83 FR 2265 - Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Price Level Protection Rule

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 10 (January 16, 2018)

Page Range		2265-2268
FR Document		2018-00529
Federal Register, Volume 83 Issue 10 (Tuesday, January 16, 2018)
[Federal Register Volume 83, Number 10 (Tuesday, January 16, 2018)]
[Notices]
[Pages 2265-2268]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-00529]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82472; File No. SR-ISE-2018-03]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the Price 
Level Protection Rule

January 9, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 2, 2018, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 714(b)(4) (Price Level 
Protection) to clarify the operation of the Price Level Protection.
    The text of the proposed rule change is available on the Exchange's 
website at http://ise.cchwallstreet.com/, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of

[[Page 2266]]

the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend Rule 714(b)(4) 
(Price Level Protection) to specify that the Price Level Protection: 
(1) Only applies when there is no away market best bid or offer 
(``ABBO''), (2) does not apply to quotes on the complex order book, 
which are not eligible to trade with bids and offers for the component 
legs, and (3) determines the maximum number of price levels by 
reference to the component leg(s) where the protection has been 
triggered. The proposed changes will increase transparency around the 
operation of the Exchange with respect to the Price Level Protection, 
and no changes to the Exchange's trading or other systems are being 
proposed.
    Currently, Rule 714(b)(4), which applies to complex orders executed 
on the Exchange, provides that ``[t]here is a limit on the number of 
price levels at which an incoming order or quote to sell (buy) will be 
executed automatically with the bids or offers of each component leg.'' 
Furthermore, as currently written, Rule 714(b)(4) also provides that 
``orders and quotes are executed at each successive price level until 
the maximum number of price levels is reached, and any balance is 
canceled.'' The number of price levels for the component leg, which may 
be between one (1) and ten (10), is determined by the Exchange from 
time-to-time on a class-by-class basis.\3\
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    \3\ Currently, this limit is set to five price levels. The 
Exchange will provide at least a two week notice to members via an 
Options Trader Alert prior to changing the price level limit to 
allow members the opportunity to perform any system changes. Any 
change to the price level limit would be subject to consultations 
with members.
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    Previously, this rule, which applied to both simple and complex 
orders executed on the Exchange, provided additionally that the 
protection applied ``when there are no bids (offers) from other 
exchanges at any price for the options series.'' This language was 
inadvertently removed in SR-ISE-2017-03, when the Exchange adopted its 
Acceptable Trade Range (``ATR'') protection for simple orders and 
retained the Price Level Protection for complex orders in connection 
with the migration of the Exchange's trading system to Nasdaq INET.\4\ 
The Exchange proposes to re-introduce this language to clarify that the 
trading system continues to apply this protection only when there is no 
ABBO available.
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    \4\ See Securities Exchange Act Release No. 80432 (April 11, 
2017), 82 FR 18191 (April 17, 2017) (SR-ISE-2017-03) (Approval 
Order).
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    Furthermore, Rule 714(b)(4) also contains references to quotes that 
were not removed when the Exchange filed SR-ISE-2017-03 to apply the 
Price Level Protection solely to complex orders. Although the previous 
version of the Price Level Protection for simple orders applied to both 
orders and quotes, quotes have never been included in the Price Level 
Protection for complex orders. Specifically, quotes are excluded from 
the Price Level Protection for complex orders because quotes are not 
permitted to leg into the regular market to trade with bids and offers 
on the Exchange for the individual legs of the complex strategy.\5\ 
Because quotes on the complex order book do not leg into the regular 
market, they are excluded from the Price Level Protection, which 
applies when a complex order is executed with bids and offers for the 
component legs of the complex strategy. The Exchange therefore proposes 
to amend Rule 714(b)(4) by removing outdated references to quotes. In 
addition, to further reinforce that the Price Level Protection applies 
to complex orders and not simple orders, the Exchange also proposes to 
add the word ``complex'' before references to orders contained in Rule 
714(b)(4).
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    \5\ See Supplementary Material .03 to Rule 722.
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    Finally, the Exchange proposes to add language to the rule that 
specifies that complex orders are executed at each successive price 
level until the maximum number of price levels is reached on a 
component leg where the protection has been triggered. For example, 
assume a member enters a complex order to buy 20 contracts of series A 
and 20 contracts of series B. If there is no ABBO at any price in 
series B and the complex order legs into the regular order book, the 
complex order would be able to trade up to five price levels in series 
B (e.g., $1.00, $1.05, $1.10, $1.15, and $1.20 but not $1.25 or 
greater).\6\
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    \6\ See footnote 3 supra.
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    The complex order would also trade with the corresponding number of 
contracts of series A but there would be no restriction on the number 
of price levels that could be traded in series A if there is sufficient 
quantity available at the five price levels permitted to trade in 
series B and the executions in series A are at or inside the ABBO for 
the series (e.g., if the ABBO in series A is $1.30 and all 20 contracts 
can be traded at permitted prices in series B, the corresponding 20 
contracts in series A could be executed at $0.95, $1.00, $1.05, $1.10, 
$1.15, $1.20, $1.25, and $1.30 without triggering the protection). 
Although currently implied by the rule, the Exchange believes that it 
is appropriate to explicitly reference that the number of price levels 
is determined based on a component leg where the protection has been 
triggered to avoid any potential member confusion. Although a complex 
order that legs into the regular market must trade with all component 
legs to satisfy the complex order, the Price Level Protection is 
applied solely on component legs that trigger the protection--i.e., 
where there is no away market as discussed earlier in this proposed 
rule change. As such, the maximum number of price levels discussed in 
Rule 714(b)(4) is computed by reference to component legs where the 
protection has been triggered.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\8\ in particular, in that it is designed to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general to protect investors and the public interest. 
The Exchange believes that the proposed rule change is consistent with 
the protection of investors and the public interest as it will increase 
transparency around the operation of the Exchange and, in particular, 
the Price Level Protection for complex orders.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Price Level Protection is designed to ensure that complex 
orders that leg into the regular order book and trade against bids and 
offers for the component legs are protected from trading at 
unreasonable prices when there is no away market. Thus, this protection 
only applies when there are no bids (offers) from other exchanges at 
any price for the options series, as stated in the previous version of 
the rule. The Exchange believes that applying this protection when 
there is no away market promotes just and equitable principles of trade 
as executions are prevented only when there is no ABBO to establish 
reasonable execution bounds. When there is an away market, the Exchange 
believes that this

