82 FR 8474 - Self-Regulatory Organizations; ISE Gemini, LLC; Order Granting Approval of Proposed Rule Change To Amend ISE Gemini 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 | 8474-8477 | |
| FR Document | 2017-01618 |
[Federal Register Volume 82, Number 15 (Wednesday, January 25, 2017)] [Notices] [Pages 8474-8477] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-01618] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79840; File No. SR-ISEGemini-2016-23] Self-Regulatory Organizations; ISE Gemini, LLC; Order Granting Approval of Proposed Rule Change To Amend ISE Gemini Rule 723 and To Make Pilot Program Permanent January 18, 2017. I. Introduction On December 12, 2016, ISE Gemini, LLC (the ``Exchange'' or ``ISE Gemini'') 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 19, 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. 79541 (December 13, 2016), 81 FR 91974 (``Notice''). --------------------------------------------------------------------------- II. Description of the Proposal The Exchange adopted PIM as part of its application to be registered as a national securities exchange under its previous name of Topaz Exchange, LLC (``Topaz'').\4\ Pursuant to ISE Gemini 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 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. 70050 (July 26, 2013), 78 FR 46622 (August 1, 2013) (File No. 10-209) (``Exchange Approval Order''). The Exchange's PIM was largely based on a similar functionality offered by the International Securities Exchange, LLC (``ISE''). See id. The Exchange subsequently changed its name to ISE Gemini. See Securities Exchange Act Release No. 71586 (February 20, 2014), 79 FR 10861 (February 26, 2014) (SR-Topaz-2014-06). \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. 78343 (July 15, 2016), 81 FR 47483 (July 21, 2016) (SR-ISEGemini-2016-07) (``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 Gemini order book on the same side of the Agency Order.\7\ --------------------------------------------------------------------------- \7\ See ISE Gemini Rule 723(b)(1). --------------------------------------------------------------------------- ISE Gemini proposes to amend ISE Gemini 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 April 15, 2017, ISE Gemini will adopt a member conduct standard to implement this [[Page 8475]] requirement.\8\ Under this provision, ISE Gemini 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-ISEGemini-2016-05). Pursuant to this acquisition, ISE Gemini platforms are migrating to Nasdaq platforms, including the platform that operates PIM. ISE Gemini 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 Gemini platforms and the corresponding symbols are migrated to the platforms operated by Nasdaq, Inc. See Notice, supra note 3, at 91975 n.7. --------------------------------------------------------------------------- Failure to provide such price improvement will subject members to the fines set forth in ISE Rule 1614(d)(4).\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\ In a separate proposed rule change, ISE is proposing to adopt similar price improvement requirements for orders of fewer than 50 contracts for its PIM. As part of that rule change, ISE is proposing to amend ISE Rule 1614 (Imposition of Fines for Minor Rule Violations) to add Rule 1614(d)(4), which will provide that, beginning January 19, 2017, any member who enters an order into PIM for fewer than 50 contracts, while the National Best Bid or Offer spread 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. ISE will review violations on a monthly cycle to assess these violations. The Commission notes that the ISE proposal was approved in conjunction with this proposal. See Securities Exchange Act Release No. 34-79829 (January 18, 2017) (SR-ISE-2016-29). \10\ See Notice, supra note 3, at 91975-76. --------------------------------------------------------------------------- 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 Gemini order book on the same side of the Agency Order. --------------------------------------------------------------------------- \11\ See id. at 91976. See also proposed ISE Gemini 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 Gemini 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 and therefore encourage the increased submission of orders of under 50 option contracts.\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 Gemini 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 91976. \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 Gemini 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 Gemini 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 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 91976-77. See also Exhibit 3 to SR-ISEGemini-2016-23. --------------------------------------------------------------------------- The Exchange compiled price improvement data in 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 Gemini was at the NBBO, the most contracts traded (4,192) occurred when the spread was between $0.05 and $0.10.\19\ Of these, the greatest number of contracts (1,400) received $0.03 price improvement. In comparison, 6 contracts that traded at this spread received no price improvement. When the spread was $0.01 for this same category, a total of 499 contracts traded; 349 contracts received no price improvement, and 150 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 91976 n.13. The complete underlying data for January 2016 through June 2016 was attached as Exhibit 3 to the Notice. \20\ See Notice, supra note 3, at 91977. --------------------------------------------------------------------------- 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 Gemini was at the NBBO, the most contracts traded (1,495) occurred where the spread was $0.02. Of those contracts, the greatest number of contracts (979) received $0.01 price improvement, and 456 contracts received no price improvement.