82 FR 8469 - Self-Regulatory Organizations; International Securities Exchange, LLC; Order Granting Approval of Proposed Rule Change To Amend ISE Rule 723 and To Make Pilot Program Permanent
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 15 (January 25, 2017)
Federal Register Volume 82, Issue 15 (January 25, 2017)
| Page Range | 8469-8472 | |
| FR Document | 2017-01608 |
[Federal Register Volume 82, Number 15 (Wednesday, January 25, 2017)] [Notices] [Pages 8469-8472] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-01608] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79829; File No. SR-ISE-2016-29] Self-Regulatory Organizations; International Securities Exchange, LLC; Order Granting Approval of Proposed Rule Change To Amend ISE Rule 723 and To Make Pilot Program Permanent January 18, 2017. I. Introduction On December 12, 2016, the International Securities Exchange, LLC (the ``Exchange'' or the ``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 the eligibility requirements for its Price Improvement Mechanism (``PIM'' or ``Auction'') and make permanent those aspects of the PIM that are currently operating on a pilot basis. The proposed rule change was published for comment in the Federal Register on December 16, 2016.\3\ The Commission received no comments regarding the proposal. This order approves the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 79530 (December 12, 2016), 81 FR 91221 (``Notice''). --------------------------------------------------------------------------- II. Description of the Proposal The Exchange established PIM in December 2004 as a price improvement mechanism.\4\ Pursuant to ISE Rule 723, an Electronic Access Member (``EAM'') may electronically submit for execution an order it represents as agent (``Agency Order'') against principal interest or against a solicited order for the full size of the Agency Order, provided it submits the Agency Order for electronic execution into the PIM (a ``Crossing Transaction''). Parts of the PIM are currently operating on a pilot basis (``Pilot''),\5\ which is set to expire on [[Page 8470]] January 18, 2017.\6\ The Exchange proposes to make the Pilot permanent, and also proposes to amend the Auction eligibility requirements for certain Agency Orders of less than 50 option contracts. --------------------------------------------------------------------------- \4\ See Securities Exchange Act Release No. 50819 (December 8, 2004), 69 FR 75093 (December 15, 2004) (SR-ISE-2003-06) (``PIM Approval Order''). \5\ Two components of PIM were approved by the Commission on a pilot basis: (1) The early conclusion of the PIM; and (2) no minimum size requirement of orders. \6\ See Securities Exchange Act Release No. 78344 (July 15, 2016), 81 FR 47459 (July 21, 2016) (SR-ISE-2016-17) (``PIM July 2016 Extension''). --------------------------------------------------------------------------- A. PIM Eligibility Requirements for Agency Orders of Fewer than 50 Contracts Currently, the PIM may be initiated if certain conditions are met. The Crossing Transaction must be entered only at a price that is equal to or better than the National Best Bid/Offer (``NBBO'') on the opposite side of the market from the Agency Order, and better than the limit order or quote on the ISE order book on the same side of the Agency Order.\7\ --------------------------------------------------------------------------- \7\ See ISE Rule 723(b)(1). --------------------------------------------------------------------------- ISE proposes to amend ISE Rule 723(b) to require EAMs to provide at least $0.01 price improvement for an Agency Order if that order is for less than 50 option contracts and if the difference between the NBBO is $0.01. For the period beginning January 19, 2017 until a date specified by the Exchange in a Regulatory Information Circular, which date shall be no later than July 15, 2017, ISE will adopt a member conduct standard to implement this requirement.\8\ Under this provision, ISE is proposing to amend the Auction Eligibility Requirements to require that, if the Agency Order is for less than 50 option contracts, and if the difference between the NBBO is $0.01, an EAM shall not enter a Crossing Transaction unless such Crossing Transaction is entered at a price that is one minimum price improvement increment better than the NBBO on the opposite side of the market from the Agency Order, and better than any limit order on the limit order book on the same side of the market as the Agency Order. This requirement will apply regardless of whether the Agency Order is for the account of a public customer, or where the Agency Order is for the account of a broker dealer or any other person or entity that is not a Public Customer. --------------------------------------------------------------------------- \8\ The Exchange notes that its indirect parent company, U.S. Exchange Holdings, Inc. has been acquired by Nasdaq, Inc. See Securities Exchange Act Release No. 78119 (June 21, 2016), 81 FR 41611 (June 27, 2016) (SR-ISE-2016-11). Pursuant to this acquisition, ISE platforms are migrating to Nasdaq platforms, including the platform that operates PIM. ISE intends to retain the proposed member conduct standard requiring price improvement for options orders of under 50 contracts where the difference between the NBBO is $0.01 until the ISE platforms and the corresponding symbols are migrated to the platforms operated by Nasdaq, Inc. See Notice, supra note 3, at 91223 