81_FR_96386 81 FR 96136 - Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To Permit Nasdaq Execution Services, LLC To Become an Affiliated Member of the Exchange To Perform Certain Routing and Other Functions

81 FR 96136 - Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To Permit Nasdaq Execution Services, LLC To Become an Affiliated Member of the Exchange To Perform Certain Routing and Other Functions

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 250 (December 29, 2016)

Page Range96136-96140
FR Document2016-31479

Federal Register, Volume 81 Issue 250 (Thursday, December 29, 2016) 
[Federal Register Volume 81, Number 250 (Thursday, December 29, 2016)]
[Notices]
[Pages 96136-96140]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-31479]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79664; File No. SR-ISEGemini-2016-16]


Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing 
of Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To 
Permit Nasdaq Execution Services, LLC To Become an Affiliated Member of 
the Exchange To Perform Certain Routing and Other Functions

December 22, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 9, 2016, ISE Gemini, LLC (``ISE Gemini'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change. On December 20, 2016, the Exchange filed 
Amendment No. 1 to the proposed rule change, which amended and replaced 
the Form 19b-4, and Exhibit 1 thereto, in their entirety. On December 
20, 2016, the Exchange filed Amendment No. 2 to the proposed rule 
change.\3\ The proposed rule change, as modified by Amendment Nos. 1 
and 2, is described in Items I, II, and III below, which Items have 
been prepared by the Exchange. The Commission is publishing this notice 
to solicit comments on the proposed rule change, as modified by 
Amendment Nos. 1 and 2, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 2 amended the description of one of the 
inbound routing conditions that would apply. Specifically, the 
Exchange modified the third condition to specify that the report 
that FINRA will provided to the Exchange's chief regulatory officer 
on a quarterly basis will quantify all alerts, of which the Exchange 
or FINRA (rather than solely FINRA) are aware, that identify Nasdaq 
Execution Services, LLC as a participant that has potentially 
violated Commission or Exchange rules.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to (1) permit the Exchange to receive inbound 
orders in options routed through Nasdaq Execution Services, LLC 
(``NES'') from certain affiliated exchanges, as described in detail 
below, by establishing procedures designed to prevent potential 
informational advantages resulting from the affiliation with NES; and 
(2) grant the Exchange an exemption to permit NES, an affiliate of the 
Exchange, to become a Member of the Exchange in order to perform 
certain routing an [sic] other functions on behalf of the Exchange.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the filing is to permit ISE Gemini to receive 
inbound orders in options routed through Nasdaq Execution Services, LLC 
(``NES'') from certain affiliated exchanges, as described herein and 
establish procedures designed to prevent potential informational 
advantages resulting from the affiliation between ISE Gemini and NES. 
The Exchange requests approval to permit NES, an affiliate of the 
Exchange, to become a Member of the Exchange in order to perform 
inbound routing on behalf of the Exchange. The Exchange is also filing 
to permit ISE Gemini to route outbound orders through NES either 
directly or indirectly through a third

[[Page 96137]]

