions, and there is limited benefit in doing so. There is limited benefit because, generally speaking, auctions do not raise the same policy concerns for wash sales and ERISA \34\ due to the semi- random manner in which trades are matched. --------------------------------------------------------------------------- \34\ AIQ also is designed to assist market participants in complying with certain rules and regulations of the Employee Retirement Income Security Act (``ERISA'') that preclude and/or limit managing broker-dealers of such accounts from trading as principal with orders generated for those accounts. It can also assist Market Makers in reducing trading costs from unwanted executions potentially resulting from the interaction of executable buy and sell trading interest from the same firm when performing the same market making function. --------------------------------------------------------------------------- This functionality does not relieve or otherwise modify the duty of best execution owed to orders received from public customers. Market Makers generally do not display public customer orders in market making quotations, opting instead to enter public customer orders using separate identifiers. In the event that a Market Maker opts to include a public customer order within a market making quotation, the Market Maker must take appropriate steps to ensure that public customer orders that do not execute due to anti-internalization functionality ultimately receive the same execution price (or better) they would have originally obtained if execution of the order was not inhibited by the functionality. This Anti-Internalization functionality can assist Market Makers in reducing trading costs from unwanted executions potentially resulting from the interaction of executable buy and sell trading interest from the same firm when performing the same market making function. Minimum Execution Quantity Orders The Exchange proposes to amend ISE Gemini Rule 715, entitled ``Types of Orders'' at 715(q) to remove minimum quantity orders. Today, the Exchange allows members to enter minimum quantity orders, which is an order type that is available for partial execution, but each partial execution must be for a specified number of contracts or greater. If the balance of the order after one or more partial executions is less than the minimum, such balance is treated as all-or-none. Like all-or- none orders, minimum quantity orders are contingency orders that are not displayed in the Exchange's best bid or offer. However, the Exchange disseminates to market participants an indication that a minimum quantity order has been entered. The Exchange has found that the utilization of minimum quantity orders by its members has been very limited, and therefore proposes to remove this functionality.\35\ Furthermore, the Exchange proposes to remove two references to minimum quantity orders in other rules. Specifically, the Exchange proposes to remove references to minimum quantity orders in ISE Gemini Supplementary Material .02 to Rule 713, which notes that minimum quantity orders are contingency orders that have no priority on the book, and in ISE Gemini Supplementary Material .04 to Rule 717, which explains that non-marketable minimum quantity orders are deemed ``exposed'' one second following a broadcast notifying the market that such an order to buy or [[Page 96121]] sell a specified number of contracts at a specified with a specified minimum quantity has been received in the options series. --------------------------------------------------------------------------- \35\ This functionality is currently being utilized to transact less than 1% of ISE Gemini's volume. --------------------------------------------------------------------------- Delay of Implementation The Exchange proposes to delay the implementation of Directed Order \36\ and the Qualified Contingent Cross Order \37\ functionalities on ISE Gemini. The Exchange proposes to continue to offer both of these functionalities on the current platform. The Exchange however would propose not to launch these functionalities on ISE Gemini at the same time as proposed herein for the proposals to amend other trading functions. The Exchange would instead issue an alert which specifies a different date for these two functionalities to commence on ISE Gemini. This functionality will remain the same on the new platform. --------------------------------------------------------------------------- \36\ ISE Gemini currently operates a Directed Order system in which Electronic Access Members (``EAMs'') can send an order to a DMM for possible price improvement. If a DMM accepts Directed Orders generally, that DMM must accept all Directed Orders from all EAMs. Once such a DMM receives a Directed Order, it either (i) must enter the order into the Exchange's PIM auction and guarantee its execution at a price better than the ISE best bid or offer (``ISE BBO'') by at least a penny and equal to or better than the NBBO or (ii) must release the order into the Exchange's limit order book, in which case there are certain restrictions on the DMM interacting with the order. See ISE Gemini Rule 811. \37\ A Qualified Contingent Cross Order is comprised of an order to buy or sell at least 1000 contracts that is identified as being part of a qualified contingent trade, as that term is defined in Supplementary Material .01 to ISE Gemini Rule 715, coupled with a contra-side order to buy or sell an equal number of contracts. See ISE Gemini Rules 715(j). --------------------------------------------------------------------------- The Exchange proposes to amend the rule text in Rules 721 (Crossing Orders) and 811 (Directed Orders) to note that these functionalities will not be available as of a certain date in the first quarter of 2017 to be announced in a notice. The Exchange will recommence these functionalities on ISE Gemini within one year from the date of filing of this rule change to be announced in a separate notice. The Exchange intends to begin implementation of the functionality for Directed Orders and Qualified Contingent Cross after Q1 2017. The migration will also be on a symbol by symbol basis, and the Exchange will issue an alert to members in the form of an Options Trader Alert to provide notification of the symbols that will migrate and the relevant dates. The Exchange will introduce the Directed Orders and Qualified Contingent Cross on ISE Gemini within one year from the date of this filing, otherwise the Exchange will file a rule proposal with the Commission to remove these rules. