82 FR 3055 - Self-Regulatory Organizations; International Securities Exchange, LLC; Order Approving a Proposed Rule Change To Modify the Response Times in the Block Mechanism, Facilitation Mechanism, Solicited Order Mechanism, and Price Improvement Mechanism

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 6 (January 10, 2017)

Page Range		3055-3056
FR Document		2017-00217
Federal Register, Volume 82 Issue 6 (Tuesday, January 10, 2017)
[Federal Register Volume 82, Number 6 (Tuesday, January 10, 2017)]
[Notices]
[Pages 3055-3056]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-00217]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79733; File No. SR-ISE-2016-26]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Order Approving a Proposed Rule Change To Modify the Response 
Times in the Block Mechanism, Facilitation Mechanism, Solicited Order 
Mechanism, and Price Improvement Mechanism

January 4, 2017.

I. Introduction

    On November 8, 2016, the International Securities Exchange, LLC 
(the ``Exchange'' or ``ISE'') filed with the Securities and Exchange 
Commission (``Commission'') pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend ISE Rules 716 (Block 
Trades) and 723 (Price Improvement Mechanism for Crossing Transactions) 
to modify the response times in the Block Order Mechanism, Facilitation 
Mechanism, Solicited Order Mechanism, and Price Improvement Mechanism 
(``PIM'') from 500 milliseconds to a time period designated by the 
Exchange of no less than 100 milliseconds and no more than 1 second. 
The proposed rule change was published for comment in the Federal 
Register on November 25, 2016.\3\ No comment letters were received on 
the proposed rule change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 79352 (November 18, 
2016), 81 FR 85277 (``Notice'').
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II. Description of the Proposed Rule Change

    ISE Rule 716 (Block Trades) contains the requirements applicable to 
the execution of orders using the Block Order Mechanism, Facilitation 
Mechanism, and Solicited Order Mechanism. The Block Order Mechanism 
allows ISE members to obtain liquidity for the execution of a block-
size order.\4\ The Facilitation and Solicited Order Mechanisms allow 
ISE members to enter cross transactions seeking price improvement.\5\ 
ISE Rule 723 (Price Improvement Mechanism for Crossing Transactions) 
contains the requirements applicable to the

[[Page 3056]]

