82 FR 23932 - Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Temporarily Suspend the Implementation of QCC With Stock Order Functionality Upon Migration to INET

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 99 (May 24, 2017)

[Federal Register Volume 82, Number 99 (Wednesday, May 24, 2017)]
[Notices]
[Pages 23932-23934]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-10586]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80718; File No. SR-ISE-2017-44]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change to Temporarily 
Suspend the Implementation of QCC With Stock Order Functionality Upon 
Migration to INET

May 18, 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 May 8, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to delay the implementation of QCC with Stock 
Order functionality with the migration to Nasdaq INET.
    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

[[Page 23933]]

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 the proposed rule change is to delay the 
implementation of QCC with Stock Order functionality offered to members 
on a voluntary basis. QCC with Stock Orders will be temporarily 
unavailable in symbols that have migrated to the INET architecture as 
this functionality will be introduced later in the launch of the INET 
trading system. The QCC with Stock Order is a piece of functionality 
that facilitates the execution of the stock component of qualified 
contingent trades in connection with the execution of a Qualified 
Contingent Cross (``QCC'') Order on the Exchange. Specifically, a QCC 
with Stock Order is defined as a QCC Order \3\ entered with a stock 
component to be communicated to a designated broker-dealer for 
execution pursuant to Rule 721(c).\4\
---------------------------------------------------------------------------

    \3\ A QCC Order is comprised of an originating order to buy or 
sell at least 1000 contracts that is identified as being part of a 
qualified contingent trade, coupled with a contra-side order or 
orders totaling an equal number of contracts. See Rule 715(j).
    \4\ See Rule 715(t).
---------------------------------------------------------------------------

    Rule 721(c) and the Supplementary Material thereto describe how the 
stock component of QCC with Stock Orders are executed. Since QCC Orders 
represent one component of a qualified contingent trade, each QCC Order 
must be paired with a stock transaction. When a member enters a QCC 
Order, the member is responsible for executing the associated stock 
component of the qualified contingent trade within a reasonable period 
of time after the QCC Order is executed. QCC with Stock Order 
functionality is a voluntary piece of functionality that provides 
members with an automated means of executing the stock component of a 
qualified contingent trade. Specifically, when a member enters a QCC 
with Stock Order, a QCC Order is entered on the Exchange. That QCC 
Order is automatically executed upon entry provided that the conditions 
of Rule 721(b) are met. If the QCC Order is executed, the Exchange will 
automatically communicate the stock component to the member's 
designated broker-dealer for execution. Currently, members that execute 
the options component of a qualified contingent trade entered as a QCC 
with Stock Order remain responsible for the execution of the stock 
component if they do not receive an execution from their designated 
broker-dealer. Although QCC Orders are eligible for automatic 
execution, it is possible that the QCC Order may not be executable 
based on market prices at the time the order is entered. If the QCC 
Order is not capable of being executed, the entire QCC with Stock 
Order, including both the stock and options components, is cancelled.
    QCC with Stock Order functionality will not initially be available 
on INET for symbols that have been migrated to that platform. In 
conjunction with the upcoming migration to INET, the Exchange proposes 
to temporarily suspend the availability of QCC with Stock Order 
functionality provided under Rule 721(c) and the Supplementary Material 
to Rule 721 until a date to be announced by the Exchange via an Options 
Trader Alert, which date shall occur prior to August 1, 2017. QCC with 
Stock Orders in symbols that have migrated to INET will be rejected 
until such time as that functionality is introduced on INET. 
Specifically, the Exchange has filed and received approval for a 
proposed rule change to begin the system migration to INET in Q2 of 
2017.\5\ The migration to INET will be on a symbol-by-symbol basis as 
will be communicated by the Exchange in a notice to Members.\6\ The 
Exchange proposes to implement QCC with Stock Order functionality on 
the INET platform during the INET symbol migration. Once QCC with Stock 
Order functionality is launched on INET, members may utilize this 
functionality for symbols as they migrate to INET. The Exchange will 
announce a date, via an Options Trader Alert, when the functionality 
will be available. At that time, all symbols that have migrated to INET 
as of that date will be able to utilize the QCC with Stock Order 
functionality. All other symbols that migrate after that date, if any, 
would be able to utilize the QCC with Stock Order functionality as they 
migrate. The QCC with Stock Order functionality will continue to be 
available on the legacy ISE system until the symbols migrate to INET.
---------------------------------------------------------------------------