\21\ --------------------------------------------------------------------------- \21\ See id. --------------------------------------------------------------------------- In January 2016, where the order was on behalf of a Public Customer, the order was for 50 contracts or less, and ISE Gemini was not at the NBBO, the most contracts traded (1,403) occurred when the spread was between $0.05 and $0.10. Of this category, the greatest number of contracts (570) received [[Page 8476]] $0.01 price improvement.\22\ In comparison, when the spread was $0.01 in this same category, a total of 80 contracts traded, and all received price improvement.\23\ --------------------------------------------------------------------------- \22\ See id. \23\ See id. --------------------------------------------------------------------------- In comparison, in January 2016, where the order was on behalf of a Public Customer, and order was for greater than 50 contracts, and ISE Gemini was not at the NBBO, the most contracts traded (4,846) occurred where the spread was $0.05--$0.10. Of those contracts, the greatest number of contracts (1,234) received $0.01 price improvement, and 1,008 contracts received no price improvement.\24\ --------------------------------------------------------------------------- \24\ See id. --------------------------------------------------------------------------- ISE Gemini 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 there are opportunities for significant price improvement for orders executed through PIM.\25\ The Exchange therefore has requested that the Commission approve the no-minimum size requirement on a permanent basis. --------------------------------------------------------------------------- \25\ 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,\26\ (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. --------------------------------------------------------------------------- \26\ The Commission notes that, at the time of the filing of this proposal, the duration of the exposure period was 500 milliseconds. 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. 79735 (January 4, 2017), 82 FR 3043 (January 10, 2017) (SR-ISEGemini-2016-14). --------------------------------------------------------------------------- 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 65 early terminated Auctions. The number of orders in early terminated PIM auctions constituted 0.08% of total PIM orders.\27\ There were a total of 325 contracts that traded through early terminated Auctions. The number of contracts in early terminated PIM auctions represented 0.11% of total PIM contracts.\28\ --------------------------------------------------------------------------- \27\ See Notice, supra note 3, at 91977. \28\ See id. --------------------------------------------------------------------------- Based on the data gathered during the Pilot, the Exchange does not anticipate that any of these conditions will occur with significant frequency, or will otherwise significantly affect the functioning of the PIM.\29\ The Exchange therefore has requested that the Commission approve this aspect of the Pilot on a permanent basis. --------------------------------------------------------------------------- \29\ 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.\30\ In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,\31\ 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 general, to protect customers, issuers, brokers and dealers. --------------------------------------------------------------------------- \30\ 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). \31\ 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 of 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.\32\ 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.\33\ 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. --------------------------------------------------------------------------- \32\ See Exhibit 3 to SR-ISEGemini-2016-23. \33\ 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 [[Page 8477]] exists an active and liquid market functioning on the Exchange outside of the Auction.\34\ 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. --------------------------------------------------------------------------- \34\ See Exhibit 3 to SR-ISEGemini-2016-23. --------------------------------------------------------------------------- The Commission further notes that, as discussed more fully above, ISE Gemini 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.\35\ As described in greater detail above, ISE Gemini proposes to enforce this requirement under ISE Rule 1614(d)(4). The Commission believes that ISE Gemini's proposed member conduct standard and ISE 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 April 15, 2017.\36\ --------------------------------------------------------------------------- \35\ 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 91275-76. \36\ See Notice, supra note 3, at 91275 & n.7. --------------------------------------------------------------------------- Thus, the Commission has determined to approve the Exchange's proposed revisions to ISE Gemini Rule 723(b) and Supplementary Material .03 and .05 to ISE Gemini Rule 723, 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,\37\ that the proposed rule change (SR-ISEGemini-2016-23), be and hereby is approved. --------------------------------------------------------------------------- \37\ 15 U.S.C. 78s(b)(2). \38\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\38\ Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-01618 Filed 1-24-17; 8:45 am] BILLING CODE 8011-01-P
![8474 Federal Register / Vol. 82, No. 15 / Wednesday, January 25, 2017 / Notices
facilitating transactions in securities, to Orders of fewer than 50 contracts with order approves the proposed rule
remove impediments to and perfect the respect to circumstances when the change.