n.7. --------------------------------------------------------------------------- To enforce this requirement, ISE also proposes to add ISE Rule 1614(d)(4), which will provide that any member who enters an order into PIM for less than 50 contracts, while the difference between the NBBO is $0.01, must provide price improvement of at least one minimum price improvement increment better than the NBBO on the opposite side of the market from the Agency Order, which increment may not be smaller than $0.01. Failure to provide such price improvement will result in members being subject to the following fines: $500 for the second offense, $1,000 for the third offense, and $2,500 for the fourth offense. Subsequent offenses will subject the member to formal disciplinary action. The Exchange will review violations on a monthly cycle to assess these violations. This provision shall also be in effect for the period beginning January 19, 2017 until a date specified by the Exchange in a Regulatory Information Circular, which date shall be no later than September 15, 2017.\9\ The Exchange stated that it will conduct electronic surveillance of the PIM to ensure that members comply with the proposed price improvement requirements for option orders of less than 50 contracts.\10\ --------------------------------------------------------------------------- \9\ As noted above, ISE will be eliminating the member conduct standard requiring price improvement for options orders of under 50 contracts, where the difference between the NBBO is $0.01, by July 15, 2017. However, ISE Mercury, LLC (``ISE Mercury'') filed a rule change that adopts a similar member conduct standard, and that references proposed ISE Rule 1614(d)(4) as the means for enforcing its member conduct standard. See Securities Exchange Act Release No. 79539 (December 13, 2016), 81 FR 91982 (December 19, 2016) (SR- ISEMercury-2016-25). ISE Mercury proposed that its member conduct standard shall be in effect until a date specified by ISE Mercury in a Regulatory Information Circular, which date shall be no later than September 15, 2017. Accordingly, ISE is proposing that the date for eliminating Rule 1614(d)(4) shall be specified by the Exchange in a Regulatory Information Circular, which date shall be no later than until September 15, 2017. \10\ See Notice, supra note 3, at 91223. --------------------------------------------------------------------------- The Exchange is also proposing a systems-based mechanism to implement this price improvement requirement, which shall be effective following the migration of a symbol to INET, the platform operated by Nasdaq, Inc. that will also operate the PIM.\11\ Under this provision, if the Agency Order is for less than 50 option contracts, and if the difference between the NBBO is $0.01, the Crossing Transaction must be entered at one minimum price improvement increment better than the NBBO on the opposite side of the market from the Agency Order and better than the limit order or quote on the ISE order book on the same side of the Agency Order. --------------------------------------------------------------------------- \11\ See id. at 91224. See also proposed ISE Rule 723(b). --------------------------------------------------------------------------- The Exchange will retain the current requirements for PIM eligibility in all other instances. Accordingly, if the Agency Order is for 50 option contracts or more or if the difference between the NBBO is greater than $0.01, the Crossing Transaction must be entered only at a price that is equal to or better than the NBBO and better than the limit order or quote on the ISE order book on the same side as the Agency Order. The Exchange believes that these changes to PIM may provide additional opportunities for Agency Orders of fewer than 50 option contracts to receive price improvement over the NBBO where the difference in the NBBO is $0.01.\12\ The Exchange notes that the statistics for the current pilot, which include, among other things, price improvement for orders of fewer than 50 option contracts under the current Auction eligibility requirements, show relatively small amounts of price improvement for such orders.\13\ ISE believes that the proposed requirements will therefore increase the price improvement that orders of fewer than 50 option contracts may receive in PIM.\14\ --------------------------------------------------------------------------- \12\ See Notice, supra note 3, at 91224. \13\ See id. \14\ See id. --------------------------------------------------------------------------- B. Pilot Program Two components of the PIM were approved by the Commission on a pilot basis: (1) The early conclusion of the PIM; \15\ and (2) no minimum size requirement of orders. The provisions were approved for a pilot period that currently expires on January 18, 2017.\16\ The Exchange proposes to have the Pilot approved on a permanent basis. --------------------------------------------------------------------------- \15\ See ISE Rule 723(c)(5) and (d)(4). \16\ See PIM July 2016 Extension, supra note 6. --------------------------------------------------------------------------- During the Pilot period, the Exchange submitted certain data periodically as required by the Commission, to provide supporting evidence that, among other things, there is meaningful competition for all size orders, there is significant price improvement available through the PIM, and that there is an active and liquid market functioning on the Exchange outside of the Auction mechanism.