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\38\ in general, and furthers the objectives of Section 6(b)(5) of the Act,\39\ 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 for the reasons stated below. --------------------------------------------------------------------------- \38\ 15 U.S.C. 78f(b). \39\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- Trading Halts The Exchange's proposal to amend ISE Gemini Rule 702 concerning Trading Halts to specifically note that during a halt the Exchange will maintain existing orders on the book but not existing quotes is consistent with the Act because it provides market participants with clarity as to the manner in which interest will be handled by the system. During a trading halt, the market may move and create risk to market participants with respect to resting interest. The Exchange believes that cancelling existing quotes protects investors and the public interest by removing potentially stale quotes during the halt process. The Exchange's proposal to amend its rules on order handling during Limit up-Limit Down states and trading halts is consistent with the Act because it will harmonize the way the Exchange treats orders during a Limit State or Straddle State in the equity market, or a trading halt in the option, with how those orders are handled on other Nasdaq Exchanges. The proposed rule text should provide certainty about how options orders and trades will be handled during periods of extraordinary volatility in the underlying security. Specifically, under the proposal, market participants will be able to continue to trade options overlying securities that are in a Limit State or Straddle State, while addressing specific order types that are subject to added risks during such periods. The Exchange believes that the rejection of options Market Orders (including elected Stop Orders) should help to prevent executions that might occur at prices that have not been reliably formed, which should, in turn, protect, in particular, retail investors from executions of un-priced orders during times of significant volatility. The Exchange believes that harmonizing these rules will provide a better experience to members that trade on multiple markets operated by Nasdaq, Inc. Cancellation of Quotes The Exchange's proposal to amend ISE Gemini Rule 702 concerning Trading Halts to specifically note that during a halt the Exchange will maintain existing orders on the book but not existing quotes is consistent with the Act because it provides market participants with clarity as to the manner in which interest will be handled by the system. During a trading halt, the market may move and create risk to market participants with respect to resting interest. The Exchange believes that cancelling existing quotes protects investors and the public interest by removing potentially stale quotes during the halt process. Limit Up-Limit Down The Exchange's proposal to add new ISE Gemini Rule 702(d) to replace rule text currently contained in ISE Gemini Rule 703A entitled ``Trading During Limit Up-Limit Down States in Underlying Securities'' is consistent with the Act because the proposed rules provide for protections from erroneous executions in a highly volatile period. The proposed rule text in ISE Gemini Rule 702(d) is similar to language currently in Phlx Rule 1047(d), which provides for Exchange handling due to extraordinary market volatility. As noted within this proposal, the Exchange will adopt opening limitation, Market Order and Stop Order handling consistent with handling today on Phlx. The Exchange proposes to adopt rule text to provide for how the Exchange shall treat the opening rotation.\40\ If an opening process is occurring, it will cease and then start the opening process from the beginning once the Limit State or Straddle State is no longer occurring. The Exchange believes that this treatment at the opening will protect investors and the public interest by halting trading to prevent unintended executions. Also, with this proposal, Market Orders pending in the System will continue to be processed regardless of the Limit or Straddle State. The Exchange believes that this treatment of Market Orders is consistent with the Act because these Market Orders are only pending in the System if they are exposed at the NBBO pursuant to Supplementary Material .02 to Rule 1901. If at the end of the exposure period the affected underlying is in a Limit or Straddle State, the Market Order will be cancelled with no trade [[Page 96122]] occurring. If at the end of the exposure period, the affected underlying is no longer in a Limit or Straddle State, the Market Order will be handled pursuant to the normal operation of the rules. --------------------------------------------------------------------------- \40\ See note 3 above. --------------------------------------------------------------------------- Lastly, ISE Gemini does not currently elect Stop Orders that are pending in the System during a Limit or Straddle State. Under the proposal, and in-line with the Phlx implementation, Stop Orders that are pending in the System during a Limit or Straddle State will be elected, if conditions for such election are met, and, because they become Market Orders, will be cancelled back to the Member with a reason for such rejection. The Exchange believes that this is consistent with the Act because it affords the appropriate protections to an elected Stop Order once it becomes a Market Order after election. The Exchange believes that this approach provides the market participant with the intended result. Auction Handling During a Trading Halt The Exchange's proposal to amend various rules to add detail to ISE Gemini rules to account for the impact of a trading halt on the Exchange's auction mechanisms is consistent with the Act for the reasons which follow. The Exchange's proposal to amend today's current behavior and instead terminate the PIM auction and not execute eligible interest when a trading halt occurs is consistent with the Act because during a trading halt, the market may move and create risk to market participants with respect to resting interest. The Exchange believes that terminating the PIM auction protects investors and the public interest by providing certainty to participants in regard to how their interest will be handled. Memorializing the manner in which the system will handle orders entered into PIM during a trading halt will provide transparency for the benefit of members and investors. The Exchange's proposal to amend ISE Gemini Rule 716, entitled ``Block Trades'' to memorialize that if a trading halt is initiated after an order is entered into the Block Order Mechanism, Facilitation Mechanism, or Solicited Order Mechanism, such auction will also be automatically terminated without execution is consistent with the Act because in the event of a trading halt, terminating these auction mechanisms and not executing eligible interest will provide certainty to participants in regard to how their interest will be handled. Memorializing the manner in which the system will handle orders during a trading halt will provide transparency for the benefit of members and investors. Market Order Spread Protection The Exchange's proposal to amend ISE Gemini Rule 711 to adopt a mandatory risk protection entitled Market Order Spread Protection is consistent with the Act because it provides a protection for Market Orders that may encourage price continuity, which should, in turn, protect investors and the public interest by reducing executions occurring at dislocated prices. Further, the Exchange believes that this rule proposal will mitigate risks to market participants. Acceptable Trade Range The Exchange's proposal to amend ISE Gemini Rule 714 to remove the current Price Level Protection rule and adopt Phlx's Acceptable Trade Range is consistent with the Act and will 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 by making the Exchange's market more efficient, to the benefit of the investing public. Further, it should prevent the system from experiencing dramatic price swings by creating a level of protection that prevents the market from moving beyond set thresholds. The proposed rule change will reduce the negative impacts of sudden, unanticipated volatility in individual options, and