mechanism of a free and open market NBBO is $0.01 wide should help to
II. Description of the Proposal
and a national market system, and, in enhance the operation of the Auction by
general, to protect customers, issuers, limiting its use for smaller orders to The Exchange adopted PIM as part of
brokers and dealers. circumstances when there are more its application to be registered as a
As part of its proposal, the Exchange meaningful opportunities for price national securities exchange under its
provided summary data on Exhibit 3 of improvement, and should benefit previous name of Topaz Exchange, LLC
its filing for the period January through investors and others in a manner that is (‘‘Topaz’’).4 Pursuant to ISE Gemini
June 2015, which the Exchange and consistent with the Act. Thus, the Rule 723, an Electronic Access Member
Commission both publicly posted on Commission has determined to approve (‘‘EAM’’) may electronically submit for
their respective Web sites. Among other the Exchange’s proposed revisions to execution an order it represents as agent
things, this data is useful in assessing Rule 515A and to approve the Pilot, as (‘‘Agency Order’’) against principal
the level of price improvement in the proposed to be modified, on a interest or against a solicited order for
Auction, in particular for orders for permanent basis. the full size of the Agency Order,
fewer than 50 contracts; the degree of provided it submits the Agency Order
competition for order flow in such IV. Conclusion for electronic execution into the PIM (a
Auctions; and a comparison of liquidity It is therefore ordered, pursuant to ‘‘Crossing Transaction’’). Parts of the
in the Auctions with liquidity on the Section 19(b)(2) of the Act,26 that the PIM are currently operating on a pilot
Exchange generally.23 Based on the data proposed rule change (SR–MIAX–2016– basis (‘‘Pilot’’),5 which is set to expire
provided by the Exchange, the 46), be and hereby is approved. on January 18, 2017.6 The Exchange
Commission believes that the proposes to make the Pilot permanent,
For the Commission, by the Division of
Exchange’s price improvement auction and also proposes to amend the Auction
Trading and Markets, pursuant to delegated
generally delivers a meaningful authority.27 eligibility requirements for certain
opportunity for price improvement to Agency Orders of less than 50 option
Eduardo A. Aleman,
orders, including orders for fewer than contracts.
Assistant Secretary.
50 contracts, when the spread in the A. PIM Eligibility Requirements for
option is $0.02 or more. At the same [FR Doc. 2017–01615 Filed 1–24–17; 8:45 am]
Agency Orders of Fewer than 50
time, as the Exchange has recognized, BILLING CODE 8011–01–P
Contracts
the data do not demonstrate that such
orders have realized significant price Currently, the PIM may be initiated if
improvement when the NBBO has a bid/ SECURITIES AND EXCHANGE certain conditions are met. The Crossing
ask differential of $0.01.24 Recognizing COMMISSION Transaction must be entered only at a
this, the Exchange has proposed to price that is equal to or better than the
amend the Auction eligibility [Release No. 34–79840; File No. SR– National Best Bid/Offer (‘‘NBBO’’) on
requirements to reject an Agency Order ISEGemini–2016–23] the opposite side of the market from the
of less than 50 contracts where the Agency Order, and better than the limit
NBBO has a bid/ask differential of Self-Regulatory Organizations; ISE order or quote on the ISE Gemini order
$0.01. The Exchange’s proposal to Gemini, LLC; Order Granting Approval book on the same side of the Agency
modify the Auction eligibility of Proposed Rule Change To Amend Order.7
requirements for orders of fewer than 50 ISE Gemini Rule 723 and To Make Pilot ISE Gemini proposes to amend ISE
contracts and seek permanent approval Program Permanent Gemini Rule 723(b) to require EAMs to
of the Pilot, as amended with the new January 18, 2017.