\17\ --------------------------------------------------------------------------- \17\ See Supplementary Material .03 to ISE Rule 723. --------------------------------------------------------------------------- 1. No Minimum Size Requirement Supplemental Material .03 to Rule 723 provides that, as part of the current Pilot, there will be no minimum size requirement for orders to be eligible for the Auction. The Exchange believes that the data gathered since the approval of [[Page 8471]] the Pilot, which it discussed in the Notice, establishes that there is liquidity and competition both within the PIM and outside of the PIM, and that there are opportunities for significant price improvement within the PIM.\18\ --------------------------------------------------------------------------- \18\ See Notice, supra note 3, at 91224-25. See also Exhibit 3 to SR-ISE-2016-29. --------------------------------------------------------------------------- The Exchange compiled price improvement data in simple PIM orders from January through June 2016. For January 2016, where the order was on behalf of a Public Customer, the order was for 50 contracts or less, and ISE was at the NBBO, the most contracts traded (194,249) occurred when the spread was between $0.05 and $0.10.\19\ Of these, the greatest number of contracts (43,888) received no price improvement. When the spread was $0.01 for this same category, a total of 17,202 contracts traded; 16,032 contracts received no price improvement, and 1,170 received $0.01 price improvement.\20\ --------------------------------------------------------------------------- \19\ According to the Exchange, this discussion of January 2016 data is illustrative of data that was gathered between January 2016 and July 2016. See Notice, supra note 3, at 91224 n.12. The complete underlying data for January 2016 through June 2016 was attached as Exhibits 3A and 3B to the Notice. \20\ See Notice, supra note 3, at 91224. --------------------------------------------------------------------------- In comparison, in January 2016, where the order was on behalf of a Public Customer, and the order was for greater than 50 contracts, and ISE was at the NBBO, the most contracts traded (14,078) occurred where the spread was between $0.10 and $0.20. Of those contracts, the greatest number of contracts (6,254) received price improvement of $0.05 to $0.10, and 44 contracts received no price improvement.\21\ --------------------------------------------------------------------------- \21\ See id. at 91224-25. --------------------------------------------------------------------------- In January 2016, where the order was on behalf of a Public Customer, the order was for 50 contracts or less, and ISE was not at the NBBO, the most contracts traded (76,326) occurred when the spread was between $0.05 and $0.10. Of these contracts, the greatest number of contracts (18,008) received no price improvement.\22\ In comparison, when the spread was $0.01 in this same category, a total of 17,687 contracts traded; 17,270 of those contracts received no price improvement, and 417 of those contracts received $0.01 price improvement.\23\ --------------------------------------------------------------------------- \22\ See id. at 91225. \23\ See id. --------------------------------------------------------------------------- In comparison, in January 2016, where the order was on behalf of a Public Customer, the order was for greater than 50 contracts, and ISE was not at the NBBO, the most contracts traded (10,541) occurred when the spread was between $0.10 and $0.20. Of these contracts, the greatest number (3,738) received price improvement of $0.05 to $0.10.\24\ --------------------------------------------------------------------------- \24\ See id. --------------------------------------------------------------------------- In January 2016, the greatest number of complex orders traded (2,139) traded when the spread was at $0.05. Of those orders, 181 represented orders of 50 or fewer contracts. During that period, the highest percentage (29.30%) of orders of greater than 50 contracts received $0.01 price improvement, and the highest percentage (20.4%) received no price improvement.\25\ --------------------------------------------------------------------------- \25\ See id. --------------------------------------------------------------------------- ISE believes that the data gathered during the Pilot period indicates that there is meaningful competition in PIM auctions for all size orders, there is an active and liquid market functioning on the Exchange outside of the auction mechanism, and that, coupled with the proposed requirements for price improvement for options orders of under 50 contracts, there are opportunities for significant price improvement for orders executed through PIM.