82 FR 14413 - Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change, as Modified by Amendment No. 1, To Amend Supplementary Material .03 to Rule 713

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 52 (March 20, 2017)

[Federal Register Volume 82, Number 52 (Monday, March 20, 2017)]
[Notices]
[Pages 14413-14415]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-05405]



[[Page 14413]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80239; File No. SR-ISEGemini-2017-14]


Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change, as Modified by 
Amendment No. 1, To Amend Supplementary Material .03 to Rule 713

March 14, 2017.
    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 March 9, 2017, ISE Gemini, LLC (``ISE Gemini'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. On March 13, 2017, the Exchange 
filed Amendment No. 1 to the proposed rule change.\3\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as modified by Amendment No. 1, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange represented that the 
proposed allocation entitlement for Preferred PMMs will be 
implemented on the INET trading system on or subsequent to the 
effective date of this proposed rule change.
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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 Supplementary Material .03 to Rule 
713 to change the allocation entitlement for Preferred PMMs.
    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
    Supplementary Material .03 to Rule 713 allows an Electronic Access 
Member (``EAM'') to designate a ``Preferred Market Maker'' on orders it 
enters into the System (``Preferenced Orders''). A Preferred Market 
Maker may be the Primary Market Maker (``PMM'') appointed to the 
options class or any Competitive Market Maker (``CMM'') appointed to 
the options class.\4\ The purpose of the proposed rule change is to 
amend Supplementary Material .03 to Rule 713 to change the allocation 
entitlement for PMMs that receive Preferenced Orders (i.e., ``Preferred 
PMMs''), consistent with allocation entitlements for PMM equivalents on 
another options exchange.
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    \4\ See Supplementary Material .03(a) to Rule 713.
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    Currently, a Preferred Market Maker that is quoting at the national 
best bid of offer (``NBBO'') at the time the Preferenced Order is 
received,\5\ is entitled to participation rights equal to the greater 
of: (i) The proportion of the total size at the best price represented 
by the size of its quote, or (ii) sixty percent (60%) of the contracts 
to be allocated if there is only one (1) other Professional Order or 
market maker quotation at the best price and forty percent (40%) if 
there are two (2) or more other Professional Orders and/or market maker 
quotes at the best price.\6\ This allocation entitlement is in lieu of 
the regular allocation provided in Supplementary Material .01 to Rule 
713, and applies regardless of whether the Preferred Market Maker is a 
PMM or CMM. In some instances where the Preferred Market Maker is the 
PMM appointed to the options class this results in a preferenced 
allocation that is worse than the market maker's regular allocation 
entitlement. Specifically, Supplementary Material .01(c) to Rule 713 
provides a small order entitlement whereby orders of five contracts or 
fewer are executed first by the PMM. A PMM that normally receives an 
allocation entitlement for orders of five contracts or fewer,\7\ would 
not receive this allocation entitlement if it were designated as the 
Preferred Market Maker.
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    \5\ If the Preferred Market Maker is not quoting at a price 
equal to the NBBO at the time the Preferenced Order is received, the 
Exchange's regular allocation procedure applies to the execution of 
the Preferenced Order. See Supplementary Material .03(b) to Rule 
713.
    \6\ See Supplementary Material .03(c) to Rule 713.
    \7\ See Supplementary Material .01(c) to Rule 713.
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    The Exchange now proposes to amend the participation rights of 
Preferred PMMs such that the PMM appointed in an option class will 
receive participation rights that are consistent with the higher 
allocation entitlement given to PMM equivalents on the MIAX Options 
Exchange (``MIAX''). In particular, the Exchange proposes to amend 
Supplementary Material .03(c) to Rule 713 to provide that, the 
Preferred Market Maker has participation rights equal to the greater 
of: (i) The proportion of the total size at the best price represented 
by the size of its quote, (ii) sixty percent (60%) of the contracts to 
be allocated if there is only one (1) other Professional Order or 
market maker quotation at the best price and forty percent (40%) if 
there are two (2) or more other Professional Orders and/or market maker 
quotes at the best price, or (iii) the full size of a Preferenced Order 
for five (5) contracts or fewer if the Primary Market Maker appointed 
to the options class is designated as the Preferred Market Maker--i.e., 
the small order allocation entitlement contained in Supplementary 
Material .01(c) to Rule 713. Thus, the PMM appointed to an options 
class would receive an allocation entitlement for orders of five 
contracts or fewer, regardless of whether that order is submitted as a 
Preferenced Order. The Exchange believes that this is appropriate since 
the PMMs obligations to the market are the same regardless of whether 
an order happens to be submitted with a preference instruction. PMM 
equivalents on MIAX currently receive this participation right when 
preferenced, in addition to the regular 60% or 40% preferenced 
allocation currently provided in the rule.\8\ Preferred CMMs will 
continue to receive the same allocation entitlement that they receive 
today.
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    \8\ See MIAX Rule 514(g), (i).
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    Pursuant to Supplementary Material .01(c) to Rule 713 the Exchange 
evaluates on a quarterly basis what percentage of the volume executed 
on the Exchange is comprised of orders for five (5) contracts or fewer 
executed by PMMs. The Exchange represents that this review will extend 
to the small order entitlement for Preferred PMMs. Thus, consistent 
with Supplementary Material .01(c) to Rule 713, the Exchange will 
reduce the size of the orders included in the small order entitlement 
if such percentage is over forty percent (40%).