execution of orders using the PIM. The PIM allows ISE members to enter 
cross transactions of any size. The Facilitation, Solicited Order 
Mechanisms, and PIM allow for ISE members to designate certain customer 
orders for price improvement and submit such orders into one of the 
mechanisms with a matching contra order. Once such an order is 
submitted, ISE commences an auction by broadcasting a message to all 
ISE members that includes the series, price, size, and side of the 
market.\6\ Further, responses within the PIM (i.e., Improvement 
Orders), are also broadcast to market participants during the auction.
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    \4\ Block-size orders are orders for 50 contracts or more. See 
ISE Rule 716(a).
    \5\ Only block-size orders can be entered into the Facilitation 
Mechanism, whereas only orders for 500 contracts or more can be 
entered into the Solicited Order Mechanism. See ISE Rule 716(d) and 
(e).
    \6\ ISE members may choose to hide the size, side, and price 
when entering orders into the Block Order Mechanism.
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    Orders entered into the Block Order Mechanism, Facilitation 
Mechanism, Solicited Order Mechanism, and PIM are currently exposed to 
all market participants for 500 milliseconds, giving them an 
opportunity to enter additional trading interest before the orders are 
automatically executed. Under the proposal, ISE would determine an 
exposure period for each of the four mechanisms that is no less than 
100 milliseconds and no more than 1 second.\7\
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    \7\ While the proposed rule change would allow ISE to increase 
the exposure period up to 1 second, ISE stated that it currently 
intends to decrease the time period allowed for responses to 100 
milliseconds. See Notice, supra note 3, at 85278. ISE further noted 
that its proposal is consistent with exposure periods permitted in 
similar mechanisms on other options exchanges. See id. at 85278. See 
also Securities Exchange Act Release Nos. 76301 (October 29, 2015), 
80 FR 68347 (November 4, 2015) (SR-BX-2015-032) and 77557 (April 7, 
2016), 81 FR 21935 (April 13, 2016) (SR-Phlx-2016-40).
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\8\ 
In particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\9\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating 
transactions in securities, 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, and not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Commission also finds that the proposed rule 
change is consistent with Section 6(b)(8) of the Act,\10\ which 
requires that the rules of an exchange not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act.
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    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(8).
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    The Commission believes that, given the electronic environment of 
ISE, reducing each of the exposure periods from 500 milliseconds to no 
less than 100 milliseconds could facilitate the prompt execution of 
orders, while continuing to provide market participants with an 
opportunity to compete for exposed bids and offers. To substantiate 
that its members could receive, process, and communicate a response 
back to ISE within 100 milliseconds, ISE stated that it surveyed all 
ISE members that responded to an auction in the period beginning July 
1, 2015 and ending January 15, 2016. Each of the twenty-one members 
surveyed indicated that they can currently receive, process, and 
communicate a response back to ISE within 100 milliseconds. To 
implement the reduced exposure periods and help ensure that ISE's and 
its members' systems are working properly given the faster response 
times, ISE will reduce the auction time over a period of weeks, ending 
at 100 milliseconds. Upon effectiveness of the proposal, and at least 
six weeks prior to implementation of the proposed rule change, ISE will 
issue a circular to its members, informing them of the implementation 
date of the reduction of the auction from 500 milliseconds to the 
auction time designated by ISE (100 milliseconds) to allow members the 
opportunity to perform systems changes. ISE also represented that it 
will issue a circular at least four weeks prior to any future changes, 
as permitted by its rules, to the auction time.\11\ In addition, ISE 
reviewed all executions occurring in the mechanisms by ISE members from 
March 28, 2016 to April 25, 2016. This review of executions in the 
mechanisms indicated that approximately 98% of responses that resulted 
in price improving executions at the conclusion of an auction were 
submitted within 500 milliseconds. Approximately 94% of responses that 
resulted in price improving executions at the conclusion of an auction 
were submitted within 100 milliseconds, and 83% were submitted within 
50 milliseconds of the initial order.\12\ Furthermore, with regard to 
the impact of the proposal on system capacity, ISE has analyzed its 
capacity and represented that it has the necessary systems capacity to 
handle the potential additional traffic associated with the additional 
transactions that may occur with the implementation of the reduction in 
the auction duration to no less than 100 milliseconds.\13\
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    \11\ See Notice, supra note 3, at 85279.
    \12\ See id.
    \13\ See id.
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    Based on ISE's statements, the Commission believes that market 
participants should continue to have opportunities to compete for 
exposed bids and offers within an exposure period of no less than 100 
milliseconds and no more than 1 second.\14\ Accordingly, the Commission 
believes that it is consistent with the Act for the Exchange to modify 
the response times in the Block Mechanism, Facilitation Mechanism, 
Solicited Order Mechanism, and PIM from 500 milliseconds to a time 
period designated by the Exchange of no less than 100 milliseconds and 
no more than 1 second.
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    \14\ The Commission notes that the ability to designate such an 
exposure time period is consistent with the rules of other options 
exchanges. See supra note 7. See also NASDAQ Phlx Rule 
1080(n)(ii)(A)(4) and NASDAQ BX Options Rules Chapter VI, Section 
9(ii)(A)(3).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-ISE-2016-26) be, and hereby 
is, approved.
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    \15\ 15 U.S.C. 78s(b)(2).

    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. 2017-00217 Filed 1-9-17; 8:45 am]
 BILLING CODE 8011-01-P
Federal Register / Vol. 82, No. 6 / Tuesday, January 10, 2017 / Notices 3055