serve to preserve an orderly market in a transparent and uniform manner, enhance the price-discovery process, increase overall market confidence, and promote fair and orderly markets and the protection of investors. Specifically, the Exchange believes that the NBBO is a fair representation of then-available prices and accordingly the proposal helps to avoid executions at prices that are significantly worse than the NBBO. With respect to the posting information, which is described in the Phlx rule, but not contained in the proposed ISE Gemini rule, the Exchange believes that it is consistent with the Act to cancel unexecuted interest which is priced through an Acceptable Trade Range. Today, the Exchange does not have an iterative process wherein the Exchange will attempt to execute unexecuted balances for a period of time while that interest is automatically re-priced on the order book. Phlx has this type of functionality for Acceptable Trade Range, while the Exchange does not re-price interest on the order book. The Exchange transparently describes the cancellation of the interest within its rules. PMM Order Handling and Opening Obligations The Exchange's proposal to eliminate the PMMs order handling and opening obligations is consistent with the Act because PMMs will no longer have these obligations due to the introduction of Acceptable Trade Range and opening rotation functionality that is offered today on NOM and Phlx. Because the PMM will no longer have these obligations, the Exchange believes that it is appropriate to remove these rules. Back-Up PMM The Exchange's proposal to remove certain responsibilities of Primary Market Makers with respect to Back-Up Primary Market Maker assignments is consistent with the Act because the Exchange believes this function is not necessary. Today, in addition to market making obligations, the Primary Market Maker has certain order handling and other obligations as prescribed by Exchange Rules. Specifically, the obligations of a Primary Market Maker include the initiation of a trading rotation pursuant to ISE Gemini Rule 701, quoting and other obligations pursuant to ISE Gemini Rules 803 and 804, and financial requirements pursuant to ISE Gemini Rule 809. The Exchange is proposing to amend the obligations of a PMM only with regard to the initiation of a trading rotation pursuant to ISE Gemini Rule 701. The quoting and financial requirements rules shall remain the same. With the re- platform, a Back-Up Primary Market Maker is no longer necessary since the order handling obligations present on ISE Gemini today are not going to be present in the new system. Furthermore, the proposed Opening Process,\41\ obviates the importance of such a role. The Opening Process further describes alternative methods to open the market if such quotes are not entered at the opening by either of these market makers.\42\ The reliance on a market maker to initiate the opening process is no longer present within the proposed rule.\43\ --------------------------------------------------------------------------- \41\ See note 3 above. \42\ Id. \43\ Id. --------------------------------------------------------------------------- In addition, the Exchange does not believe there is an interest among market participants for the back-up assignment. Default Settings for Market Maker Risk Protections The Exchange's proposal to amend ISE Gemini Rule 804(g) to introduce default curtailment settings for the Market Maker Speed Bump and Market- [[Page 96123]] Wide Speed Bump is consistent with the Act as it will allow market makers to use Exchange set default values for these risk protections. Today, these market makers would have their quotes rejected if they fail to enter the required curtailment parameters. The default settings provide an alternative for market makers that have not entered their curtailment settings. Default settings will be announced to members who will have the opportunity to avoid the defaults by entering their own curtailment settings as required under the rule. Anti-Internalization The Exchange's proposal to amend the ISE Gemini Supplementary Material at .03 to Rule 804 to add Anti-Internalization is consistent with the Act because it is designed to assist market makers in reducing trading costs from unwanted executions potentially resulting from the interaction of executable buy and sell trading interest from the same firm when performing the same market making function. Minimum Quantity Orders The Exchange believes that removing minimum quantity orders would remove impediments to and perfect the mechanism of a free and open market and a national market system by simplifying functionality available on the Exchange and reducing complexity of its order types. Delay of Implementation The Exchange believes that delaying the implementation of the Directed Order and the Qualified Contingent Cross Order functionalities on ISE Gemini is consistent with the Act because the Exchange desires to rollout this functionality at a later date to allow additional time to rebuild this technology on the new platform. The Exchange is staging the replatform to provide maximum benefit to its Members while also ensuring a successful rollout. This delay will provide the Exchange additional time to implement this functionality, which is not being amended. Members have been given adequate notice of the implementation dates. The Exchange will continue to provide notifications to Members to ensure clarity about the delay of implementation of this functionality. The Exchange will note the applicable dates within the rule text. 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. As explained above, the Exchange is re-platforming it's trading system onto the Nasdaq INET architecture, and is making certain other changes to its trading functionality in connection with this migration. A majority of the functionality that is being added with the proposed rule change already exists on one or more Nasdaq Exchanges. As a result, the Exchange does not believe that the proposed rule change will impact the intense competition that exists in the options market. In fact, the Exchange believes that adopting this functionality on ISE Gemini will allow the Exchange to more effectively compete for order flow with other options markets. 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 up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-ISEGemini-2016-17 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-ISEGemini-2016-17. 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 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 offices of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-ISEGemini-2016-17, and should be submitted on or before January 19, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\44\ --------------------------------------------------------------------------- \44\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2016-31489 Filed 12-28-16; 8:45 am] BILLING CODE 8011-01-P
![96114 Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Notices
latency of access and connectivity that III. Solicitation of Comments For the Commission, by the Division of
best suits their needs. Trading and Markets, pursuant to delegated
Interested persons are invited to authority.34
Similarly, the Exchange believes that submit written data, views and Eduardo A. Aleman,
providing VCCs between Users does not arguments concerning the foregoing, Assistant Secretary.