\26\ The Exchange therefore has requested that the Commission approve the no-minimum size requirement on a permanent basis. --------------------------------------------------------------------------- \26\ See id. --------------------------------------------------------------------------- 2. Early Conclusion of the PIM Supplemental Material .05 to Rule 723 provides that Rule 723(c)(5) and Rule 723(d)(4), which relate to the termination of the exposure period by unrelated orders shall be part of the current Pilot. Rule 723(c)(5) provides that the exposure period will automatically terminate (i) at the end of the 500 millisecond period,\27\ (ii) upon the receipt of a market or marketable limit order on the Exchange in the same series, or (iii) upon the receipt of a nonmarketable limit order in the same series on the same side of the market as the Agency Order that would cause the price of the Crossing Transaction to be outside of the best bid or offer on the Exchange. Rule 723(d)(4) provides that, when a market order or marketable limit order on the opposite side of the market from the Agency Order ends the exposure period, it will participate in the execution of the Agency Order at the price that is mid-way between the best counter-side interest and the NBBO, so that both the market or marketable limit order and the Agency Order receive price improvement. Transactions will be rounded, when necessary, to the $0.01 increment that favors the Agency Order. --------------------------------------------------------------------------- \27\ The Commission notes that, at the time of the filing of this proposal, the duration of the exposure period was 500 milliseconds. See Securities Exchange Act Release No. 68849 (February 6, 2013), 78 FR 9973 (February 12, 2013) (SR-ISE-2012- 100). The Exchange recently received approval to modify the exposure period to a time period designated by the Exchange of no less than 100 milliseconds and no more than one second. See Securities Exchange Act Release No. 79733 (January 4, 2017), 82 FR 3055 (January 10, 2017) (SR-ISE-2016-26). --------------------------------------------------------------------------- As with the no minimum size requirement, the Exchange has gathered data on these three conditions to assess the effect of early PIM conclusions on the Pilot. For the period from January 2016 through June 2016, there were a total of 673 early terminated Auctions. The number of orders in early terminated PIM auctions constituted 0.15% of total PIM orders.\28\ There were a total of 9,595 contracts that traded through early terminated Auctions. The number of contracts in early terminated PIM auctions represented 0.13% of total PIM contracts.\29\ For complex orders, in January 2016, one order terminated early, and the PIM period upon termination was greater than or equal to 0.5 seconds.\30\ --------------------------------------------------------------------------- \28\ See Notice, supra note 3, at 91225. \29\ See id. \30\ See id. at 91226. --------------------------------------------------------------------------- Based on the data gathered during the Pilot, the Exchange does not anticipate that any of these conditions will occur with significant frequency in either simple or complex orders, or will otherwise significantly affect the functioning of the PIM.\31\ The Exchange therefore has requested that the Commission approve this aspect of the Pilot on a permanent basis. --------------------------------------------------------------------------- \31\ See id. --------------------------------------------------------------------------- III. Discussion and Commission 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 and, in particular, with Section 6(b) of the Act.\32\ In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,\33\ which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in [[Page 8472]] general, to protect customers, issuers, brokers and dealers. --------------------------------------------------------------------------- \32\ 15 U.S.C. 78f(b). 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). \33\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- As part of its proposal, the Exchange provided summary data on Exhibit 3 of its filing for the period January through June 2016, which the Exchange and Commission both publicly posted on their respective Web sites. Among other things, this data is useful in assessing the level of price improvement in the Auction, in particular for orders for fewer than 50 contracts; the degree of competition for order flow in such Auctions; and a comparison of liquidity in the Auctions with liquidity on the Exchange generally.\34\ Based on the data provided by the Exchange, the Commission believes that the Exchange's price improvement auction generally delivers a meaningful opportunity for price improvement to orders, including orders for fewer than 50 contracts, when the spread in the option is $0.02 or more. At the same time, as the Exchange has recognized, the data do not demonstrate that such orders have realized significant price improvement when the NBBO has a bid/ask differential of $0.01.\35\ Recognizing this, the Exchange has proposed to amend the Auction eligibility requirements to require the Initiating Participant to guarantee at least $0.01 of price improvement for Agency Orders of fewer than 50 contracts where the NBBO has a bid/ask differential of $0.01, whether or not the Exchange BBO is the same as the NBBO. --------------------------------------------------------------------------- \34\ See Exhibit 3 to SR-ISE-2016-29. \35\ See Notice, supra note 3 at 91976. --------------------------------------------------------------------------- The Exchange's proposal to modify the Auction eligibility requirements for orders of fewer than 50 contracts and seek permanent approval of the Pilot, as amended with the new provision, will, in the Commission's view, promote opportunities for price improvement for such orders when the NBBO is $0.01 wide, while continuing to provide opportunities for price improvement when spreads are wider than $0.01. In addition, the Commission has carefully