provide at least $0.01 price
provision, will, in the Commission’s improvement for an Agency Order if
view, promote opportunities for price I. Introduction that order is for less than 50 option
improvement. On December 12, 2016, ISE Gemini, contracts and if the difference between
The Commission believes that, LLC (the ‘‘Exchange’’ or ‘‘ISE Gemini’’) the NBBO is $0.01. For the period
particularly for Auctions for fewer than filed with the Securities and Exchange beginning January 19, 2017 until a date
50 contracts when the bid/ask Commission (‘‘Commission’’), pursuant specified by the Exchange in a
differential is wider than $0.01, the data to Section 19(b)(1) of the Securities Regulatory Information Circular, which
provided by the Exchange support its Exchange Act of 1934 (‘‘Act’’) 1, and date shall be no later than April 15,
proposal to make the Pilot permanent. Rule 19b–4 thereunder,2 a proposed rule 2017, ISE Gemini will adopt a member
The data demonstrate that the Auction change to amend the eligibility conduct standard to implement this
generally provides price improvement requirements for its Price Improvement 4 See Securities Exchange Act Release No. 70050
opportunities to orders, including Mechanism (‘‘PIM’’ or ‘‘Auction’’) and (July 26, 2013), 78 FR 46622 (August 1, 2013) (File
orders of retail customers and make permanent those aspects of the No. 10–209) (‘‘Exchange Approval Order’’). The
particularly when the bid/ask PIM that are currently operating on a Exchange’s PIM was largely based on a similar
differential is wider than $0.01, that pilot basis. The proposed rule change functionality offered by the International Securities
there is meaningful competition for Exchange, LLC (‘‘ISE’’). See id. The Exchange
was published for comment in the subsequently changed its name to ISE Gemini. See
orders on the Exchange; and that there Federal Register on December 19, Securities Exchange Act Release No. 71586
exists an active and liquid market 2016.3 The Commission received no (February 20, 2014), 79 FR 10861 (February 26,
mstockstill on DSK3G9T082PROD with NOTICES
functioning on the Exchange outside of comments regarding the proposal. This 2014) (SR–Topaz–2014–06).
the Auction.25 The Commission further 5 Two components of PIM were approved by the
believes that the proposed revisions to Commission on a pilot basis: (1) the early
26 15 U.S.C. 78s(b)(2). conclusion of the PIM; and (2) no minimum size
the eligibility requirements for Agency 27 17 CFR 200.30–3(a)(12). requirement of orders.
1 15 U.S.C. 78s(b)(1). 6 See Securities Exchange Act Release No. 78343
23 See Exhibit 3 to SR–MIAX–2016–46. 2 17 CFR 240.19b–4. (July 15, 2016), 81 FR 47483 (July 21, 2016) (SR–
24 See Notice, supra note 3, at 90032. 3 See Securities Exchange Act Release No. 79541 ISEGemini–2016–07) (‘‘PIM July 2016 Extension’’).
25 See Exhibit 3 to SR–MIAX–2016–46. (December 13, 2016), 81 FR 91974 (‘‘Notice’’). 7 See ISE Gemini Rule 723(b)(1).
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![Federal Register / Vol. 82, No. 15 / Wednesday, January 25, 2017 / Notices 8477
exists an active and liquid market For the Commission, by the Division of the most significant aspects of such
functioning on the Exchange outside of Trading and Markets, pursuant to delegated statements.
the Auction.34 The Commission further authority.38
Eduardo A. Aleman, A. Self-Regulatory Organization’s
believes that the proposed revisions to Statement of the Purpose of, and
the eligibility requirements for orders of Assistant Secretary.
Statutory Basis for, the Proposed Rule
fewer than 50 contracts with respect to [FR Doc. 2017–01618 Filed 1–24–17; 8:45 am]
Change
circumstances when the NBBO is no BILLING CODE 8011–01–P
more than $0.01 wide should help to 1. Purpose
enhance the operation of the Auction by The Exchange proposes to make a
providing meaningful opportunities for SECURITIES AND EXCHANGE
number of amendments to its Order
COMMISSION
price improvement in such Routing Subsidy (ORS) and Complex
circumstances, and should benefit Order Routing Subsidy (CORS)
[Release No. 34–79816; File No. SR–CBOE– Programs (collectively ‘‘Programs’’). By
investors and others in a manner that is 2017–003]
consistent with the Act. way of background, the ORS and CORS
The Commission further notes that, as Self-Regulatory Organizations; Programs allow CBOE to enter into
Chicago Board Options Exchange, subsidy arrangements with any CBOE
discussed more fully above, ISE Gemini
Incorporated; Notice of Filing and Trading Permit Holder (‘‘TPH’’) (each, a
is initially proposing to implement is
Immediate Effectiveness of a Proposed ‘‘Participating TPH’’) or Non-CBOE TPH
price improvement requirement for broker-dealer (each a ‘‘Participating
Agency Orders of fewer than 50 option Rule Change To Amend the Fees
Schedule Non-CBOE TPH’’) that meet certain
contracts where the difference in the criteria and provide certain order
NBBO is $0.01 with a member conduct January 18, 2017. routing functionalities to other CBOE
standard.35 As described in greater Pursuant to Section 19(b)(1) of the TPHs, Non-CBOE TPHs and/or use such
detail above, ISE Gemini proposes to Securities Exchange Act of 1934 (the functionalities themselves.3 (The term
enforce this requirement under ISE Rule ‘‘Act’’),1 and Rule 19b–4 thereunder,2 ‘‘Participant’’ as used in this filing refers
1614(d)(4). The Commission believes notice is hereby given that on January 3, to either a Participating TPH or a
that ISE Gemini’s proposed member 2017, Chicago Board Options Exchange, Participating Non-CBOE TPH).