impose any burden on competition that including whether the proposed rule [FR Doc. 2016–31485 Filed 12–28–16; 8:45 am]
is not necessary or appropriate in
change, as amended by Amendment BILLING CODE 8011–01–P
furtherance of the purposes of the Act
Nos. 1, 2, and 3 is consistent with the
because providing VCCs satisfies User
Exchange Act. Comments may be
demand for an alternative to cross
submitted by any of the following SECURITIES AND EXCHANGE
connects.
methods: COMMISSION
The Exchange believes that revising
the Fee Schedules to provide a more Electronic Comments
[Release No. 34–79677; File No. SR–
detailed description of the Access and
• Use the Commission’s Internet ISEGemini–2016–17]
Connectivity available to Users would
comment form (http://www.sec.gov/ Self-Regulatory Organizations; ISE
make such descriptions more accessible
rules/sro.shtml); or Gemini, LLC; Notice of Filing of
and transparent, thereby providing
market participants with clarity as to • Send an email to rule-comments@ Proposed Rule Change To Amend
what Access and Connectivity is sec.gov. Please include File No. SR– Various Rules in Connection With a
available to them and what the related NYSEArca–2016–89 on the subject line. System Migration to Nasdaq INET
costs are, thereby enhancing Technology
Paper Comments
competition by ensuring that all Users December 22, 2016.
have access to the same information • Send paper comments in triplicate Pursuant to Section 19(b)(1) of the
regarding Access and Connectivity. to Brent J. Fields, Secretary, Securities Securities Exchange Act of 1934
Finally, the Exchange operates in a and Exchange Commission, 100 F Street (‘‘Act’’),1 and Rule 19b–4 thereunder,2
highly competitive market in which NE., Washington, DC 20549–1090. notice is hereby given that on December
exchanges offer co-location services as a All submissions should refer to File No. 16, 2016, ISE Gemini, LLC (‘‘ISE
means to facilitate the trading and other SR–NYSEArca–2016–89. This file Gemini’’ or ‘‘Exchange’’) filed with the
market activities of those market number should be included on the Securities and Exchange Commission
participants who believe that co- subject line if email is used. To help the (‘‘SEC’’ or ‘‘Commission’’) the proposed
location enhances the efficiency of their Commission process and review your rule change as described in Items I and
operations. Accordingly, fees charged II below, which Items have been
comments more efficiently, please use
for co-location services are constrained prepared by the Exchange. The
only one method. The Commission will
by the active competition for the order Commission is publishing this notice to
post all comments on the Commission’s
flow of, and other business from, such solicit comments on the proposed rule
Internet Web site (http://www.sec.gov/ change from interested persons.
market participants. If a particular
rules/sro.shtml). Copies of the
exchange charges excessive fees for co- I. Self-Regulatory Organization’s
submission, all subsequent
location services, affected market Statement of the Terms of the Substance
participants will opt to terminate their amendments, all written statements
with respect to the proposed rule of the Proposed Rule Change
co-location arrangements with that
exchange, and adopt a possible range of change that are filed with the The Exchange proposes to amend
alternative strategies, including placing Commission, and all written various rules in connection with a
their servers in a physically proximate communications relating to the system migration to Nasdaq INET
location outside the exchange’s data proposed rule change between the technology.
center (which could be a competing Commission and any person, other than The text of the proposed rule change
exchange), or pursuing strategies less those that may be withheld from the is available on the Exchange’s Web site
dependent upon the lower exchange-to- public in accordance with the at www.ise.com, at the principal office
participant latency associated with co- provisions of 5 U.S.C. 552, will be of the Exchange, and at the
location. Accordingly, the exchange available for Web site viewing and Commission’s Public Reference Room.