evaluated the Pilot data and has determined that it would be beneficial to customers and to the options market as a whole to approve on a permanent basis the provisions concerning early conclusion of the PIM. The Commission notes that there have been few instances of early termination of the PIM. The Commission believes that, particularly for Auctions for fewer than 50 contracts when the bid/ask differential is wider than $0.01, the data provided by the Exchange support its proposal to make the Pilot permanent. The data demonstrate that the Auction generally provides price improvement opportunities to orders, including orders of retail customers and particularly when the bid/ask differential is wider than $0.01; that there is meaningful competition for orders on the Exchange; and that there exists an active and liquid market functioning on the Exchange outside of the Auction.\36\ The Commission further believes that the proposed revisions to the eligibility requirements for orders of fewer than 50 contracts with respect to circumstances when the NBBO is no more than $0.01 wide should help to enhance the operation of the Auction by providing meaningful opportunities for price improvement in such circumstances, and should benefit investors and others in a manner that is consistent with the Act. --------------------------------------------------------------------------- \36\ See Exhibit 3 to SR-ISE-2016-29. --------------------------------------------------------------------------- The Commission further notes that, as discussed more fully above, ISE is initially proposing to implement is price improvement requirement for Agency Orders of fewer than 50 option contracts where the difference in the NBBO is $0.01 with a member conduct standard.\37\ As described in greater detail above, ISE proposes to enforce this requirement under proposed ISE Rule 1614(d)(4). The Commission believes that ISE's proposed member conduct standard and its Rule 1614(d)(4) are reasonable means to implement the price improvement requirement until implementation of its proposed systems-based mechanism for this requirement, which will become effective following the migration of a symbol to INET, the platform operated by Nasdaq, Inc. that will also operate the PIM. The Commission further notes that the Exchange has represented that its proposed member conduct standard will be effective until the migration of all symbols to the INET platform, which shall be no later than July 15, 2017.\38\ --------------------------------------------------------------------------- \37\ The Exchange stated that it will conduct electronic surveillance of the PIM to ensure that members comply with the proposed price improvement requirements for option orders of fewer than 50 contracts. See Notice, supra note 3, at 91223. \38\ See Notice, supra note 3, at 91223 & n.7. --------------------------------------------------------------------------- Thus, the Commission has determined to approve the Exchange's proposed revisions to ISE Rule 723(b), Supplementary Material .03 and .05 to ISE Rule 723, and ISE Rule 1614(d), and to approve the Pilot, as proposed to be modified, on a permanent basis. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\39\ that the proposed rule change (SR-ISE-2016-29), be and hereby is approved. --------------------------------------------------------------------------- \39\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\40\ --------------------------------------------------------------------------- \40\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-01608 Filed 1-24-17; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 82, No. 15 / Wednesday, January 25, 2017 / Notices 8469
is still in the process of considering its comment on whether any relief should By the Commission.
rules under Title VII of the Dodd-Frank be granted with respect to any specific Eduardo A. Aleman,
Act.14 Therefore, the Commission Unlinked Temporary Exemption(s) Assistant Secretary.
believes it is necessary or appropriate in beyond February 5, 2018. To the extent [FR Doc. 2017–01620 Filed 1–24–17; 8:45 am]
the public interest, and consistent with that interested parties request specific BILLING CODE 8011–01–P
the protection of investors to extend the relief for any of the Unlinked
Unlinked Temporary Exemptions until Temporary Exemptions beyond
February 5, 2018 to avoid any potential February 5, 2018, any request should be SECURITIES AND EXCHANGE
market disruption stemming from the detailed as to the circumstances in COMMISSION
application of certain existing Exchange which the Exchange Act provision or
Act provisions and rules to security- rule applies to security-based swaps or [Release No. 34–79829; File No. SR–ISE–
based swap activities. This approach security-based swap market 2016–29]
also will provide the Commission with participants, and why relief would be Self-Regulatory Organizations;
additional time to consider the potential necessary. International Securities Exchange,
impact of the revision of the Exchange Comments may be submitted by any LLC; Order Granting Approval of
Act definition of ‘‘security’’ on the of the following methods: Proposed Rule Change To Amend ISE
scope of the Exchange Act provisions
Electronic Comments Rule 723 and To Make Pilot Program
and rules applicable to security-based
Permanent
swaps, as well as the appropriateness of • Use the Commission’s Internet
applying certain Exchange Act comment form (http://www.sec.gov/ January 18, 2017.
