82 FR 22022 - Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Complex Order Quoting

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 90 (May 11, 2017)

[Federal Register Volume 82, Number 90 (Thursday, May 11, 2017)]
[Notices]
[Pages 22022-22024]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-09529]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80613; File No. SR-ISE-2017-37]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to Complex 
Order Quoting

May 5, 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 April 26, 2017, Nasdaq ISE, 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 designate that a symbol will not be 
eligible for Market Maker quotes in the complex order book after the 
symbol migrates to Nasdaq INET technology. In addition, that symbol 
will trade in price/time priority.
    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
    Today, ISE permits Market Makers to enter quotes on certain symbols 
for complex strategies on the complex order book in their appointed 
options classes. Market Maker quotes for complex strategies are not 
automatically executed against bids and offers on the Exchange for the 
individual legs nor can they be marked for price improvement.\3\ Market 
Makers are not required to enter quotes on the Exchange's complex order 
book. Quotes for complex orders are not subject to any quotation 
requirements that are applicable to Market Maker quotes in the regular 
market for individual options series or classes, nor is any volume 
executed in complex orders taken into consideration when determining 
whether Market Markers are meeting quotation obligations applicable to 
market maker quotes in the regular market for individual options 
series.
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    \3\ See Supplementary Material .03 to Rule 722.
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    The Exchange proposes to designate that a symbol will not be 
eligible for Market Maker quotes in the complex order book after the 
symbol migrates to the INET platform. Specifically, the Exchange filed 
a proposal to begin the system migration to Nasdaq INET in Q2 of 
2017.\4\ The migration to INET will be on a symbol by symbol basis as 
specified by the Exchange in a notice to Members.\5\ The Exchange is 
proposing to implement this rule change on the INET platform as the 
symbols migrate to that platform. Once a symbol moves to INET no 
complex quoting \6\ will be available for that symbol and the symbol 
will be allocated in price/time priority.
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    \4\ See Securities Exchange Act Release No. 80432 (April 11, 
2017), 82 FR 18191 (April 17, 2017) (SR-ISE-2017-03) (Order 
Approving Proposed Rule Change, as Modified by Amendment No. 1, to 
Amend Various Rules in Connection with a System Migration to Nasdaq 
INET Technology).
    \5\ The Exchange will issue an Options Trader Alert prior to the 
migration and will specify the dates that symbols will migrate to 
the INET platform.
    \6\ The Exchange notes that Phlx does not offer complex order 
quoting functionality.
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    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

[[Page 22023]]

migration, the Exchange intends to adopt certain trading functionality 
currently utilized at Nasdaq Exchanges.\7\
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    \7\ See note 4 above.
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    The Exchange is staging the re-platform to provide maximum benefit 
to its Members while also ensuring a successful rollout. As symbols 
migrate to the INET functionality, the symbols that are currently 
enabled for Market Maker Quotes will become ineligible for complex 
quoting. This will provide the Exchange additional time to test and 
implement this functionality on the INET platform. The Exchange will 
issue an Options Trader Alert to all Members notifying them that 
complex order quoting functionality will no longer be available after a 
symbol migrates to INET.\8\
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    \8\ Even though the complex quoting functionality will not be 
available, Market Makers will still be able to submit complex 
orders.
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    Within a year from the date of filing this rule change, the 
Exchange will offer complex quoting functionality on the ISE INET 
platform. Thereafter, Exchange may offer the complex quoting from time 
to time with notice to members. At the time the Exchange designates a 
symbol as available for complex quoting, it will also designate the 
allocation methodology for that symbol pursuant to ISE Rule 
722(b)(3)(i).
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\10\ 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 Exchange desires to rollout the complex order 
quoting functionality at a later date to allow additional time to 
rebuild this technology on the new platform.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    Not offering the Market Maker quotes in the complex order book with 
the symbol migration to INET, will allow the Exchange additional time 
to test and implement this functionality. The Exchange will provide 
Members with ample notice of the turn-off of this functionality in an 
Options Trader Alert. The Exchange will continue to provide 
notification to Members to ensure clarity about the availability of 
this functionality with the symbol migration.
    The Exchange is proposing to implement this rule change on the INET 
platform as the symbols migrate to that platform. Once a symbol moves 
to INET, no complex quoting \11\ will be available for that symbol and 
the Exchange will specify that the allocation methodology for that 
symbol will be price/time. Within a year from the date of filing this 
rule change, the Exchange will offer complex quoting functionality on 
the ISE INET platform. Thereafter, the Exchange may offer the complex 
quoting for specified symbols from time to time with notice to members. 
At the time the Exchange designates a symbol as available for complex 
quoting, it will also designate the allocation methodology for that 
symbols pursuant to ISE Rule 722(b)(3)(i).
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    \11\ The Exchange notes that Phlx does not offer complex order 
quoting functionality.
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    Even though the complex quoting functionality will not be 
available, Market Makers will still be able to submit complex orders. 
The Exchange does not anticipate any significant impact with respect to 
execution quality. The Exchange notes that Phlx does not offer complex 
order quoting functionality.\12\
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    \12\ See Phlx Rule 1098.
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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. The Exchange does not believe 
that the proposed rule change will impact the intense competition that 
exists in the options market. Members will be able to continue to 
submit complex orders on ISE; however Market Maker quotes in the 
complex order book will not be available after a symbol migrates to 
INET. The Exchange does not believe that the proposed rule change will 
impose any burden on intra-market competition because all Members 
uniformly will not be able to submit Market Maker quotes in the complex 
order book.
    The Exchange is proposing to implement this rule change on the INET 
platform as the symbols migrate to that platform. Once a symbol moves 
to INET, no complex quoting \13\ will be available for that symbol and 
the Exchange will specify the allocation methodology for that symbol as 
price/time. Within a year from the date of filing this rule change, the 
Exchange will offer complex quoting functionality on the ISE INET 
platform. Thereafter, the Exchange may offer the complex quoting for 
specified symbols from time to time with notice to members. At the time 
the Exchange designates a symbol as available for complex quoting, it 
will also designate the allocation methodology for that symbol pursuant 
to ISE Rule 722(b)(3)(i).
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    \13\ The Exchange notes that Phlx does not offer complex order 
quoting functionality.
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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 \14\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 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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    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 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 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-2017-37 on the subject line.

[[Page 22024]]

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-2017-37. 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-ISE-2017-37 and should be 
submitted on or before June 1, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09529 Filed 5-10-17; 8:45 am]
 BILLING CODE 8011-01-P