benefit from the improved market including whether the proposed rule SECURITIES AND EXCHANGE
liquidity. Enhanced market quality and change is consistent with the Act. COMMISSION
increased transaction volume that Comments may be submitted by any of
[Release No. 34–79733; File No. SR–ISE–
results from the anticipated increase in the following methods: 2016–26]
order flow directed to the Exchange will
Electronic Comments
benefit all market participants and Self-Regulatory Organizations;
improve competition on the Exchange. • Use the Commission’s Internet International Securities Exchange,
Given the robust competition for comment form (http://www.sec.gov/ LLC; Order Approving a Proposed
volume among options markets, many of rules/sro.shtml); or Rule Change To Modify the Response
which offer the same products, • Send an email to rule-comments@ Times in the Block Mechanism,
implementing programs to attract order sec.gov. Please include File Number SR– Facilitation Mechanism, Solicited
flow similar to the ones being proposed NYSEMKT–2016–127 on the subject Order Mechanism, and Price
in this filing, are consistent with the line. Improvement Mechanism
above-mentioned goals of the Act. The
Exchange notes that it operates in a Paper Comments January 4, 2017.
highly competitive market in which • Send paper comments in triplicate I. Introduction
market participants can readily favor to Secretary, Securities and Exchange
competing venues. In such an On November 8, 2016, the
Commission, 100 F Street, NE., International Securities Exchange, LLC
environment, the Exchange must Washington, DC 20549–1090. (the ‘‘Exchange’’ or ‘‘ISE’’) filed with the
continually review, and consider
All submissions should refer to File Securities and Exchange Commission
adjusting, its fees and credits to remain
Number SR–NYSEMKT–2016–127. This (‘‘Commission’’) pursuant to Section
competitive with other exchanges. For
file number should be included on the 19(b)(1) of the Securities Exchange Act
the reasons described above, the
subject line if email is used. To help the of 1934 (‘‘Act’’) 1 and Rule 19b–4
Exchange believes that the proposed
Commission process and review your thereunder,2 a proposed rule change to
rule change reflects this competitive
comments more efficiently, please use amend ISE Rules 716 (Block Trades) and
environment.
only one method. The Commission will 723 (Price Improvement Mechanism for
C. Self-Regulatory Organization’s post all comments on the Commission’s Crossing Transactions) to modify the
Statement on Comments on the Internet Web site (http://www.sec.gov/ response times in the Block Order
Proposed Rule Change Received From rules/sro.shtml). Copies of the Mechanism, Facilitation Mechanism,
Members, Participants, or Others submission, all subsequent Solicited Order Mechanism, and Price
No written comments were solicited amendments, all written statements Improvement Mechanism (‘‘PIM’’) from
or received with respect to the proposed with respect to the proposed rule 500 milliseconds to a time period
change that are filed with the designated by the Exchange of no less
rule change.
Commission, and all written than 100 milliseconds and no more than
III. Date of Effectiveness of the communications relating to the 1 second. The proposed rule change was
Proposed Rule Change and Timing for proposed rule change between the published for comment in the Federal
Commission Action Commission and any person, other than Register on November 25, 2016.3 No
The foregoing rule change is effective those that may be withheld from the comment letters were received on the
upon filing pursuant to Section public in accordance with the proposed rule change. This order
19(b)(3)(A) 23 of the Act and provisions of 5 U.S.C. 552, will be approves the proposed rule change.
subparagraph (f)(2) of Rule 19b–4 24 available for Web site viewing and II. Description of the Proposed Rule
thereunder, because it establishes a due, printing in the Commission’s Public Change
fee, or other charge imposed by the Reference Room, 100 F Street NE.,
ISE Rule 716 (Block Trades) contains
Exchange. Washington, DC 20549 on official
the requirements applicable to the
At any time within 60 days of the business days between the hours of execution of orders using the Block
filing of such proposed rule change, the 10:00 a.m. and 3:00 p.m. Copies of the Order Mechanism, Facilitation
Commission summarily may filing also will be available for Mechanism, and Solicited Order
temporarily suspend such rule change if inspection and copying at the principal Mechanism. The Block Order
it appears to the Commission that such office of the Exchange. All comments Mechanism allows ISE members to
action is necessary or appropriate in the received will be posted without change; obtain liquidity for the execution of a
public interest, for the protection of the Commission does not edit personal block-size order.4 The Facilitation and
investors, or otherwise in furtherance of identifying information from Solicited Order Mechanisms allow ISE
the purposes of the Act. If the submissions. You should submit only members to enter cross transactions
Commission takes such action, the information that you wish to make seeking price improvement.5 ISE Rule
Commission shall institute proceedings available publicly. All submissions 723 (Price Improvement Mechanism for
under Section 19(b)(2)(B) 25 of the Act to should refer to File Number SR– Crossing Transactions) contains the
determine whether the proposed rule NYSEMKT–2016–127 and should be requirements applicable to the
change should be approved or submitted on or before January 31, 2017.
disapproved. For the Commission, by the Division of 1 15 U.S.C. 78s(b)(1).
Trading and Markets, pursuant to delegated 2 17 CFR 240.19b–4.
pmangrum on DSK3GDR082PROD with NOTICES