provisions and rules to security-based rules/exorders.shtml); or
swap activities in light of the I. Introduction
• Send an email to rule-comments@
Commission’s continuing rulemaking On December 12, 2016, the
sec.gov. Please include File Number S7–
efforts. International Securities Exchange, LLC
Accordingly, pursuant to its authority 27–11 on the subject line; or
(the ‘‘Exchange’’ or the ‘‘ISE’’) filed with
under Section 36 of the Exchange Act,15 • Use the Federal eRulemaking Portal the Securities and Exchange
the Commission believes it is necessary (http://www.regulations.gov). Follow the Commission (‘‘Commission’’), pursuant
or appropriate in the public interest, instructions for submitting comments. to Section 19(b)(1) of the Securities
and consistent with the protection of Paper Comments Exchange Act of 1934 (‘‘Act’’) 1, and
investors to extend the expiration of the Rule 19b–4 thereunder,2 a proposed rule
Unlinked Temporary Exemptions until • Send paper comments in triplicate change to amend the eligibility
February 5, 2018. to Secretary, Securities and Exchange requirements for its Price Improvement
Commission, 100 F St. NE., Washington, Mechanism (‘‘PIM’’ or ‘‘Auction’’) and
III. Solicitation of Comments DC 20549–1090. make permanent those aspects of the
The Commission is providing PIM that are currently operating on a
All submissions should refer to File
interested parties the opportunity to pilot basis. The proposed rule change
Number S7–27–11. This file number
should be included on the subject line was published for comment in the
(Apr. 14, 2016), 81 FR 29960 (May 13, 2016); Federal Register on December 16,
Regulation SBSR—Reporting and Dissemination of if email is used. To help us process and
Security-Based Swap Information, Exchange Act review your comments more efficiently, 2016.3 The Commission received no
Release No. 78321 (Jul. 14, 2016), 81 FR 53545 please use only one method. The comments regarding the proposal. This
(Aug. 12, 2016); and Access to Data Obtained by Commission will post all comments on order approves the proposed rule
Security-Based Swap Data Repositories, Exchange change.
Act Release No. 78716 (Aug. 29, 2016), 81 FR 60585 the Commission’s Internet Web site
(Sep. 2, 2016). (http://www.sec.gov/rules/ II. Description of the Proposal
14 See e.g., Registration and Regulation of exorders.shtml). Comments are also
Security-Based Swap Execution Facilities, available for Web site viewing and The Exchange established PIM in
Exchange Act Release No. 63825 (Feb. 2, 2011), 76
printing in the Commission’s Public December 2004 as a price improvement
FR 10948 (Feb. 28, 2011); Capital, Margin, and mechanism.4 Pursuant to ISE Rule 723,
Segregation Requirements for Security-Based Swap Reference Room, 100 F St. NE.,
Dealers and Major Security-Based Swap Washington, DC 20549 on official an Electronic Access Member (‘‘EAM’’)
Participants and Capital Requirements for Broker- business days between the hours of 10 may electronically submit for execution
Dealers, Exchange Act Release No. 68071 (Oct. 18,
a.m. and 3 p.m. All comments received an order it represents as agent (‘‘Agency
2012), 77 FR 70213 (Nov. 23, 2012); Recordkeeping Order’’) against principal interest or
and Reporting Requirements for Security-Based will be posted without change; the
Swap Dealers, Major Security-Based Swap Commission does not edit personal against a solicited order for the full size
Participants, and Broker-Dealers; Capital Rule for identifying information from of the Agency Order, provided it
Certain Security-Based Swap Dealers; Proposed
submissions. You should submit only submits the Agency Order for electronic
Rules, Exchange Act Release No. 71958 (Apr. 17, execution into the PIM (a ‘‘Crossing
2014), 79 FR 25194 (May 2, 2014); and Applications information that you wish to make
by Security-Based Swap Dealers or Major Security- available publicly. Transaction’’). Parts of the PIM are
Based Swap Participants for Statutorily Disqualified currently operating on a pilot basis
Associated Person To Effect or Be Involved in IV. Conclusion (‘‘Pilot’’),5 which is set to expire on
Effecting Security-Based Swaps, Exchange Act
Release No. 75612 (Aug 5, 2015), 80 FR 51684 (Aug. It is hereby ordered, pursuant to 1 15 U.S.C. 78s(b)(1).