conduct standard and ISE Rule Incorporated (the ‘‘Exchange’’ or Participants in the ORS Program receive
1614(d)(4) are reasonable means to ‘‘CBOE’’) filed with the Securities and a payment from CBOE for every
implement the price improvement Exchange Commission (the executed contract for simple orders
requirement until implementation of its ‘‘Commission’’) the proposed rule routed to CBOE through their system.
proposed systems-based mechanism for change as described in Items I, II, and CBOE does not make payments under
this requirement, which will become III below, which Items have been the ORS Program with respect to
effective following the migration of a prepared by the Exchange. The executed contracts in single-listed
symbol to INET, the platform operated Commission is publishing this notice to options classes traded on CBOE, or with
by Nasdaq, Inc. that will also operate solicit comments on the proposed rule respect to complex orders or spread
the PIM. The Commission further notes change from interested persons. orders. Similarly, participants in the
that the Exchange has represented that CORS Program receive a payment from
I. Self-Regulatory Organization’s
its proposed member conduct standard CBOE for every executed contract for
Statement of the Terms of Substance of
will be effective until the migration of complex orders routed to CBOE through
the Proposed Rule Change
all symbols to the INET platform, which their system. CBOE does not make
The Exchange proposes to amend its payments under the CORS Program with
shall be no later than April 15, 2017.36 Fees Schedule. The text of the proposed respect to executed contracts in single-
Thus, the Commission has rule change is also available on the listed options classes traded on CBOE or
determined to approve the Exchange’s Exchange’s Web site (http:// with respect to simple orders. Currently,
proposed revisions to ISE Gemini Rule www.cboe.com/AboutCBOE/ under both programs the Exchange pays
723(b) and Supplementary Material .03 CBOELegalRegulatoryHome.aspx), at a subsidy of $0.02 per contract for all
and .05 to ISE Gemini Rule 723, and to the Exchange’s Office of the Secretary, customer (origin code ‘‘C’’) orders and a
approve the Pilot, as proposed to be and at the Commission’s Public subsidy of $0.06 per contract for all non-
modified, on a permanent basis. Reference Room. customer orders.
II. Self-Regulatory Organization’s The Exchange first proposes to
IV. Conclusion exclude customer orders from the
Statement of the Purpose of, and
It is therefore ordered, pursuant to Statutory Basis for, the Proposed Rule Programs and eliminate the customer
Section 19(b)(2) of the Act,37 that the Change order subsidy. The Exchange also
proposed rule change (SR–ISEGemini– proposes to increase the subsidy for
In its filing with the Commission, the non-customer orders from $0.06 per
2016–23), be and hereby is approved. Exchange included statements contract to $0.07 per contract under
concerning the purpose of and basis for both ORS and CORS. The Exchange
the proposed rule change and discussed notes that another Exchange with a
34 See Exhibit 3 to SR–ISEGemini–2016–23. any comments it received on the similar subsidy program also does not
35 The Exchange stated that it will conduct proposed rule change. The text of these
mstockstill on DSK3G9T082PROD with NOTICES
electronic surveillance of the PIM to ensure that provide subsidies for customer orders.4
members comply with the proposed price
statements may be examined at the
improvement requirements for option orders of places specified in Item IV below. The 3 See CBOE Fees Schedule, ‘‘Order Router
fewer than 50 contracts. See Notice, supra note 3, Exchange has prepared summaries, set Subsidy Program’’ and ‘‘Complex Order Router
forth in sections A, B, and C below, of Subsidy Program’’ tables for more details on the
at 91275–76.
ORS and CORS Programs.
36 See Notice, supra note 3, at 91275 & n.7.
4 See NASDAQ PHLX LLC Pricing Schedule,
37 15 U.S.C. 78s(b)(2). 1 15 U.S.C. 78s(b)(1). Section IV(e) [sic], Other Transaction Fees, Market
38 17 CFR 200.30–3(a)(12). 2 17 CFR 240.19b–4. Access and Routing Subsidy (‘‘MARS’’).
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Document Created: 2017-01-25 00:08:54
Document Modified: 2017-01-25 00:08:54
| 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 8474 |
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