charging excessive fees would stand to printing in the Commission’s Public II. Self-Regulatory Organization’s
lose not only co-location revenues but Reference Room, 100 F Street NE., Statement of the Purpose of, and the
also the liquidity of the formerly co- Washington, DC 20549 on official Statutory Basis for, the Proposed Rule
located trading firms, which could have business days between the hours of Change
additional follow-on effects on the 10:00 a.m. and 3:00 p.m. Copies of such
In its filing with the Commission, the
market share and revenue of the affected filing also will be available for
Exchange included statements
exchange. For the reasons described inspection and copying at the principal concerning the purpose of and basis for
above, the Exchange believes that the office of the Exchange. All comments the proposed rule change and discussed
proposed rule change reflects this received will be posted without change; any comments it received on the
competitive environment. the Commission does not edit personal
asabaliauskas on DSK3SPTVN1PROD with NOTICES
proposed rule change. The text of these
C. Self-Regulatory Organization’s identifying information from statements may be examined at the
Statement on Comments on the submissions. You should submit only places specified in Item IV below. The
Proposed Rule Change Received From information that you wish to make Exchange has prepared summaries, set
Members, Participants, or Others available publicly. All submissions forth in sections A, B, and C below, of
should refer to File No. SR–NYSEArca–
No written comments were solicited 2016–89, and should be submitted on or 34 17 CFR 200.30–3(a)(12).
or received with respect to the proposed before January 19, 2017. 1 15 U.S.C. 78s(b)(1).
rule change. 2 17 CFR 240.19b–4.
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![Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Notices 96115
the most significant aspects of such Trading Halts Specifically, during a Limit State or
statements. Cancellation of Quotes Straddle State: (1) Incoming Market
Orders are automatically rejected, and
A. Self-Regulatory Organization’s The Exchange proposes to amend ISE all unexecuted Market Orders pending
Statement of the Purpose of, and the Gemini Rule 702 entitled ‘‘Trading in the System are cancelled, and (2)
Statutory Basis for, the Proposed Rule Halts.’’ Specifically, the Exchange incoming Stop Orders (which become
Change proposes to amend Rule 702(a)(2) to Market Orders if elected) are
note that during a halt, the Exchange automatically rejected, and unexecuted
1. Purpose
will maintain existing orders on the Stop Orders pending in the System
The purpose of this rule change is to book, but not existing quotes prior to the cannot be elected and will be held until
amend certain rules to reflect the ISE halt, accept orders and quotes, and the end of the Limit State or Straddle
Gemini technology migration to a process cancels and modifications for State. In addition, ISE Gemini Rule
Nasdaq, Inc. (‘‘Nasdaq’’) supported quotes and orders, except that existing 703A(c) provides that when the security
architecture. INET is the proprietary quotes are cancelled. Today, ISE Gemini underlying an option class is in a Limit
core technology utilized across Nasdaq’s maintains existing orders and quotes State or Straddle State, the maximum
during a trading halt. With respect to quotation spread requirements for
global markets and utilized on The
cancels and modifications, this behavior market maker quotes contained in ISE
NASDAQ Options Market LLC
will not change. ISE Gemini does not Gemini Rule 803(b)(5) and the
(‘‘NOM’’), NASDAQ PHLX LLC (‘‘Phlx’’) have a quote purge today, so this continuous quotation requirements
and NASDAQ BX, Inc. (‘‘BX’’) functionality will be changed with the contained in ISE Gemini Rule 804(e)
(collectively, ‘‘Nasdaq Exchanges’’). The adoption of this trading rule. The shall be suspended.6
migration of ISE Gemini to the Nasdaq Exchange believes that purging quotes With the re-platform, the Exchange
INET architecture would result in upon a halt will remove uncertainty for will adopt opening limitation, Market
higher performance, scalability, and market participants. Order and Stop Order handling
more robust architecture. With this The Exchange proposes to conform consistent with handling today on
system migration, the Exchange intends the treatment of quotes and orders on Phlx.7 Specifically, proposed ISE
to adopt certain trading functionality ISE Gemini to Phlx Rule 1047(f) in Gemini Rule 702(d) will provide that
currently utilized at Nasdaq Exchanges. conjunction with the replatform of ISE during a Limit State and Straddle State
The functionality being adopted is Gemini. The Exchange desires to handle in the Underlying NMS stock: (i) The
described in this filing. halts in a similar manner as Phlx. Exchange will not open an affected
The Exchange is also separately option, (ii) provided the Exchange has
Limit Up-Limit Down
filing 3 a rule change to amend the
The Exchange also proposes to add executable. Such bids or offers shall not be
Exchange’s Opening Process. ISE
new ISE Gemini Rule 702(d) to replace included in the National Best Bid or National Best
Gemini will replace its current opening Offer calculations (Section VI(A)(3) of the Plan).