25, 2015). Section 36 of the Exchange Act, that the 2 17
15 15 U.S.C. 78mm. Section 36 of the Exchange CFR 240.19b–4.
Unlinked Temporary Exemptions
mstockstill on DSK3G9T082PROD with NOTICES
3 See Securities Exchange Act Release No. 79530
Act authorizes the Commission to conditionally or
unconditionally exempt, by rule, regulation, or
contained in the Exchange Act (December 12, 2016), 81 FR 91221 (‘‘Notice’’).
order any person, security, or transaction (or any Exemptive Order and extended in the 4 See Securities Exchange Act Release No. 50819
class or classes of persons, securities, or Extension Order in connection with the (December 8, 2004), 69 FR 75093 (December 15,
transactions) from any provision of the Exchange revisions of the Exchange Act definition 2004) (SR–ISE–2003–06) (‘‘PIM Approval Order’’).
Act or any rule or regulation thereunder, to the 5 Two components of PIM were approved by the
extent such exemption is necessary or appropriate
of ‘‘security’’ to encompass security- Commission on a pilot basis: (1) The early
in the public interest, and is consistent with the based swaps are extended until conclusion of the PIM; and (2) no minimum size
protection of investors. February 5, 2018. requirement of orders.
VerDate Sep<11>2014 20:29 Jan 24, 2017 Jkt 241001 PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 E:\FR\FM\25JAN1.SGM 25JAN1](https://thefederalregister.org/doc/82_FR_8484/page/1.svg)
![8472 Federal Register / Vol. 82, No. 15 / Wednesday, January 25, 2017 / Notices
general, to protect customers, issuers, generally provides price improvement proposed rule change (SR–ISE–2016–
brokers and dealers. opportunities to orders, including 29), be and hereby is approved.
As part of its proposal, the Exchange orders of retail customers and For the Commission, by the Division of
provided summary data on Exhibit 3 of particularly when the bid/ask Trading and Markets, pursuant to delegated
its filing for the period January through differential is wider than $0.01; that authority.40
June 2016, which the Exchange and there is meaningful competition for Eduardo A. Aleman,
Commission both publicly posted on orders on the Exchange; and that there Assistant Secretary.
their respective Web sites. Among other exists an active and liquid market [FR Doc. 2017–01608 Filed 1–24–17; 8:45 am]
things, this data is useful in assessing functioning on the Exchange outside of BILLING CODE 8011–01–P
the level of price improvement in the the Auction.36 The Commission further
Auction, in particular for orders for believes that the proposed revisions to
fewer than 50 contracts; the degree of the eligibility requirements for orders of SECURITIES AND EXCHANGE
competition for order flow in such fewer than 50 contracts with respect to COMMISSION
Auctions; and a comparison of liquidity circumstances when the NBBO is no
in the Auctions with liquidity on the more than $0.01 wide should help to [Release No. 34–79837; File No. SR–MIAX–
Exchange generally.34 Based on the data 2016–46]
enhance the operation of the Auction by
provided by the Exchange, the providing meaningful opportunities for Self-Regulatory Organizations; Miami
Commission believes that the price improvement in such International Securities Exchange LLC;
Exchange’s price improvement auction circumstances, and should benefit Order Granting Approval of a
generally delivers a meaningful investors and others in a manner that is Proposed Rule Change To Amend Rule
opportunity for price improvement to consistent with the Act. 515A, MIAX Price Improvement
orders, including orders for fewer than The Commission further notes that, as
50 contracts, when the spread in the Mechanism (‘‘PRIME’’) and PRIME
discussed more fully above, ISE is Solicitation Mechanism
option is $0.02 or more. At the same
initially proposing to implement is price
time, as the Exchange has recognized, January 18, 2017.