IV. Solicitation of Comments
authority.26 3 See Securities Exchange Act Release No. 79352

Interested persons are invited to Eduardo A. Aleman, (November 18, 2016), 81 FR 85277 (‘‘Notice’’).
submit written data, views, and 4 Block-size orders are orders for 50 contracts or
Assistant Secretary. more. See ISE Rule 716(a).
arguments concerning the foregoing,
[FR Doc. 2017–00221 Filed 1–9–17; 8:45 am] 5 Only block-size orders can be entered into the

BILLING CODE 8011–01–P
Facilitation Mechanism, whereas only orders for
23 15 U.S.C. 78s(b)(3)(A). 500 contracts or more can be entered into the
24 17 CFR 240.19b–4(f)(2). Solicited Order Mechanism. See ISE Rule 716(d)
25 15 U.S.C. 78s(b)(2)(B). 26 17 CFR 200.30–3(a)(12). and (e).

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3056 Federal Register / Vol. 82, No. 6 / Tuesday, January 10, 2017 / Notices

execution of orders using the PIM. The market and a national market system within 50 milliseconds of the initial
PIM allows ISE members to enter cross and, in general, to protect investors and order.12 Furthermore, with regard to the
transactions of any size. The the public interest, and not be designed impact of the proposal on system
Facilitation, Solicited Order to permit unfair discrimination between capacity, ISE has analyzed its capacity
Mechanisms, and PIM allow for ISE customers, issuers, brokers, or dealers. and represented that it has the necessary
members to designate certain customer The Commission also finds that the systems capacity to handle the potential
orders for price improvement and proposed rule change is consistent with additional traffic associated with the
submit such orders into one of the Section 6(b)(8) of the Act,10 which additional transactions that may occur
mechanisms with a matching contra requires that the rules of an exchange with the implementation of the
order. Once such an order is submitted, not impose any burden on competition reduction in the auction duration to no
ISE commences an auction by that is not necessary or appropriate in less than 100 milliseconds.13
broadcasting a message to all ISE furtherance of the purposes of the Act. Based on ISE’s statements, the
members that includes the series, price, The Commission believes that, given Commission believes that market
size, and side of the market.6 Further, the electronic environment of ISE, participants should continue to have
responses within the PIM (i.e., reducing each of the exposure periods opportunities to compete for exposed
Improvement Orders), are also broadcast from 500 milliseconds to no less than bids and offers within an exposure
to market participants during the 100 milliseconds could facilitate the period of no less than 100 milliseconds
auction. prompt execution of orders, while and no more than 1 second.14
Orders entered into the Block Order continuing to provide market Accordingly, the Commission believes
Mechanism, Facilitation Mechanism, participants with an opportunity to that it is consistent with the Act for the
Solicited Order Mechanism, and PIM compete for exposed bids and offers. To Exchange to modify the response times
are currently exposed to all market substantiate that its members could in the Block Mechanism, Facilitation
participants for 500 milliseconds, giving receive, process, and communicate a Mechanism, Solicited Order
them an opportunity to enter additional response back to ISE within 100 Mechanism, and PIM from 500
trading interest before the orders are milliseconds, ISE stated that it surveyed milliseconds to a time period designated
automatically executed. Under the all ISE members that responded to an by the Exchange of no less than 100
proposal, ISE would determine an auction in the period beginning July 1, milliseconds and no more than 1
exposure period for each of the four 2015 and ending January 15, 2016. Each second.
mechanisms that is no less than 100 of the twenty-one members surveyed
indicated that they can currently IV. Conclusion
milliseconds and no more than 1
second.7 receive, process, and communicate a It is therefore ordered, pursuant to
response back to ISE within 100 Section 19(b)(2) of the Act,15 that the