party routing broker-dealer \4\ to other market centers and perform 
other functions regarding the cancellation of orders and the 
maintenance of a NES error account.\5\
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    \4\ The ability to route orders to other exchanges using either 
the Exchange's affiliated broker-dealer (NES) or a third party 
unaffiliated broker-dealer, which the Exchange may choose to use, is 
for efficiency and potential cost savings.
    \5\ The ability to route orders to other exchanges using either 
the Exchange's affiliated broker-dealer (NES) or a third party 
unaffiliated broker-dealer, which the Exchange may choose to use, is 
for efficiency and potential cost savings. See ISE-2016-27 (not 
published) which amends ISE Chapter 19, Rules 1901, 1903, 1904 and 
1905. The ISE rule changes impact ISE Gemini because Chapter 19 is 
incorporated by reference into the ISE Gemini Rulebook.
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Restriction on Affiliation
    NES is a broker-dealer owned and operated by Nasdaq, Inc. NES is 
affiliated with International Securities Exchange, LLC (``ISE''), ISE 
Gemini, ISE Mercury LLC,\6\ NASDAQ PHLX LLC (``Phlx''), The NASDAQ 
Options Market LLC (``NOM'') and NASDAQ BX, Inc. (``BX''). For purposes 
of this filing the term ``Affiliated Entities'' shall refer to ISE, ISE 
Mercury, Phlx, NOM and BX (collectively ``Affiliated Entities''). 
Currently, NES is a member of Phlx, NOM and BX (collectively ``Nasdaq 
Exchanges'') and provides all options routing functions for Phlx, NOM 
and BX.\7\
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    \6\ ISE, ISE Gemini and ISE Mercury are collectively referred to 
as ``ISE Exchanges.''
    \7\ See Phlx Rule 1080(m) and Nasdaq and BX Rules at Chapter VI, 
Section 11.
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    Today, Phlx Rule 985 (Affiliation and Ownership Restrictions), The 
NASDAQ Stock Market LLC (``Nasdaq'') Rule 2160 (Restrictions on 
Affiliation) \8\ and BX Rule 2140 (Restrictions on Affiliation) 
currently prohibit the Nasdaq Exchanges or any entity with which it is 
affiliated from, directly or indirectly, acquiring or maintaining an 
ownership interest in, or engaging in a business venture with, a Nasdaq 
Exchange member or an affiliate of a Nasdaq Exchange member in the 
absence of an effective filing under 19(b) of the Act. Specifically, in 
connection with prior filings, the Commission has expressed concern 
that the affiliation of an exchange with one of its members raises the 
potential for unfair competitive advantage and potential conflicts of 
interest between an exchange's self-regulatory obligations and its 
commercial interests.\9\ NES performs similar functions for the Nasdaq 
Exchanges and is a member of those three markets respectively.\10\
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    \8\ NOM is a facility of Nasdaq.
    \9\ Securities Exchange Act Release Nos. 71416 (January 28, 
2014), 79 FR 6244 (February 3, 2014) (SR-Phlx-2014-05); 71419 
(January 28, 2014), 79 FR 6247 (February 3, 2014) (SR-NASDAQ-2014-
007); and 714121 (January 28, 2014), 79 FR 6264 (February 3, 2014) 
(SR-BX-2014-003).
    \10\ See Securities Exchange Act Release Nos. 59721 (April 7, 
2009), 74 FR 17245 (April 14, 2009) (SR-Phlx-2009-32); 59779 (April 
16, 2009) 74 FR 18600 (April 23, 2009) (SR-Phlx-2009-32, Amendment 
No. 1) notice of filing of proposed rule change relating to enhanced 
electronic trading platform for options); 61667 (March 5, 2010), 75 
FR 11964 (March 12, 2016)(SR-Phlx-2010-36)(notice of filing and 
immediate effectiveness of proposed rule changes to establish 
procedures to prevent information advantages resulting from the 
affiliation between Phlx and NES); and 71416 (January 28, 2014), 79 
FR 6244 (February 3, 2014) (SR-Phlx-2014-05)(notice of filing and 
immediate effectiveness of proposed rule change to inbound routing 
of options orders). Nasdaq Options Services was the affiliated 
broker-dealer prior to a rule change to utilize NES, another 
affiliated broker-dealer of Nasdaq. See also Securities Exchange Act 
Release Nos. 63769 (January 25, 2011), 76 FR 5423 (January 31, 2011) 
(SR-BX-2011-003); 63859 (February 7, 2011), 76 FR 8391 (February 14, 
2011) (SR-BX-2011-007) (notice of filing of proposed rule change 
relating to permanent approval of the BX and NES inbound routing 
relationship); 71420 (January 28, 2014), 79 FR 6256 (February 3, 
2014)(SR-BX-2014-004)(notice of filing and immediate effectiveness 
of proposed rule change to inbound routing). See also Securities 
Exchange Act Release Nos. 65554 (October 13, 2011), 76 FR 65311 
(October 20, 2011)(SR-NASDAQ-2011-142); 71418 (January 28, 2014), 79 
FR 6262 (February 3, 2014)(SR-NASDAQ-2014-008)(notice of filing and 
immediate effectiveness of proposed rule change to inbound routing).
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    Similarly, NES would be prohibited from becoming an ISE Gemini 
member pursuant to ISE Gemini Rule 309, titled ``Limitation on 
Affiliation between the Exchange and Members,'' without Commission 
approval. Specifically, a Member may not become an affiliate of the 
Exchange, or any facility of the Exchange, or any entity with which the 
Exchange or any facility of the Exchange is affiliated such as the 
Affiliated Entities. This rule change requests permission from the 
Commission to allow NES, an affiliate of ISE Gemini to become a Member 
of ISE Gemini for the purpose of performing certain functions, 
including, but not limited to receiving inbound orders from one of the 
Affiliated Entities.
    In order for NES to be a Member of ISE Gemini, the Exchange 
proposes to permit the acceptance of inbound orders that NES routes in 
its capacity as a facility of the Affiliated Exchanges \11\ subject to 
certain limitations and conditions as follows:
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    \11\ The Exchange notes that ISE and ISE Mercury are separately 
filing rule changes to permit NES to be a Member of ISE and ISE 
Mercury for the purpose of performing certain routing and other 
functions, including, but not limited to receiving inbound orders 
from other entities that are affiliated with NES such as the 
Affiliated Entities. See SR-ISE-2016-27 and SR-ISEMercury-2016-22 
(both not published).
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     First, ISE Gemini shall maintain a Regulatory Services 
Agreement (``RSA'') with FINRA, as well as an agreement pursuant to 
Rule 17d-2 under the Act (``17d-2 Agreement'').\12\ Pursuant to the RSA 
and the 17d-2 Agreement, FINRA will be allocated regulatory 
responsibilities to review NES's compliance with certain Exchange 
rules.\13\ Pursuant to the RSA, however, ISE Gemini retains ultimate 
responsibility for enforcing its rules with respect to NES.
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    \12\ 17 CFR 240.17d-2. FINRA will review NES' compliance for 
certain common rules. The RSA with FINRA specifies the types of 
business activities that NES may undertake and it also indicates the 
obligations to which NES is subject under the RSA. Among other 
things, NES must maintain a certain amount of net capital pursuant 
to SEC Rule 15c3-1(a)(1)(ii) and operate pursuant to SEC Rule 15c3-
3(k)(2)(ii). NES is permitted to route orders in options to the 
appropriate market center for execution in accordance with member 
order and requirements.
    \13\ NES is also subject to independent oversight by FINRA, its 
designated examining authority, for compliance with financial 
responsibility requirements.
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     Second, FINRA will monitor NES for compliance with the 
Exchange's trading rules, and will collect and maintain certain related 
information.\14\
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    \14\ Pursuant to the RSA, both FINRA and ISE Gemini shall 
collect and maintain all alerts, complaints, investigations and 
enforcement actions in which NES (in its capacity as a facility of 
the Affiliated Entities) is identified as a participant that has 
potentially violated applicable Commission or Exchange rules. The 
Exchange and FINRA shall retain these records in an easily 
accessible manner in order to facilitate any potential review 
conducted by the Commission's Office of Compliance Inspections and 
Examinations.
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     Third, FINRA will provide a report to the Exchange's chief 
regulatory officer (``CRO''), on a quarterly basis, that: (i) 
Quantifies all alerts (of which the Exchange or FINRA is aware) that 
identify NES as a participant that has potentially violated Commission 
or Exchange rules, and (ii) lists all investigations that identify NES 
as a participant that has potentially violated Commission or Exchange 
rules.
     Fourth, ISE Gemini has in place Rule 309. The Exchange 
proposes to adopt a new paragraph (b) to Rule 309 to state that Nasdaq, 
Inc., as the holding company owning ISE Gemini and NES, to [sic] 
establish and maintain procedures and internal controls reasonably 
designed to ensure that NES does not develop or implement changes to 
its system, based on non-public information obtained regarding planned 
changes to ISE Gemini's system, obtained as a result of its affiliation 
with the Exchange, until such information is available generally to 
similarly situated Exchange Members, in connection with the provision 
of inbound order routing to the Exchange.\15\
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    \15\ Similarly, Phlx Rule 985 also prohibits a Phlx member from 
being or becoming an affiliate of Phlx, or an affiliate of an entity 
affiliated with Phlx, in the absence of an effective filing under 
Section 19(b). See Phlx Rule 985(b)(1)(B). Phlx filed a rule 
proposal and received approval based on meeting the four conditions 
specified above to protect the independence of the Exchange's 
regulatory responsibility with respect to NES, and has demonstrated 
that NES cannot use any information advantage it may have because of 
its affiliation with the Exchange.

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[[Page 96138]]