improvement requirement for Agency
the data do not demonstrate that such
Orders of fewer than 50 option contracts I. Introduction
orders have realized significant price
where the difference in the NBBO is
improvement when the NBBO has a bid/ On November 25, 2016, Miami
$0.01 with a member conduct
ask differential of $0.01.35 Recognizing International Securities Exchange LLC
standard.37 As described in greater
this, the Exchange has proposed to (‘‘MIAX’’ or ‘‘Exchange’’) filed with the
detail above, ISE proposes to enforce
amend the Auction eligibility Securities and Exchange Commission
this requirement under proposed ISE
requirements to require the Initiating (‘‘Commission’’), pursuant to the
Participant to guarantee at least $0.01 of Rule 1614(d)(4). The Commission
provisions of Section 19(b)(1) of the
price improvement for Agency Orders of believes that ISE’s proposed member
Securities Exchange Act of 1934
fewer than 50 contracts where the conduct standard and its Rule
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
NBBO has a bid/ask differential of 1614(d)(4) are reasonable means to
proposed rule change to amend the
$0.01, whether or not the Exchange BBO implement the price improvement
eligibility requirements for the MIAX
is the same as the NBBO. requirement until implementation of its
Price Improvement Mechanism
The Exchange’s proposal to modify proposed systems-based mechanism for
(‘‘PRIME’’ or ‘‘Auction’’) and make
the Auction eligibility requirements for this requirement, which will become
permanent a pilot program for PRIME.
orders of fewer than 50 contracts and effective following the migration of a
The proposed rule change was
seek permanent approval of the Pilot, as symbol to INET, the platform operated
published for comment in the Federal
amended with the new provision, will, by Nasdaq, Inc. that will also operate
Register on December 13, 2016.3 The
in the Commission’s view, promote the PIM. The Commission further notes
Commission received no comments
opportunities for price improvement for that the Exchange has represented that
regarding the proposal. This order
such orders when the NBBO is $0.01 its proposed member conduct standard
approves the proposed rule change.
wide, while continuing to provide will be effective until the migration of
opportunities for price improvement all symbols to the INET platform, which II. Description of the Proposal
when spreads are wider than $0.01. shall be no later than July 15, 2017.38 PRIME is a process by which a MIAX
In addition, the Commission has Thus, the Commission has Member may electronically submit for
carefully evaluated the Pilot data and determined to approve the Exchange’s execution an order it represents as agent
has determined that it would be proposed revisions to ISE Rule 723(b), (‘‘Agency Order’’) against principal
beneficial to customers and to the Supplementary Material .03 and .05 to interest and/or an Agency Order against
options market as a whole to approve on ISE Rule 723, and ISE Rule 1614(d), and solicited interest.4 The Member that
a permanent basis the provisions to approve the Pilot, as proposed to be submits the Agency Order (the
concerning early conclusion of the PIM. modified, on a permanent basis. ‘‘Initiating Member’’) must guarantee
The Commission notes that there have IV. Conclusion the execution of the Agency Order by
been few instances of early termination submitting a contra-side order
of the PIM. It is therefore ordered, pursuant to representing principal interest or
The Commission believes that, Section 19(b)(2) of the Act,39 that the solicited interest (‘‘Contra-side Order’’).
particularly for Auctions for fewer than
mstockstill on DSK3G9T082PROD with NOTICES
50 contracts when the bid/ask 36 See Exhibit 3 to SR–ISE–2016–29. 40 17 CFR 200.30–3(a)(12).
differential is wider than $0.01, the data 37 The Exchange stated that it will conduct 1 15 U.S.C. 78s(b)(1).
provided by the Exchange support its electronic surveillance of the PIM to ensure that 2 17 CFR 240.19b–4.
members comply with the proposed price 3 See Securities Exchange Act Release No. 79500
proposal to make the Pilot permanent. improvement requirements for option orders of (December 7, 2016), 81 FR 90030 (‘‘Notice’’).
The data demonstrate that the Auction fewer than 50 contracts. See Notice, supra note 3, 4 See MIAX Rule 515A(a). PRIME was introduced
at 91223. in 2014. See Securities Exchange Act Release No.
34 See Exhibit 3 to SR–ISE–2016–29. 38 See Notice, supra note 3, at 91223 & n.7.
72009 (April 23, 2014), 79 FR 24032 (April 29,
35 See Notice, supra note 3 at 91976. 39 15 U.S.C. 78s(b)(2). 2014) (‘‘PRIME Approval Order’’).
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Document Created: 2017-01-25 00:08:53
Document Modified: 2017-01-25 00:08:53
| 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 8469 |
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