    \5\ 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).
    \6\ 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. The Exchange is staging the re-platform to 
provide maximum benefit to its Members while also ensuring a 
successful rollout. 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.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\7\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\8\ 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. Specifically, the Exchange believes 
that the proposed rule change is consistent with the protection of 
investors and the public interest because QCC with Stock Order 
functionality is currently offered to members on a voluntary basis to 
assist in their execution of qualified contingent trades. Furthermore, 
members that execute the options component of a Qualified Contingent 
Trade entered as a QCC with Stock Order remain responsible for the 
execution of the stock component if they do not receive an execution 
from their designated broker-dealer. There is no requirement that 
members utilize QCC with Stock functionality, and members will continue 
to be able to enter regular QCC Orders where the exchange does not 
assist with the execution of the stock component of the trade and the 
members do so themselves. Specifically, Members would remain able to 
execute QCC Orders on the INET platform prior to QCC with Stock 
functionality being turned back on, provided that the member would be 
responsible for executing the associated stock component of the 
qualified contingent trade within a reasonable period of time after the 
QCC Order is executed. Furthermore, the Exchange will continue to offer 
the QCC with Stock Order functionality on the legacy ISE system until 
such time as each symbol migrates to INET. The Exchange intends to 
introduce QCC with Stock Order functionality on INET during the symbol 
migration, and prior to the rollout of the majority of symbols on

[[Page 23934]]

INET. Based on the Exchange's anticipated symbol rollout, the affected 
symbols will not include symbols where members typically enter a 
significant volume of QCC with Stock Orders.\9\ The Exchange also notes 
that it has issued an Options trader Alert providing Members notice of 
its proposal to delay the QCC with Stock Order functionality during the 
initial launch of the INET technology until such time as the Exchange 
announces the availability of the QCC with Stock Order 
functionality.\10\ The Exchange intends to make clear the 
implementation timeline of this functionality within its rulebook.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ Of the 3,172 symbols listed on ISE, the Exchange anticipates 
rolling out approximately 151 symbols prior to introducing QCC with 
Stock Order functionality on INET.
    \10\ See Options Trader Alert #2017-32.
---------------------------------------------------------------------------

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. No market participant would be 
able to submit a QCC with Stock Order on INET until such time as the 
Exchange turns back on the functionality with notice to members. The 
Exchange believes that notwithstanding the delay of this functionality, 
ISE will continue to remain a competitive with other options markets. 
Moreover, Members will still be able to execute QCC Orders on the 
Exchange using other means to ensure the execution of the stock 
component of those qualified contingent trades.

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 \11\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\12\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 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.
---------------------------------------------------------------------------

    In its filing, ISE requested that the Commission waive the 30-day 
operative delay in order to enable the Exchange to launch the new INET 
system on the schedule previously announced to members. The Commission 
believes that such waiver is consistent with the protection of 
investors and the public interest. The Exchange represented that 
delaying the launch of the INET system could harm members that have 
relied upon the schedule previously announced by ISE. Moreover, ISE 
explained that waiving the 30-day operative delay would have limited 
consequences; members received notice of the proposed change on April 
28, 2017, and the Exchange will migrate symbols that have a higher 
volume of QCC with Stock Orders later in its INET rollout in order to 
reduce the impact on its members. For these reasons, the Commission 
believes that proposed rule change will provide clarity to ISE members 
regarding the availability QCC with Stock Order functionality on the 
Exchange and designates the proposed rule change to be operative upon 
filing.\13\
---------------------------------------------------------------------------

    \13\ 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).
---------------------------------------------------------------------------

    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-2017-44 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-2017-44. 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-2017-44 and should be 
submitted on or before June 14, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12) and (59).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-10586 Filed 5-23-17; 8:45 am]
 BILLING CODE 8011-01-P