III. Discussion and Commission’s milliseconds. To implement the reduced proposed rule change (SR–ISE–2016–26)
Findings exposure periods and help ensure that be, and hereby is, approved.
After careful review, the Commission ISE’s and its members’ systems are For the Commission, by the Division of
finds that the proposed rule change is working properly given the faster Trading and Markets, pursuant to delegated
consistent with the requirements of the response times, ISE will reduce the authority.16
Act and the rules and regulations auction time over a period of weeks, Eduardo A. Aleman,
thereunder applicable to a national ending at 100 milliseconds. Upon Assistant Secretary.
securities exchange.8 In particular, the effectiveness of the proposal, and at [FR Doc. 2017–00217 Filed 1–9–17; 8:45 am]
Commission finds that the proposed least six weeks prior to implementation
BILLING CODE 8011–01–P
rule change is consistent with Section of the proposed rule change, ISE will
6(b)(5) of the Act,9 which requires, issue a circular to its members,
among other things, that the rules of a informing them of the implementation SECURITIES AND EXCHANGE
national securities exchange be date of the reduction of the auction from COMMISSION
designed to promote just and equitable 500 milliseconds to the auction time
designated by ISE (100 milliseconds) to [Investment Company Act Release No.
principles of trade, to foster cooperation 32413; 812–13828–01
and coordination with persons engaged allow members the opportunity to
in regulating transactions in securities, perform systems changes. ISE also
Hartford Funds Exchange-Traded
to remove impediments to and perfect represented that it will issue a circular
Trust, et al.; Notice of Application]
the mechanism of a free and open at least four weeks prior to any future
changes, as permitted by its rules, to the January 4, 2017.
6 ISE members may choose to hide the size, side, auction time.11 In addition, ISE AGENCY: Securities and Exchange
and price when entering orders into the Block reviewed all executions occurring in the Commission (‘‘Commission’’).
Order Mechanism. mechanisms by ISE members from ACTION: Notice of an application for an
7 While the proposed rule change would allow
March 28, 2016 to April 25, 2016. This order under section 6(c) of the
ISE to increase the exposure period up to 1 second,
ISE stated that it currently intends to decrease the
review of executions in the mechanisms Investment Company Act of 1940 (the
time period allowed for responses to 100 indicated that approximately 98% of ‘‘Act’’) for an exemption from sections
milliseconds. See Notice, supra note 3, at 85278. responses that resulted in price 2(a)(32), 5(a)(1), 22(d), and 22(e) of the
ISE further noted that its proposal is consistent with improving executions at the conclusion
exposure periods permitted in similar mechanisms
on other options exchanges. See id. at 85278. See
of an auction were submitted within 500 12 See id.
pmangrum on DSK3GDR082PROD with NOTICES

also Securities Exchange Act Release Nos. 76301 milliseconds. Approximately 94% of 13 See id.
(October 29, 2015), 80 FR 68347 (November 4, 2015) responses that resulted in price 14 The Commission notes that the ability to

(SR–BX–2015–032) and 77557 (April 7, 2016), 81 improving executions at the conclusion designate such an exposure time period is
FR 21935 (April 13, 2016) (SR–Phlx–2016–40). consistent with the rules of other options
8 In approving this proposed rule change, the
of an auction were submitted within 100 exchanges. See supra note 7. See also NASDAQ
Commission has considered the proposed rule’s milliseconds, and 83% were submitted Phlx Rule 1080(n)(ii)(A)(4) and NASDAQ BX
impact on efficiency, competition, and capital Options Rules Chapter VI, Section 9(ii)(A)(3).
formation. See 15 U.S.C. 78c(f). 10 15 U.S.C. 78f(b)(8). 15 15 U.S.C. 78s(b)(2).
9 15 U.S.C. 78f(b)(5). 11 See Notice, supra note 3, at 85279. 16 17 CFR 200.30–3(a)(12).

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Document Created: 2018-02-01 14:54:14
Document Modified: 2018-02-01 14:54:14
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		82 FR 3055