    The Exchange also proposes to add the letter ``(a)'' in front of 
the existing paragraph in Rule 309.
Inbound Routing
    ISE Gemini Rule 309 is being amended to add rule language similar 
to Phlx Rule 985(c)(2). This new rule text provides that Nasdaq, Inc. 
which owns NES and ISE Gemini, shall establish and maintain procedures 
and internal controls reasonably designed to ensure that NES does not 
develop or implement changes to its system on the basis of non-public 
information regarding planned changes to the Exchange's systems, 
obtained as a result of its affiliation with the Exchange, until such 
information is available generally to Exchange members in connection 
with the provision of inbound routing to the Exchange.
    By meeting the conditions described above under Restrictions on 
Affiliation, ISE Gemini will have set up mechanisms that protect the 
independence of ISE Gemini's regulatory responsibilities, with respect 
to NES, as well as demonstrate that NES cannot use any information 
advantage it may have because of its affiliation with ISE Gemini.
    The Exchange has approval from Financial Regulatory Authority 
(``FINRA'') \16\ and The Options Clearing Corporation (``OCC'') \17\ 
for NES to perform these functions.
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    \16\ The Membership Agreement as between NES and FINRA, dated 
January 15, 2014, provides that NES may ``[e]ngage in the following 
types of business: Route orders in equities and options to the 
appropriate market center for execution in accordance with member 
order and requirements.''
    \17\ On December 5, 2013 OCC provided NES membership approval.
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    The Exchange notes that the Nasdaq Exchanges are separately filing 
rule changes to permit NES to route orders inbound from ISE Gemini to 
the Nasdaq Exchanges.\18\
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    \18\ See SR-NASDAQ-2016-169, SR-Phlx-2016-120 and SR-BX-2016-068 
(not published).
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Outbound Routing
    ISE has rules in place in Chapter 19 related to routing orders, 
which rules impact routing on ISE Gemini because those rules are 
incorporated by reference. Today, ISE Gemini utilizes Linkage Handlers 
\19\ to route orders. These Linkage Handlers are unaffiliated with ISE 
Gemini. The Exchange proposes to have NES route, either directly to 
other options exchanges or indirectly through third-party routing 
brokers on behalf of ISE Gemini.\20\ With the proposal, regardless of 
whether a third-party routing broker is utilized, all options routing 
will go through NES, however the Exchange could determine to direct NES 
to route orders to certain exchanges through a routing broker rather 
than routing an order directly. In those cases, orders are submitted to 
the third-party routing broker through NES, and the third-party routing 
broker routes the orders to the routing destination in its name.\21\ 
Specifically, within that proposal ISE proposes to amend Rule 1903 to 
adopt new language similar to Phlx Rule 1080(m).\22\
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    \19\ A Linkage Handler is a broker that is unaffiliated with the 
Exchange with which the Exchange has contracted to provide Routing 
Services, as that term is defined in Rule 1903, by routing ISO(s) to 
other exchange(s) as agent on behalf of Public Customer and Non-
Customer Orders according to the requirements of Rule 1901 
(prohibition on trade-throughs) and Rule 1902 (prohibition on locked 
and crossed markets). See Supplementary Material .03 to ISE Rule 
1901.
    \20\ See SR-ISE-2016-27 (not published). This proposed rule 
change proposes to replace Linkage Handlers with NES for the purpose 
of outbound routing and to establish rules for the cancellation or 
[sic] orders and maintenance of an error account.
    \21\ Id.
    \22\ Id.
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    ISE also proposed to amend Rule 1904 to replace the rule text with 
rule text similar to Phlx Rule 1080(m)(v) to provide general authority 
for ISE or NES to cancel orders in order to maintain fair and orderly 
markets when technical system issues are occurring, and set forth the 
manner in which error positions may be handled by the ISE or NES.\23\
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    \23\ Id.
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    Rule 1901 is being amended to remove references to Linkage Handlers 
along with other references in Rules 1903.\24\ Finally Rule 1905 
concerning error accounts is being deleted within that proposal.\25\
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    \24\ Id.
    \25\ Id.
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    The Exchange is proposing that NES be permitted to perform the same 
functions pursuant to the same conditions with respect to the outbound 
routing of orders, cancellation or orders, and the handling of error 
positions as set forth in the ISE proposal.
    The Exchange also proposes to amend Rule 705 to remove the rule 
text in Rule 705(d)(4) which provided an exception to the limits on 
compensation for Linkage Handlers. NES is replacing the Linkage 
Handlers for purposes of routing options orders from the ISE Exchanges. 
Today, Phlx does not have a similar provision and ISE is removing it 
from this rule.
Implementation
    The Exchange notes that with respect to the Rules in Chapter 19, 
Rules 1901, 1903, 1904 and 1905, these rules impact not only the ISE 
market but also ISE Gemini because Chapter 19 is incorporated by 
reference into the ISE Gemini Rulebook. ISE Gemini will be implemented 
in Q1 2017 on a symbol by symbol basis. The Exchange will add notations 
in the ISE Gemini Rulebook to cross reference the amended rule text and 
make clear the implementation date.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\26\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\27\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest, because the proposed rule change will allow the Exchange to 
receive inbound orders from each Affiliated Entity through NES, acting 
in its capacity as a facility of the respective Affiliated Entity, in a 
manner consistent with prior approvals and established protections. The 
Exchange believes that these conditions establish mechanisms that 
protect the independence of the Exchange's regulatory responsibility 
with respect to NES, as well as ensure that NES cannot use any 
information it may have because of its affiliation with the Exchange to 
its advantage.
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    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
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    Further, the Exchange notes that its proposal is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system because ISE Gemini will have set up mechanisms that 
protect the independence of ISE Gemini's regulatory responsibilities, 
with respect to NES, as well as demonstrate that NES cannot use any 
information advantage it may have because of its affiliation with ISE 
Gemini. The Exchange will not be granting any preferential access to 
information from the Exchange's Order Book to NES. As an affiliated 
routing broker, NES would not be treated differently than any other 
unaffiliated routing broker.

[[Page 96139]]

    The proposal should remove impediments to and perfect the mechanism 
of a free and open market and a national market system by providing 
customer order protection and by facilitating trading at away exchanges 
so customer orders trade at the best market price. The proposal should 
also protect investors and the public interest by fostering compliance 
with the Options Order Protection and Locked/Crossed Market Plan. In 
addition, the Exchange believes that the proposal is not designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers, because of the specific protections pertaining to the routing 
broker, in light of the potential conflict of interest where the member 
routing broker could have access to information regarding other 
members' orders or the routing of those orders. These protections 
include the Exchange's control over all routing logic as well as the 
confidentiality of routing information.\28\
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    \28\ See proposed Rule 1903(e).
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    The Exchange believes that its proposal related to the cancellation 
of orders and error account is consistent with the Act because NES's or 
the Exchange's ability to cancel orders during a technical or systems 
issue and to maintain an error account facilitates the smooth and 
efficient operations of the market.\29\ Specifically, the Exchange 
believes that allowing NES or the Exchange to cancel orders during a 
technical or systems issue would allow the Exchange to maintain fair 
and orderly markets.\30\ Moreover, the Exchange believes that allowing 
NES to assume error positions in an error account and to liquidate 
those positions, subject to the conditions set forth in the proposed 
amendments to Rule 1904 would be the least disruptive means to correct 
these errors, except in cases where NES can assign all such error 
positions to all affected members of the Exchange.\31\ Overall, the 
proposed amendments are designed to ensure full trade certainty for 
market participants and to avoid disrupting the clearance and 
settlement process.\32\ The proposed amendments are also designed to 
provide a consistent methodology for handling error positions in a 
manner that does not discriminate among members.\33\ The proposed 
amendments are also consistent with Section 6 of the Act insofar as 
they would require NES to establish controls to restrict the flow of 
any confidential information between the third-party broker and NES/the 
Exchange associated with the liquidation of error positions.\34\
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    \29\ See SR-ISE-2016-27 (not published).
    \30\ Id.
    \31\ Id.
    \32\ Id.
    \33\ Id.
    \34\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Receiving orders through NES 
does not raise any issues of intra-market competition because it 
involves inbound routing from an affiliated exchange. This proposal 
provides that Nasdaq, which owns NES and the Exchange, shall establish 
and maintain procedures and internal controls reasonably designed to 
ensure that NES does not develop or implement changes to its system on 
the basis of non-public information regarding planned changes to the 
Exchange's systems, obtained as a result of its affiliation with the 
Exchange, until such information is available generally to similarly 
situated Exchange members and member organizations in connection with 
the provision of inbound routing to the Exchange. Utilizing NES as the 
routing broker does not create any undue burden on inter-market 
competition because NES cannot use any information advantage it may 
have because of its affiliation with ISE Gemini. The Exchange will not 
be granting any preferential access to information from the Exchange's 
Order Book to NES. As an affiliated routing broker, NES would not be 
treated differently than any other unaffiliated routing broker.
    The proposal does not result in a burden on competition among 
exchanges, because there are many competing options exchanges that 
provide routing services, including through an affiliate. Further, the 
proposal does not raise issues of intra-market competition, because the 
Exchange's decision to route through a particular routing broker would 
impact all participants equally.
    With respect to the proposal to establish error accounts, the 
Exchange's proposal does not result in a burden on competition among 
exchanges because NES' or the Exchange's ability to cancel orders 
during a technical or systems issue and to maintain an error account 
facilitates the smooth and efficient operations of the market for all 
impacted members. The proposals regarding assumption of error positions 
and [sic] to liquidation of those positions ensures certainty for all 
impacted market participants. The proposal does not discriminate among 
Members.\35\
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    \35\ See SR-ISE-2016-27 (not published).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as modified by Amendment Nos. 1 and 2, is consistent with the 
Act. Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-ISEGemini-2016-16 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISEGemini-2016-16. 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