rule text currently contained in ISE
process at Rule 701 with Phlx’s Opening Gemini Rule 703A entitled ‘‘Trading
Trading in an NMS stock immediately enters a
Process.4 Limit State if the National Best Offer (Bid) equals
During Limit Up-Limit Down States in but does not cross the Lower (Upper) Price Band
The Exchange intends to begin Underlying Securities.’’ Proposed ISE (Section VI(B)(1) of the Plan. Trading for an NMS
implementation of the proposed rule Gemini Rule 702(d) is similar to stock exits a Limit State if, within 15 seconds of
entering the Limit State, all Limit State Quotations
changes in Q1 2017. The migration will language currently in Phlx Rule 1047(d), were executed or canceled in their entirety. If the
be on a symbol by symbol basis, and the which provides for Exchange handling market does not exit a Limit State within 15
Exchange will issue an alert to members due to extraordinary market volatility. seconds, then the Primary Listing Exchange would
Currently ISE Gemini Rule 703A(a) and declare a five-minute trading pause pursuant to
in the form of an Options Trader Alert Section VII of the Plan, which would be applicable
to provide notification of the symbols (b) provides modified order handling to all markets trading the security. The primary
that will migrate and the relevant dates. procedures when a security underlying listing market would declare a Trading Pause in an
an options class traded on the Exchange NMS stock; upon notification by the primary listing
Generally enters a Limit State or Straddle State market, the Processor would disseminate this
information to the public. No trades in that NMS
under the Plan to Address Extraordinary stock could occur during the trading pause, but all
With the re-platform, the Exchange
Market Volatility (the ‘‘Plan’’).5 bids and offers may be displayed (Section VII(A) of
will now be built on the Nasdaq INET the Plan). In addition, the Plan defines a Straddle
architecture, which allows certain 5 Unless otherwise specified, capitalized terms State as when the National Best Bid (Offer) is below
trading system functionality to be used in this rule filing are based on the defined (above) the Lower (Upper) Price Band and the NMS
terms of the Plan. As set forth in more detail in the stock is not in a Limit State. For example, assume
performed in parallel. The Exchange the Lower Price Band for an NMS Stock is $ 9.50
Plan, Price Bands consisting of a Lower Price Band
believes that this architecture change and an Upper Price Band for each NMS Stock are and the Upper Price Band is $ 10.50, such NMS
will improve the member experience by calculated by the Processors (Section V(A) of the stock would be in a Straddle State if the National
reducing overall latency compared to Plan). When the National Best Bid (Offer) is below Best Bid were below $ 9.50, and therefore
(above) the Lower (Upper) Price Band, the unexecutable, and the National Best Offer were
the current ISE Gemini system because above $ 9.50 (including a National Best Offer that
Processors shall disseminate such National Best Bid
of the manner in which the system is (Offer) with an appropriate flag identifying it as could be above $ 10.50). If an NMS stock is in a
segregated into component parts to unexecutable. When the National Best Bid (Offer) Straddle State and trading in that stock deviates
is equal to the Upper (Lower) Price Band, the from normal trading characteristics, the Primary
handle processing. Listing Exchange may declare a trading pause for
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Processors shall distribute such National Best Bid
(Offer) with an appropriate flag identifying it as a that NMS stock if such Trading Pause would
3 See SR–ISEGemini–2016–18 (not yet published). Limit State Quotation (Section VI(A) of the Plan). support the Plan’s goal to address extraordinary
4 See Phlx Rule 1017. See also Securities All trading centers in NMS stocks must maintain market volatility.
6 The time periods associated with Limit States
Exchange Act Release No. 79274 (November 9, written policies and procedures that are reasonably
2016), 81 FR 80694 (November 16, 2016) (SR–Phlx– designed to prevent the display of offers below the and Straddle States are not considered by the
2017–79) (notice of Filing of Partial Amendment Lower Price Band and bids above the Upper Price Exchange when evaluating whether a market maker
No. 2 and Order Granting Approval of a Proposed Band for NMS stocks. Notwithstanding this complied with the continuous quotation
Rule Change, as Modified by Partial Amendment requirement, the Processor shall display an offer requirements contained in Rule 804(e).
No. 2, to Amend PHLX Rule 1017, Openings in below the Lower Price Band or a bid above the 7 See proposed ISE Gemini Rule 702(d)(ii) and
Options). Upper Price Band, but with a flag that it is non- (iii) [sic].
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![96116 Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Notices
opened an affected option for trading, Lastly, ISE Gemini does not currently the current behavior today on ISE
the Exchange shall reject Market Orders, elect Stop Orders that are pending in the Gemini and will not be changing.
as defined in ISE Gemini Rule 715(a), System during a Limit or Straddle State. As discussed above, Phlx Rule 1047(c)
and shall notify Members of the reason Under the proposal, and in-line with the provides that in the event the Exchange
for such rejection, and (iii) provided the Phlx implementation, Stop Orders that halts trading, all trading in the affected
Exchange has opened an affected option are pending in the System during a option shall be halted. This is
for trading, the Exchange will elect Stop Limit or Straddle State will be elected, interpreted to restrict executions after a
Orders if the condition is met, and, if conditions for such election are met, halt unless there is a specific rule
because they become Market Orders, however because they become Market specifying that such trades should take
shall cancel them back and notify Orders will be cancelled back to the place. The Exchange is proposing to add
Members of the reason for such Member with a reason for such more specificity into the relevant rules.
