81 FR 96532 - Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change to Amend the Supplementary Material to ISE Rule 1901

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 251 (December 30, 2016)

[Federal Register Volume 81, Number 251 (Friday, December 30, 2016)]
[Notices]
[Pages 96532-96534]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-31678]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79686; File No. SR-ISE-2016-31]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change to Amend the 
Supplementary Material to ISE Rule 1901

December 23, 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 22, 2016, the International Securities Exchange, LLC 
(``ISE'' 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Supplementary Material to ISE 
Rule 1901, titled ``Order Protection'' 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 
Statutory Basis for, the Proposed Rule Change

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

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

1. Purpose
    The purpose of this rule change is to amend the Supplementary 
Material to ISE Rule 1901, titled ``Order Protection'' to reflect the 
ISE, ISE Gemini, LLC and ISE Mercury, LLC 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 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.
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, ISE Gemini, LLC and ISE Mercury, LLC 
system because of the manner in which the system is segregated into 
component parts to handle processing.

[[Page 96533]]

Trading Halts
    Pursuant to Supplementary Material .02 to Rule 1901, when the 
automatic execution of an incoming order would result in an 
impermissible trade-through, such order is exposed at the current 
national best bid or offer to all members for a time period established 
by the Exchange not to exceed one (1) second.\3\ The Exchange proposes 
to amend Supplementary Material .02 to Rule 1901 to provide that if a 
trading halt is initiated during this exposure period, the exposure 
period will be terminated without execution. Today, when a trading halt 
is triggered during the auction process described above, ISE terminates 
the exposure period and executes eligible interest. The proposed 
treatment of trading halts is based on Phlx Rule 1047(c), which 
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. Halting the exposure period without 
execution is a change from current ISE behavior. However, the Exchange 
believes participants prefer certainty in regard to how their interest 
will be handled in the event of a trading halt and prefer consistency 
of behavior across market centers.
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    \3\ During the exposure period, Exchange Members may enter 
responses up to the size of the order being exposed in the regular 
trading increment applicable to the option.
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Implementation
    The Exchange intends to begin implementation of the proposed rule 
change in tandem with a technology migration to Nasdaq INET 
architecture. The migration will be on a symbol by symbol basis, and 
the Exchange will issue a notice to provide Members with notification 
of the symbols that will migrate and the relevant dates. With respect 
to the amendment to Supplementary Material .02 to Rule 1901, the rule 
change impact not only ISE, but also ISE Gemini, LLC and ISE Mercury, 
LLC because Chapter 19 is incorporated by reference into those 
rulebooks. The Exchange proposes that the implementation of this rule 
change into each rulebook occur as specified herein. ISE rule changes 
will be implemented in Q2 2017 on a symbol by symbol basis, as noted 
above. ISE Gemini, LLC rule changes will be implemented in Q1 2017 on a 
symbol by symbol basis. ISE Mercury, LLC rule changes will be 
implemented in Q3 2017 on a symbol by symbol basis. The Exchange will 
add the following rule text to make clear the implementation date in 
each rulebook: ``The amended rule text will be implemented on a symbol 
by symbol basis for ISE Gemini, LLC in Q1 2017, for ISE in Q2 2017 and 
for ISE Mercury, LLC in Q3 2017, the specific dates will be announced 
in a separate notice.''
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\5\ 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.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
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Trading Halts
    The Exchange's proposal to amend Supplementary Material .02 to Rule 
1901 to add a new provision to memorialize the impact of a trading halt 
on the exposure period is consistent with the Act because halting the 
exposure period without execution provides certainty to market 
participants with respect to how their interest will be handled in the 
event of a trading halt. This method will also provide consistency of 
behavior across market centers. Memorializing this behavior will 
increase transparency of the operation of the Exchange for the benefit 
of Members and investors.

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. Amending the 
Supplementary Material .02 to Rule 1901 will not impact the intense 
competition that exists in the options market. In fact, the Exchange 
believes that this proposal will provide clarity as to the manner in 
which a trading halt impacts exposure periods, thereby providing 
certainty to all market participants.

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-ISE-2016-31 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-ISE-2016-31. 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

[[Page 96534]]

provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ISE-2016-31 and should be 
submitted on or before January 20, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-31678 Filed 12-29-16; 8:45 am]
 BILLING CODE 8011-01-P