[[Page 96140]]

proposed rule change between the Commission and any person, other than 
those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ISEGemini-2016-16, and 
should be submitted on or before January 19, 2017.
For the Commission, by the Division of Trading and Markets, pursuant to 
delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31479 Filed 12-28-16; 8:45 am]
BILLING CODE 8011-01-P

96136 Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Notices III. Date of Effectiveness of the Reference Room, 100 F Street NE., is described in Items I, II, and III below, Proposed Rule Change and Timing for Washington, DC 20549 on official which Items have been prepared by the Commission Action business days between the hours of Exchange. The Commission is The foregoing rule change has become 10:00 a.m. and 3:00 p.m. Copies of such publishing this notice to solicit effective pursuant to Section filing also will be available for comments on the proposed rule change, 19(b)(3)(A)(ii) of the Act,21 and Rule inspection and copying at the principal as modified by Amendment Nos. 1 and 19b–4(f)(2) 22 thereunder. At any time office of the Exchange. All comments 2, from interested persons. within 60 days of the filing of the received will be posted without change; the Commission does not edit personal I. Self-Regulatory Organization’s proposed rule change, the Commission Statement of the Terms of Substance of summarily may temporarily suspend identifying information from submissions. You should submit only the Proposed Rule Change such rule change if it appears to the Commission that such action is information that you wish to make The Exchange proposes to (1) permit necessary or appropriate in the public available publicly. All submissions the Exchange to receive inbound orders interest, for the protection of investors, should refer to File Number SR–MIAX– in options routed through Nasdaq or otherwise in furtherance of the 2016–47, and should be submitted on or Execution Services, LLC (‘‘NES’’) from purposes of the Act. If the Commission before January 19, 2017. certain affiliated exchanges, as takes such action, the Commission shall For the Commission, by the Division of described in detail below, by institute proceedings to determine Trading and Markets, pursuant to delegated establishing procedures designed to whether the proposed rule should be authority.23 prevent potential informational approved or disapproved. Eduardo A. Aleman, advantages resulting from the affiliation Assistant Secretary. with NES; and (2) grant the Exchange an IV. Solicitation of Comments [FR Doc. 2016–31481 Filed 12–28–16; 8:45 am] exemption to permit NES, an affiliate of Interested persons are invited to BILLING CODE 8011–01–P the Exchange, to become a Member of submit written data, views, and the Exchange in order to perform certain arguments concerning the foregoing, routing an [sic] other functions on including whether the proposed rule SECURITIES AND EXCHANGE behalf of the Exchange. change is consistent with the Act. COMMISSION Comments may be submitted by any of II. Self-Regulatory Organization’s [Release No. 34–79664; File No. SR– Statement of the Purpose of, and the following methods: ISEGemini–2016–16] Statutory Basis for, the Proposed Rule Electronic Comments Change Self-Regulatory Organizations; ISE • Use the Commission’s Internet Gemini, LLC; Notice of Filing of comment form (http://www.sec.gov/ In its filing with the Commission, the Proposed Rule Change, as Modified by Exchange included statements rules/sro.shtml); or Amendment Nos. 1 and 2, To Permit • Send an email to rule-comments@ concerning the purpose of and basis for Nasdaq Execution Services, LLC To the proposed rule change and discussed sec.gov. Please include File Number SR– Become an Affiliated Member of the any comments it received on the MIAX–2016–47 on the subject line. Exchange To Perform Certain Routing proposed rule change. The text of these Paper Comments and Other Functions statements may be examined at the • Send paper comments in triplicate December 22, 2016. places specified in Item IV below. The to Brent J. Fields, Secretary, Securities Pursuant to Section 19(b)(1) of the Exchange has prepared summaries, set and Exchange Commission, 100 F Street Securities Exchange Act of 1934 forth in sections A, B, and C below, of NE., Washington, DC 20549–1090. (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 the most significant aspects of such All submissions should refer to File notice is hereby given that on December statements. Number SR–MIAX–2016–47. This file 9, 2016, ISE Gemini, LLC (‘‘ISE Gemini’’ A. Self-Regulatory Organization’s number should be included on the or ‘‘Exchange’’) filed with the Securities Statement of the Purpose of, and the subject line if email is used. To help the and Exchange Commission Statutory Basis for, the Proposed Rule Commission process and review your (‘‘Commission’’) the proposed rule Change comments more efficiently, please use change. On December 20, 2016, the only one method. The Commission will Exchange filed Amendment No. 1 to the 1. Purpose post all comments on the Commission’s proposed rule change, which amended Internet Web site (http://www.sec.gov/ The purpose of the filing is to permit and replaced the Form 19b–4, and ISE Gemini to receive inbound orders in rules/sro.shtml). Copies of the Exhibit 1 thereto, in their entirety. On submission, all subsequent options routed through Nasdaq December 20, 2016, the Exchange filed amendments, all written statements Execution Services, LLC (‘‘NES’’) from Amendment No. 2 to the proposed rule with respect to the proposed rule certain affiliated exchanges, as change.3 The proposed rule change, as change that are filed with the described herein and establish modified by Amendment Nos. 1 and 2, Commission, and all written procedures designed to prevent communications relating to the 23 17 CFR 200.30–3(a)(12). potential informational advantages proposed rule change between the 1 15 U.S.C. 78s(b)(1). resulting from the affiliation between ISE Gemini and NES. The Exchange asabaliauskas on DSK3SPTVN1PROD with NOTICES Commission and any person, other than 2 17 CFR 240.19b–4. those that may be withheld from the 3 Amendment No. 2 amended the description of requests approval to permit NES, an public in accordance with the one of the inbound routing conditions that would affiliate of the Exchange, to become a apply. Specifically, the Exchange modified the third Member of the Exchange in order to provisions of 5 U.S.C. 552, will be condition to specify that the report that FINRA will available for Web site viewing and provided to the Exchange’s chief regulatory officer perform inbound routing on behalf of printing in the Commission’s Public on a quarterly basis will quantify all alerts, of which the Exchange. The Exchange is also the Exchange or FINRA (rather than solely FINRA) filing to permit ISE Gemini to route are aware, that identify Nasdaq Execution Services, 21 15 U.S.C. 78s(b)(3)(A)(ii). LLC as a participant that has potentially violated outbound orders through NES either 22 17 CFR 240.19b–4(f)(2). Commission or Exchange rules. directly or indirectly through a third VerDate Sep<11>2014 18:41 Dec 28, 2016 Jkt 241001 PO 00000 Frm 00181 Fmt 4703 Sfmt 4703 E:\FR\FM\29DEN1.SGM 29DEN1

Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Notices 96137 party routing broker-dealer 4 to other similar functions for the Nasdaq pursuant to Rule 17d–2 under the Act market centers and perform other Exchanges and is a member of those (‘‘17d–2 Agreement’’).12 Pursuant to the functions regarding the cancellation of three markets respectively.10 RSA and the 17d–2 Agreement, FINRA orders and the maintenance of a NES Similarly, NES would be prohibited will be allocated regulatory error account.5 from becoming an ISE Gemini member responsibilities to review NES’s pursuant to ISE Gemini Rule 309, titled compliance with certain Exchange Restriction on Affiliation ‘‘Limitation on Affiliation between the rules.13 Pursuant to the RSA, however, NES is a broker-dealer owned and Exchange and Members,’’ without ISE Gemini retains ultimate operated by Nasdaq, Inc. NES is Commission approval. Specifically, a responsibility for enforcing its rules affiliated with International Securities Member may not become an affiliate of with respect to NES. Exchange, LLC (‘‘ISE’’), ISE Gemini, ISE the Exchange, or any facility of the • Second, FINRA will monitor NES Mercury LLC,6 NASDAQ PHLX LLC Exchange, or any entity with which the for compliance with the Exchange’s (‘‘Phlx’’), The NASDAQ Options Market Exchange or any facility of the Exchange trading rules, and will collect and LLC (‘‘NOM’’) and NASDAQ BX, Inc. is affiliated such as the Affiliated maintain certain related information.14 (‘‘BX’’). For purposes of this filing the Entities. This rule change requests • Third, FINRA will provide a report term ‘‘Affiliated Entities’’ shall refer to permission from the Commission to to the Exchange’s chief regulatory ISE, ISE Mercury, Phlx, NOM and BX allow NES, an affiliate of ISE Gemini to officer (‘‘CRO’’), on a quarterly basis, (collectively ‘‘Affiliated Entities’’). become a Member of ISE Gemini for the that: (i) Quantifies all alerts (of which Currently, NES is a member of Phlx, purpose of performing certain functions, the Exchange or FINRA is aware) that NOM and BX (collectively ‘‘Nasdaq including, but not limited to receiving identify NES as a participant that has Exchanges’’) and provides all options inbound orders from one of the potentially violated Commission or routing functions for Phlx, NOM and Affiliated Entities. Exchange rules, and (ii) lists all BX.7 In order for NES to be a Member of investigations that identify NES as a Today, Phlx Rule 985 (Affiliation and ISE Gemini, the Exchange proposes to participant that has potentially violated Ownership Restrictions), The NASDAQ permit the acceptance of inbound orders Commission or Exchange rules. Stock Market LLC (‘‘Nasdaq’’) Rule 2160 that NES routes in its capacity as a • Fourth, ISE Gemini has in place (Restrictions on Affiliation) 8 and BX facility of the Affiliated Exchanges 11 Rule 309. The Exchange proposes to Rule 2140 (Restrictions on Affiliation) subject to certain limitations and adopt a new paragraph (b) to Rule 309 currently prohibit the Nasdaq conditions as follows: to state that Nasdaq, Inc., as the holding Exchanges or any entity with which it • First, ISE Gemini shall maintain a company owning ISE Gemini and NES, is affiliated from, directly or indirectly, Regulatory Services Agreement (‘‘RSA’’) to [sic] establish and maintain acquiring or maintaining an ownership with FINRA, as well as an agreement procedures and internal controls interest in, or engaging in a business reasonably designed to ensure that NES venture with, a Nasdaq Exchange 10 See Securities Exchange Act Release Nos. does not develop or implement changes member or an affiliate of a Nasdaq 59721 (April 7, 2009), 74 FR 17245 (April 14, 2009) to its system, based on non-public (SR–Phlx–2009–32); 59779 (April 16, 2009) 74 FR Exchange member in the absence of an 18600 (April 23, 2009) (SR–Phlx–2009–32, information obtained regarding planned effective filing under 19(b) of the Act. Amendment No. 1) notice of filing of proposed rule changes to ISE Gemini’s system, Specifically, in connection with prior change relating to enhanced electronic trading obtained as a result of its affiliation with filings, the Commission has expressed platform for options); 61667 (March 5, 2010), 75 FR the Exchange, until such information is 11964 (March 12, 2016)(SR–Phlx–2010–36)(notice concern that the affiliation of an of filing and immediate effectiveness of proposed available generally to similarly situated exchange with one of its members raises rule changes to establish procedures to prevent Exchange Members, in connection with the potential for unfair competitive information advantages resulting from the the provision of inbound order routing advantage and potential conflicts of affiliation between Phlx and NES); and 71416 to the Exchange.15 (January 28, 2014), 79 FR 6244 (February 3, 2014) interest between an exchange’s self- (SR–Phlx–2014–05)(notice of filing and immediate regulatory obligations and its effectiveness of proposed rule change to inbound 12 17 CFR 240.17d–2. FINRA will review NES’ commercial interests.9 NES performs routing of options orders). Nasdaq Options Services compliance for certain common rules. The RSA was the affiliated broker-dealer prior to a rule with FINRA specifies the types of business change to utilize NES, another affiliated broker- activities that NES may undertake and it also 4 The ability to route orders to other exchanges dealer of Nasdaq. See also Securities Exchange Act indicates the obligations to which NES is subject using either the Exchange’s affiliated broker-dealer under the RSA. Among other things, NES must Release Nos. 63769 (January 25, 2011), 76 FR 5423 (NES) or a third party unaffiliated broker-dealer, maintain a certain amount of net capital pursuant (January 31, 2011) (SR–BX–2011–003); 63859 which the Exchange may choose to use, is for to SEC Rule 15c3–1(a)(1)(ii) and operate pursuant (February 7, 2011), 76 FR 8391 (February 14, 2011) efficiency and potential cost savings. to SEC Rule 15c3–3(k)(2)(ii). NES is permitted to 5 The ability to route orders to other exchanges (SR–BX–2011–007) (notice of filing of proposed rule change relating to permanent approval of the route orders in options to the appropriate market using either the Exchange’s affiliated broker-dealer BX and NES inbound routing relationship); 71420 center for execution in accordance with member (NES) or a third party unaffiliated broker-dealer, (January 28, 2014), 79 FR 6256 (February 3, order and requirements. which the Exchange may choose to use, is for 2014)(SR–BX–2014–004)(notice of filing and 13 NES is also subject to independent oversight by efficiency and potential cost savings. See ISE–2016– immediate effectiveness of proposed rule change to FINRA, its designated examining authority, for 27 (not published) which amends ISE Chapter 19, inbound routing). See also Securities Exchange Act compliance with financial responsibility Rules 1901, 1903, 1904 and 1905. The ISE rule Release Nos. 65554 (October 13, 2011), 76 FR 65311 requirements. changes impact ISE Gemini because Chapter 19 is (October 20, 2011)(SR–NASDAQ–2011–142); 71418 14 Pursuant to the RSA, both FINRA and ISE incorporated by reference into the ISE Gemini (January 28, 2014), 79 FR 6262 (February 3, Gemini shall collect and maintain all alerts, Rulebook. 2014)(SR–NASDAQ–2014–008)(notice of filing and complaints, investigations and enforcement actions 6 ISE, ISE Gemini and ISE Mercury are immediate effectiveness of proposed rule change to in which NES (in its capacity as a facility of the asabaliauskas on DSK3SPTVN1PROD with NOTICES collectively referred to as ‘‘ISE Exchanges.’’ inbound routing). Affiliated Entities) is identified as a participant that 7 See Phlx Rule 1080(m) and Nasdaq and BX 11 The Exchange notes that ISE and ISE Mercury has potentially violated applicable Commission or Rules at Chapter VI, Section 11. are separately filing rule changes to permit NES to Exchange rules. The Exchange and FINRA shall 8 NOM is a facility of Nasdaq. retain these records in an easily accessible manner be a Member of ISE and ISE Mercury for the 9 Securities Exchange Act Release Nos. 71416 purpose of performing certain routing and other in order to facilitate any potential review conducted (January 28, 2014), 79 FR 6244 (February 3, 2014) functions, including, but not limited to receiving by the Commission’s Office of Compliance (SR–Phlx–2014–05); 71419 (January 28, 2014), 79 inbound orders from other entities that are affiliated Inspections and Examinations. FR 6247 (February 3, 2014) (SR–NASDAQ–2014– with NES such as the Affiliated Entities. See SR– 15 Similarly, Phlx Rule 985 also prohibits a Phlx 007); and 714121 (January 28, 2014), 79 FR 6264 ISE–2016–27 and SR–ISEMercury–2016–22 (both member from being or becoming an affiliate of Phlx, (February 3, 2014) (SR–BX–2014–003). not published). Continued VerDate Sep<11>2014 18:41 Dec 28, 2016 Jkt 241001 PO 00000 Frm 00182 Fmt 4703 Sfmt 4703 E:\FR\FM\29DEN1.SGM 29DEN1