rejection. The language in proposed ISE rejection. With respect to Block Order
Gemini Rule 703(d)(iv) concerning the While the implementation of Market Mechanism, Facilitation Mechanism, or
maximum quotation spread and Stop Order handling varies from Solicited Order Mechanism, the
requirements for market maker quotes ISE Gemini today, both the current and Exchange notes that the current
and the continuous quotation proposed Rule provide for protections behavior is consistent with Phlx Rule
requirements suspensions are the same from erroneous executions in a highly 1047(c) generally, where all trading in
language currently contained in ISE volatile period.9 The Exchange believes the affected option shall be halted.10 In
Gemini Rule 703A(c). consistency across the six options the event of a trading halt, terminating
These amendments differ in certain markets operated by Nasdaq, Inc. these auction mechanisms and not
respects from the manner in which ISE provides clarity for Members as to how executing eligible interest will provide
Gemini operates today during a Limit their orders, as well as the opening certainty to participants in regard to
State or Straddle State. The current ISE process, will be handled in a Limit or how their interest will be handled.
Gemini rule does not address the Straddle State. Memorializing the manner in which the
opening. The Exchange proposes to system will handle orders during a
Auction Handling During a Trading Halt trading halt will provide transparency
adopt rule text to provide for how the
Exchange shall treat the opening The Exchange proposes to amend for the benefit of members and
rotation.8 The opening in an option will various rules to add detail to ISE Gemini investors.
not commence in the event that the rules to account for the impact of a
Market Order Spread Protection
underlying NMS stock is open, but has trading halt on the Exchange’s auction
entered into a Limit State or Straddle mechanisms. The Exchange proposes to The Exchange proposes to amend ISE
State. If this occurs, the opening will memorialize within ISE Gemini Rule Gemini Rule 711, entitled ‘‘Acceptance
only commence and complete if the 723, entitled ‘‘Price Improvement of Quotes and Orders’’ to adopt a new
underlying NMS stock stays out of a Mechanism for Crossing Transactions’’ mandatory risk protection entitled
Limit or Straddle State. Accordingly, the manner in which a trading halt will Market Order Spread Protection. ISE
proposed ISE Gemini Rule 702(d)(i) [sic] impact an order entered into PIM once Gemini does not have a similar feature
will provide that the Exchange will not it is migrated to the INET architecture. today. This mandatory feature is
open an affected option. As a result, if Today, if a trading halt is initiated currently offered on NOM to protect
an opening process is occurring, it will after an order is entered into the Price Market Orders from being executed in
cease and then start the opening process Improvement Mechanism (‘‘PIM’’) on very wide markets.11
ISE Gemini, such auction is terminated Pursuant to proposed ISE Gemini
from the beginning once the Limit State
and eligible interest is executed. The Rule 711(c), if the NBBO is wider than
or Straddle State is no longer occurring.
Exchange proposes to amend today’s a preset threshold at the time a Market
In addition, ISE Gemini currently
current behavior and instead terminate Order is received, the order will be
cancels Market Orders pending in the
the auction and not execute eligible rejected. For example, if the Market
System upon initiation of a Limit or
interest when a trading halt occurs. In Order Spread Protection is set to $20.00,
Straddle State. Under the proposal to
the event of a trading halt, terminating and a Market Order to buy is received
adopt the Phlx rule and implementation
the auction and not executing eligible while the NBBO is $1.00–$50.00, such
of the Limit Up-Limit Down procedures,
interest will provide certainty to Market Order will be rejected. The
Market Orders pending in the System
participants in regard to how their proposed feature would assist with the
will continue to be processed regardless
interest will be handled. Memorializing maintenance of fair and orderly markets
of the Limit or Straddle State. The
the manner in which the system will by mitigating the risks associated with
Exchange believes this is a reasonable
handle orders entered into PIM during errors resulting in executions at prices
handling of Market Orders in the system
a trading halt will provide transparency that are away from the Best Bid or Offer
since these orders are only pending in
for the benefit of members and and potentially erroneous. Further the
the System if they are exposed at the
investors. proposal protects investors from
NBBO pursuant to Supplementary
The Exchange proposes an potentially receiving executions away
Material .02 to Rule 1901. If at the end
amendment to ISE Gemini Rule 716,
of the exposure period the affected 10 See Phlx Rule 1047(c).
entitled ‘‘Block Trades’’ to memorialize
underlying is in a Limit or Straddle 11 See NOM Rules at Chapter VI, Section 6(c).
that if a trading halt is initiated after an
State, the Market Order will be
asabaliauskas on DSK3SPTVN1PROD with NOTICES
NOM’s current rule states, ‘‘System Orders that are
order is entered into the Block Order
cancelled with no execution occurring. Market Orders will be rejected if the best of the
Mechanism, Facilitation Mechanism, or NBBO and the internal market BBO (the ‘‘Reference
If at the end of the exposure period the
Solicited Order Mechanism, such BBO’’) is wider than a preset threshold at the time
underlying is no longer in a Limit or the order is received by the System.’’ NOM has two
auction will also be automatically
Straddle State, the Market Order will be order types, Price-Improving and Post-Only Orders,
terminated without execution. This is
handled under the normal operation of which result in non-displayed pricing that may
the rules. cause the internal market BBO to be better than the
9 The Exchange is introducing a Phlx protection, NBBO. ISE Gemini does not have similar non-
Acceptable Trade Range, into ISE [sic] Rules as displayed order types and therefore the reference to
8 See note 3 above. discussed within this rule change. the internal market BBO is not necessary.
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![Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Notices 96123
Wide Speed Bump is consistent with necessary or appropriate in furtherance file number should be included on the
the Act as it will allow market makers of the purposes of the Act. As explained subject line if email is used.
to use Exchange set default values for above, the Exchange is re-platforming To help the Commission process and
these risk protections. Today, these it’s trading system onto the Nasdaq review your comments more efficiently,
market makers would have their quotes INET architecture, and is making certain please use only one method. The
rejected if they fail to enter the required other changes to its trading functionality
Commission will post all comments on
curtailment parameters. The default in connection with this migration.