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Implementation
    The proposed rule change will be implemented on the Exchange's new 
INET trading system, which launched on February 27, 2017,\9\ provided 
that the Exchange will provide notice of this change in a circular to 
be distributed to members prior to implementing the new allocation 
entitlement on INET. The INET migration is taking place on a symbol by 
symbol basis as specified by the Exchange in a notice to Members. The 
Exchange is proposing to implement this rule change on the INET 
platform as the symbols migrate to that platform. As such, PMMs will 
begin receiving the small order entitlement in symbols as they migrate 
to the INET platform. For symbols which migrated to INET prior to the 
approval of this rule change, the small order entitlement will be 
applied to such symbols starting on the implementation date noted in 
the circular distributed to members. The proposed allocation 
entitlement for Preferred PMMs will be implemented on the INET trading 
system on or subsequent to the effective date of this proposed rule 
change.
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    \9\ See Securities Exchange Act Release No. 80011 (February 10, 
2017), 82 FR 10927 (February 16, 2017) (SR-ISEGemini-2016-17).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6(b) of the Act.\10\ In 
particular, the proposal is consistent with Section 6(b)(5) of the 
Act,\11\ because it is designed to promote just and equitable 
principles of trade, remove impediments to and perfect the mechanisms 
of a free and open market and a national market system and, in general, 
to protect investors and the public interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is consistent 
with the protection of investors and the public interest as it will 
allow EAMs to send Preferenced Orders to the PMM appointed in an 
options class without inadvertently disadvantaging the PMM compared to 
if the order was not preferenced. The regular allocation entitlements 
for PMMs, including the small order entitlement, are designed to 
balance the obligations that the PMM has to the market with 
corresponding benefits. The Exchange believes that it is appropriate to 
provide the small order entitlement also when the PMM is designated as 
a Preferred Market Maker as the obligations that the PMM has to the 
market are not diminished when it receives a Preferenced Order. MIAX 
similarly provides the small order entitlement to the PMM regardless of 
whether the order is submitted as a Preferenced Order.\12\ At the same 
time, the proposed rule change does not amend the current participation 
rights for Preferred CMMs, which is also consistent with allocation 
rules of MIAX. While the Exchange believes that it is appropriate to 
grant PMMs an allocation entitlement for small sized orders preferenced 
to them in recognition of the obligations that PMMs have to maintain 
fair and orderly markets, the Exchange does not believe that it is 
appropriate at this time to extend this entitlement to CMMs, 
preferenced or otherwise.
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    \12\ See supra note 7.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\13\ the Exchange 
does not believe that the proposed rule change will impose any burden 
on intermarket or intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. The proposed 
rule change is designed to allow EAMs to send Preferenced Orders to the 
PMM appointed in an options class without inadvertently disadvantaging 
the PMM by reducing its participation rights. The proposed allocation 
entitlements are equivalent to those currently in effect on another 
options exchange.\14\ The proposed rule change is therefore not 
designed to impose any significant burden on competition.
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    \13\ 15 U.S.C. 78f(b)(8).
    \14\ See supra note 7.
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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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \15\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \17\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \18\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Exchange represents that waiver of the operative delay would allow 
the Exchange to implement this proposed rule change prior to a 
significant symbol rollout to the INET technology. The Exchange states 
that symbols that account for approximately 35% of industry volume are 
scheduled to be migrated to the new INET trading system on March 27, 
2017, with additional symbols accounting for roughly 62% of industry 
volume scheduled to be migrated on April 3, 2017. Further, for symbols 
that have already migrated to INET, the Exchange represents that the 
small order entitlement will be applied to such symbols starting on the 
implementation date to be announced to the members in a circular. 
Accordingly, the Commission hereby waives the operative delay and 
designates the proposal operative upon filing.\19\
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings

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to determine whether the proposed rule should be approved or 
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 No. 1, 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-2017-14 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-2017-14. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ISEGemini-2017-14 and should 
be submitted on or before April 10, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-05405 Filed 3-17-17; 8:45 am]
 BILLING CODE 8011-01-P