96138 Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Notices The Exchange also proposes to add These Linkage Handlers are unaffiliated similar provision and ISE is removing it the letter ‘‘(a)’’ in front of the existing with ISE Gemini. The Exchange from this rule. paragraph in Rule 309. proposes to have NES route, either Implementation directly to other options exchanges or Inbound Routing indirectly through third-party routing The Exchange notes that with respect ISE Gemini Rule 309 is being brokers on behalf of ISE Gemini.20 With to the Rules in Chapter 19, Rules 1901, amended to add rule language similar to the proposal, regardless of whether a 1903, 1904 and 1905, these rules impact Phlx Rule 985(c)(2). This new rule text third-party routing broker is utilized, all not only the ISE market but also ISE provides that Nasdaq, Inc. which owns options routing will go through NES, Gemini because Chapter 19 is NES and ISE Gemini, shall establish and however the Exchange could determine incorporated by reference into the ISE maintain procedures and internal to direct NES to route orders to certain Gemini Rulebook. ISE Gemini will be controls reasonably designed to ensure exchanges through a routing broker implemented in Q1 2017 on a symbol by that NES does not develop or implement rather than routing an order directly. In symbol basis. The Exchange will add changes to its system on the basis of those cases, orders are submitted to the notations in the ISE Gemini Rulebook to non-public information regarding third-party routing broker through NES, cross reference the amended rule text planned changes to the Exchange’s and the third-party routing broker routes and make clear the implementation systems, obtained as a result of its the orders to the routing destination in date. affiliation with the Exchange, until such its name.21 Specifically, within that information is available generally to 2. Statutory Basis proposal ISE proposes to amend Rule Exchange members in connection with 1903 to adopt new language similar to The Exchange believes that its the provision of inbound routing to the Phlx Rule 1080(m).22 proposal is consistent with Section 6(b) Exchange. ISE also proposed to amend Rule 1904 of the Act,26 in general, and furthers the By meeting the conditions described to replace the rule text with rule text objectives of Section 6(b)(5) of the Act,27 above under Restrictions on Affiliation, similar to Phlx Rule 1080(m)(v) to in particular, in that it is designed to ISE Gemini will have set up provide general authority for ISE or NES promote just and equitable principles of mechanisms that protect the to cancel orders in order to maintain fair trade, to remove impediments to and independence of ISE Gemini’s and orderly markets when technical perfect the mechanism of a free and regulatory responsibilities, with respect system issues are occurring, and set open market and a national market to NES, as well as demonstrate that NES forth the manner in which error system, and, in general to protect cannot use any information advantage it positions may be handled by the ISE or investors and the public interest, may have because of its affiliation with NES.23 because the proposed rule change will ISE Gemini. The Exchange has approval from Rule 1901 is being amended to allow the Exchange to receive inbound Financial Regulatory Authority remove references to Linkage Handlers orders from each Affiliated Entity (‘‘FINRA’’) 16 and The Options Clearing along with other references in Rules through NES, acting in its capacity as a Corporation (‘‘OCC’’) 17 for NES to 1903.24 Finally Rule 1905 concerning facility of the respective Affiliated perform these functions. error accounts is being deleted within Entity, in a manner consistent with The Exchange notes that the Nasdaq that proposal.25 prior approvals and established Exchanges are separately filing rule The Exchange is proposing that NES protections. The Exchange believes that changes to permit NES to route orders be permitted to perform the same these conditions establish mechanisms inbound from ISE Gemini to the Nasdaq functions pursuant to the same that protect the independence of the Exchanges.18 conditions with respect to the outbound Exchange’s regulatory responsibility routing of orders, cancellation or orders, with respect to NES, as well as ensure Outbound Routing and the handling of error positions as that NES cannot use any information it ISE has rules in place in Chapter 19 set forth in the ISE proposal. may have because of its affiliation with related to routing orders, which rules The Exchange also proposes to amend the Exchange to its advantage. impact routing on ISE Gemini because Rule 705 to remove the rule text in Rule Further, the Exchange notes that its those rules are incorporated by 705(d)(4) which provided an exception proposal is designed to promote just and reference. Today, ISE Gemini utilizes to the limits on compensation for equitable principles of trade, to remove Linkage Handlers 19 to route orders. Linkage Handlers. NES is replacing the impediments to and perfect the Linkage Handlers for purposes of mechanism of a free and open market or an affiliate of an entity affiliated with Phlx, in routing options orders from the ISE and a national market system because the absence of an effective filing under Section Exchanges. Today, Phlx does not have a 19(b). See Phlx Rule 985(b)(1)(B). Phlx filed a rule ISE Gemini will have set up proposal and received approval based on meeting mechanisms that protect the the four conditions specified above to protect the Exchange has contracted to provide Routing independence of ISE Gemini’s independence of the Exchange’s regulatory Services, as that term is defined in Rule 1903, by routing ISO(s) to other exchange(s) as agent on regulatory responsibilities, with respect responsibility with respect to NES, and has demonstrated that NES cannot use any information behalf of Public Customer and Non-Customer to NES, as well as demonstrate that NES advantage it may have because of its affiliation with Orders according to the requirements of Rule 1901 cannot use any information advantage it the Exchange. (prohibition on trade-throughs) and Rule 1902 may have because of its affiliation with (prohibition on locked and crossed markets). See 16 The Membership Agreement as between NES Supplementary Material .03 to ISE Rule 1901. ISE Gemini. The Exchange will not be and FINRA, dated January 15, 2014, provides that granting any preferential access to asabaliauskas on DSK3SPTVN1PROD with NOTICES 20 See SR–ISE–2016–27 (not published). This NES may ‘‘[e]ngage in the following types of business: Route orders in equities and options to proposed rule change proposes to replace Linkage information from the Exchange’s Order the appropriate market center for execution in Handlers with NES for the purpose of outbound Book to NES. As an affiliated routing accordance with member order and requirements.’’ routing and to establish rules for the cancellation broker, NES would not be treated 17 On December 5, 2013 OCC provided NES or [sic] orders and maintenance of an error account. 21 Id. differently than any other unaffiliated membership approval. 18 See SR–NASDAQ–2016–169, SR–Phlx–2016– 22 Id. routing broker. 23 Id. 120 and SR–BX–2016–068 (not published). 19 A Linkage Handler is a broker that is 24 Id. 26 15 U.S.C. 78f(b). unaffiliated with the Exchange with which the 25 Id. 27 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 18:41 Dec 28, 2016 Jkt 241001 PO 00000 Frm 00183 Fmt 4703 Sfmt 4703 E:\FR\FM\29DEN1.SGM 29DEN1

Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Notices 96139 The proposal should remove of any confidential information between impacted market participants. The impediments to and perfect the the third-party broker and NES/the proposal does not discriminate among mechanism of a free and open market Exchange associated with the Members.35 and a national market system by liquidation of error positions.34 C. Self-Regulatory Organization’s providing customer order protection B. Self-Regulatory Organization’s Statement on Comments on the and by facilitating trading at away Statement on Burden on Competition Proposed Rule Change Received From exchanges so customer orders trade at the best market price. The proposal The Exchange does not believe that Members, Participants, or Others should also protect investors and the the proposed rule change will impose No written comments were either public interest by fostering compliance any burden on competition not solicited or received. with the Options Order Protection and necessary or appropriate in furtherance of the purposes of the Act. Receiving III. Date of Effectiveness of the Locked/Crossed Market Plan. In Proposed Rule Change and Timing for addition, the Exchange believes that the orders through NES does not raise any issues of intra-market competition Commission Action proposal is not designed to permit unfair discrimination between because it involves inbound routing Within 45 days of the date of customers, issuers, brokers, or dealers, from an affiliated exchange. This publication of this notice in the Federal because of the specific protections proposal provides that Nasdaq, which Register or within such longer period (i) pertaining to the routing broker, in light owns NES and the Exchange, shall as the Commission may designate up to of the potential conflict of interest establish and maintain procedures and 90 days of such date if it finds such where the member routing broker could internal controls reasonably designed to longer period to be appropriate and have access to information regarding ensure that NES does not develop or publishes its reasons for so finding or other members’ orders or the routing of implement changes to its system on the (ii) as to which the Exchange consents, those orders. These protections include basis of non-public information the Commission shall: (a) By order the Exchange’s control over all routing regarding planned changes to the approve or disapprove such proposed logic as well as the confidentiality of Exchange’s systems, obtained as a result rule change, or (b) institute proceedings routing information.28 of its affiliation with the Exchange, until to determine whether the proposed rule The Exchange believes that its such information is available generally change should be disapproved. proposal related to the cancellation of to similarly situated Exchange members and member organizations in IV. Solicitation of Comments orders and error account is consistent with the Act because NES’s or the connection with the provision of Interested persons are invited to Exchange’s ability to cancel orders inbound routing to the Exchange. submit written data, views, and during a technical or systems issue and Utilizing NES as the routing broker does arguments concerning the foregoing, to maintain an error account facilitates not create any undue burden on inter- including whether the proposed rule the smooth and efficient operations of market competition because NES cannot change, as modified by Amendment the market.29 Specifically, the Exchange use any information advantage it may Nos. 1 and 2, is consistent with the Act. believes that allowing NES or the have because of its affiliation with ISE Comments may be submitted by any of Exchange to cancel orders during a Gemini. The Exchange will not be the following methods: technical or systems issue would allow granting any preferential access to Electronic Comments the Exchange to maintain fair and information from the Exchange’s Order orderly markets.30 Moreover, the Book to NES. As an affiliated routing • Use the Commission’s Internet Exchange believes that allowing NES to broker, NES would not be treated comment form (http://www.sec.gov/ assume error positions in an error differently than any other unaffiliated rules/sro.shtml); or routing broker. • Send an email to rule-comments@ account and to liquidate those positions, The proposal does not result in a sec.gov. Please include File Number SR– subject to the conditions set forth in the burden on competition among ISEGemini-2016–16 on the subject line. proposed amendments to Rule 1904 would be the least disruptive means to exchanges, because there are many Paper Comments correct these errors, except in cases competing options exchanges that provide routing services, including • Send paper comments in triplicate where NES can assign all such error to Brent J. Fields, Secretary, Securities positions to all affected members of the through an affiliate. Further, the proposal does not raise issues of intra- and Exchange Commission, 100 F Street Exchange.31 Overall, the proposed NE., Washington, DC 20549–1090. amendments are designed to ensure full market competition, because the Exchange’s decision to route through a All submissions should refer to File trade certainty for market participants particular routing broker would impact Number SR–ISEGemini-2016–16. This and to avoid disrupting the clearance all participants equally. file number should be included on the and settlement process.32 The proposed With respect to the proposal to subject line if email is used. To help the amendments are also designed to establish error accounts, the Exchange’s Commission process and review your provide a consistent methodology for proposal does not result in a burden on comments more efficiently, please use handling error positions in a manner competition among exchanges because only one method. The Commission will that does not discriminate among NES’ or the Exchange’s ability to cancel post all comments on the Commission’s members.33 The proposed amendments orders during a technical or systems Internet Web site (http://www.sec.gov/ are also consistent with Section 6 of the issue and to maintain an error account rules/sro.shtml). Copies of the asabaliauskas on DSK3SPTVN1PROD with NOTICES Act insofar as they would require NES facilitates the smooth and efficient submission, all subsequent to establish controls to restrict the flow operations of the market for all amendments, all written statements 28 See proposed Rule 1903(e). impacted members. The proposals with respect to the proposed rule 29 See SR–ISE–2016–27 (not published). regarding assumption of error positions change that are filed with the 30 Id. and [sic] to liquidation of those Commission, and all written 31 Id. positions ensures certainty for all communications relating to the 32 Id. 33 Id. 34 Id. 35 See SR–ISE–2016–27 (not published). VerDate Sep<11>2014 18:41 Dec 28, 2016 Jkt 241001 PO 00000 Frm 00184 Fmt 4703 Sfmt 4703 E:\FR\FM\29DEN1.SGM 29DEN1