A majority of the functionality that is the Commission’s Internet Web site
settings provide an alternative for
market makers that have not entered being added with the proposed rule (http://www.sec.gov/rules/sro.shtml).
their curtailment settings. Default change already exists on one or more Copies of the submission, all subsequent
settings will be announced to members Nasdaq Exchanges. As a result, the amendments, all written statements
who will have the opportunity to avoid Exchange does not believe that the with respect to the proposed rule
the defaults by entering their own proposed rule change will impact the change that are filed with the
curtailment settings as required under intense competition that exists in the Commission, and all written
the rule. options market. In fact, the Exchange communications relating to the
believes that adopting this functionality proposed rule change between the
Anti-Internalization Commission and any person, other than
on ISE Gemini will allow the Exchange
The Exchange’s proposal to amend to more effectively compete for order those that may be withheld from the
the ISE Gemini Supplementary Material flow with other options markets. public in accordance with the
at .03 to Rule 804 to add Anti- provisions of 5 U.S.C. 552, will be
Internalization is consistent with the C. Self-Regulatory Organization’s
Statement on Comments on the available for Web site viewing and
Act because it is designed to assist printing in the Commission’s Public
market makers in reducing trading costs Proposed Rule Change Received From
Members, Participants, or Others Reference Room on official business
from unwanted executions potentially days between the hours of 10:00 a.m.
resulting from the interaction of No written comments were either and 3:00 p.m. Copies of such filing also
executable buy and sell trading interest solicited or received. will be available for inspection and
from the same firm when performing the
III. Date of Effectiveness of the copying at the principal offices of the
same market making function.
Proposed Rule Change and Timing for Exchange. All comments received will
Minimum Quantity Orders Commission Action be posted without change; the
The Exchange believes that removing Within 45 days of the date of Commission does not edit personal
minimum quantity orders would publication of this notice in the Federal identifying information from
remove impediments to and perfect the Register or within such longer period submissions. You should submit only
mechanism of a free and open market up to 90 days (i) as the Commission may information that you wish to make
and a national market system by designate if it finds such longer period available publicly. All submissions
simplifying functionality available on to be appropriate and publishes its should refer to File Number SR–
the Exchange and reducing complexity reasons for so finding or (ii) as to which ISEGemini–2016–17, and should be
of its order types. the self-regulatory organization submitted on or before January 19, 2017.
Delay of Implementation consents, the Commission will: For the Commission, by the Division of
(A) By order approve or disapprove Trading and Markets, pursuant to delegated
The Exchange believes that delaying such proposed rule change, or
the implementation of the Directed authority.44
(B) institute proceedings to determine
Order and the Qualified Contingent whether the proposed rule change Eduardo A. Aleman,
Cross Order functionalities on ISE should be disapproved. Assistant Secretary.
Gemini is consistent with the Act [FR Doc. 2016–31489 Filed 12–28–16; 8:45 am]
because the Exchange desires to rollout IV. Solicitation of Comments
BILLING CODE 8011–01–P
this functionality at a later date to allow Interested persons are invited to
additional time to rebuild this submit written data, views, and
technology on the new platform. The arguments concerning the foregoing,
Exchange is staging the replatform to including whether the proposed rule
provide maximum benefit to its change is consistent with the Act.
Members while also ensuring a Comments may be submitted by any of
successful rollout. This delay will the following methods:
provide the Exchange additional time to
Electronic Comments
implement this functionality, which is
not being amended. Members have been • Use the Commission’s Internet
given adequate notice of the comment form (http://www.sec.gov/
implementation dates. The Exchange rules/sro.shtml); or
will continue to provide notifications to • Send an email to rule-comments@
Members to ensure clarity about the sec.gov. Please include File Number SR–
ISEGemini–2016–17 on the subject line.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
delay of implementation of this
functionality. The Exchange will note Paper Comments
the applicable dates within the rule text.
• Send paper comments in triplicate
B. Self-Regulatory Organization’s to Secretary, Securities and Exchange
Statement on Burden on Competition Commission, 100 F Street NE.,
The Exchange does not believe that Washington, DC 20549–1090.
the proposed rule change will impose All submissions should refer to File
any burden on competition not Number SR–ISEGemini–2016–17. This 44 17 CFR 200.30–3(a)(12).
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Document Created: 2016-12-29 01:58:08
Document Modified: 2016-12-29 01:58:08
| 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 96114 |
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