96140 Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Notices proposed rule change between the I. Self-Regulatory Organization’s of the Exchange’s market data from Commission and any person, other than Statement of the Terms of the Substance annual to monthly, and to: (1) Replace those that may be withheld from the of the Proposed Rule Change the current $500 annual administrative public in accordance with the The Exchange proposes to amend the fee assessed to distributors of delayed provisions of 5 U.S.C. 552, will be Exchange’s Pricing Schedule under market data with a $50 monthly available for Web site viewing and Section VIII, entitled ‘‘NASDAQ PSX administrative fee, and (2) replace the printing in the Commission’s Public FEES,’’ in the subsection currently current $1,000 annual administrative fee Reference Room, 100 F Street NE., entitled ‘‘Annual Administrative Fee,’’ assessed to distributors of real-time Washington, DC 20549 on official to change the billing cycle for market data with a $100 monthly administrative fees paid by distributors administrative fee. business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such of the Exchange’s market data from Annual Administrative Fee filing also will be available for annual to monthly, and to: (1) Replace The Exchange assesses an annual inspection and copying at the principal the current $500 annual administrative administrative fee to any market data office of the Exchange. All comments fee assessed to distributors of delayed distributor that receives any proprietary received will be posted without change; market data with a $50 monthly Exchange data feed product. The the Commission does not edit personal administrative fee, and (2) replace the amount of that annual fee is $500 for identifying information from current $1,000 annual administrative fee delayed market data and $1,000 for real- submissions. You should submit only assessed to distributors of real-time time market data. Distributors of both information that you wish to make market data with a $100 monthly delayed and real-time market data are available publicly. All submissions administrative fee. The proposal is not required to pay both fees; they are described further below.3 charged only the higher fee. The time should refer to File Number SR– While these amendments are effective ISEGemini-2016–16, and should be difference between ‘‘delayed’’ and ‘‘real- upon filing, the Exchange has time’’ data varies by product. PSX Basic, submitted on or before January 19, 2017. designated the proposed amendments to for example, is considered delayed after For the Commission, by the Division of be operative on January 1, 2017. 15 minutes, while PSX TotalView-ITCH Trading and Markets, pursuant to The text of the proposed rule change data is considered delayed after delegated authority.36 is available on the Exchange’s Web site midnight ET. The specific delay interval at applicable to each product is published Eduardo A. Aleman, http://nasdaqphlx.cchwallstreet.com/, on the Nasdaq Trader Web site. The fee Assistant Secretary. at the principal office of the Exchange, is not prorated if the distributor receives [FR Doc. 2016–31479 Filed 12–28–16; 8:45 am] and at the Commission’s Public the data feed for less than a year. BILLING CODE 8011–01–P Reference Room. Proposed Changes II. Self-Regulatory Organization’s Statement of the Purpose of, and The Exchange proposes to change the SECURITIES AND EXCHANGE Statutory Basis for, the Proposed Rule billing cycle for administrative fees paid COMMISSION Change by distributors of the Exchange’s market data from annual to monthly, and to: (1) In its filing with the Commission, the Replace the current $500 annual [Release No. 34–79654; File No. SR–Phlx– Exchange included statements administrative fee assessed to 2016–122] concerning the purpose of and basis for distributors of delayed market data with Self-Regulatory Organizations; the proposed rule change and discussed a $50 monthly administrative fee, and any comments it received on the (2) replace the current $1,000 annual NASDAQ PHLX LLC; Notice of Filing proposed rule change. The text of these administrative fee assessed to and Immediate Effectiveness of statements may be examined at the distributors of real-time market data Proposed Rule Change To Modify places specified in Item IV below. The with a $100 monthly administrative fee. Administrative Charges for Exchange has prepared summaries, set Distributors of Proprietary Data Feed The purposes of the proposal are to: forth in sections A, B, and C below, of (1) Facilitate billing by aligning the Products the most significant aspects of such current annual administrative fee billing December 22, 2016. statements. cycle with the standard monthly billing Pursuant to Section 19(b)(1) of the A. Self-Regulatory Organization’s cycle used by the Exchange; (2) allocate Statement of the Purpose of, and the fee more equitably by charging Securities Exchange Act of 1934 Statutory Basis for, the Proposed Rule distributors that receive less than a year (‘‘Act’’),1 and Rule 19b–4 thereunder,2 Change of market data an administrative fee notice is hereby given that on December only for those months that they receive 14, 2016, NASDAQ PHLX LLC (‘‘Phlx’’ 1. Purpose market data; and (3) bring the or ‘‘Exchange’’) filed with the Securities The purpose of the proposed rule Exchange’s administrative fee into and Exchange Commission (‘‘SEC’’ or change is to change the billing cycle for alignment with the Nasdaq and BX ‘‘Commission’’) the proposed rule administrative fees paid by distributors market data administrative fees, which, change as described in Items I, II, and after current proposals take effect, will III below, which Items have been be charged the same administrative fees asabaliauskas on DSK3SPTVN1PROD with NOTICES 3 The NASDAQ Stock Market LLC and NASDAQ prepared by the Exchange. The BX, Inc. are filing companion proposals similar to on the same billing cycle. this one. All three proposals will change the billing Commission is publishing this notice to cycle for administrative fees paid by distributors of The complexity of administering the solicit comments on the proposed rule market data from annual to monthly, and will: (1) Exchange’s market data program has change from interested persons. Replace the current $500 annual administrative fee increased significantly since the current assessed to distributors of delayed market data with fee was set in November of 2011. New, a $50 monthly administrative fee, and (2) replace 36 17 CFR 200.30–3(a)(12). the current $1,000 annual administrative fee more complex products and services 1 15 U.S.C. 78s(b)(1). assessed to distributors of real-time market data require the Exchange to expend more 2 17 CFR 240.19b–4. with a $100 monthly administrative fee. resources in administration and VerDate Sep<11>2014 18:41 Dec 28, 2016 Jkt 241001 PO 00000 Frm 00185 Fmt 4703 Sfmt 4703 E:\FR\FM\29DEN1.SGM 29DEN1


Document Created: 2016-12-29 01:58:09
Document Modified: 2016-12-29 01:58:09
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation81 FR 96136 
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