[[Page 2267]]

protection is not necessary, as executions on the regular order book, 
including the execution of complex orders that leg in to access 
liquidity on the bids and offers for the individual legs, must occur at 
or inside the ABBO. The Exchange believes that it is appropriate to re-
introduce the proposed language described above so that members are 
properly apprised of when the Price Level Protection will prevent the 
execution of complex orders that leg into the regular order book.
    The proposed rule change also clarifies that the Price Level 
Protection applies only to complex orders and not to quotes entered on 
the complex order book. The Exchange believes that this change is 
consistent with the protection of investors and the public interest 
because quotes are not permitted to leg into the regular market \9\ and 
therefore are not eligible to trigger the Price Level Protection, which 
only affects complex orders that trade with bids and offers for the 
component legs. The Exchange therefore believes that this change better 
reflects functionality offered on the Exchange and will increase 
transparency for members.
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    \9\ See Supplementary Material .03 to Rule 722.
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    Finally, the proposed rule change makes clear that the maximum 
number of price levels described in Rule 714(b)(4) is determined by 
reference to component leg(s) where the protection is triggered. 
Although all legs of a complex order must be executed in order for the 
complex order to be traded, the Price Level Protection is designed to 
prevent executions at unreasonable prices when there is no away market 
in one or more component legs. As such, the maximum number of price 
levels is determined by reference to the component leg(s) that trigger 
the protection by virtue of there being no away market prices to 
constrain executions in that particular options series. Once this limit 
has been exceeded on a component leg where the protection has been 
triggered, no further executions can take place, and any remaining 
balance of the complex order is cancelled. The Exchange believes that 
adding the proposed language will increase transparency and avoid 
potential confusion about when a complex order that legs into the 
regular market will trigger the Price Level Protection. The Exchange 
therefore believes that this change is consistent with the protection 
of investors and the public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change would 
increase transparency around the operation of the Exchange and, in 
particular, the Price Level Protection by re-introducing inadvertently 
deleted language about when the protection is triggered, eliminating 
outdated references to quotes, and reinforcing that the maximum number 
of price levels is determined by reference to the component leg(s) that 
trigger the protection. The Exchange therefore believes that the 
proposed rule change will have no impact on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \10\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \12\ normally does not become operative prior to 30 days after the 
date of the filing. However, Rule 19b-4(f)(6)(iii) under the Act \13\ 
permits the Commission to designate a shorter time if such action is 
consistent with the protection of investors and the public interest. 
ISE has asked the Commission to waive the 30-day operative delay so 
that it may implement the proposed rule change immediately. In support 
of its request, ISE notes that the proposed rule change would clarify 
the operation of the Exchange by re-introducing inadvertently deleted 
rule language indicating that the Price Level Protection only applies 
when there is no away market, eliminating outdated references to 
quotes, and reinforcing that the maximum number of price levels is 
determined by reference to the component leg(s) that trigger the 
protection. The Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. By re-introducing inadvertently deleted rule language 
indicating that the Price Level Protection applies only when there is 
no ABBO, eliminating references to quotes, which do not execute against 
the individual legs of a complex strategy, and indicating that the 
maximum number of price levels is determined by reference to the 
component leg(s) that trigger the protection, the proposal will correct 
errors and provide additional clarity to the rule, thereby helping to 
assure that ISE's rule clearly and accurately describes the operation 
of the Price Level Protection. Accordingly, the Commission waives the 
30-day operative delay and designates the proposed rule change 
operative upon filing.\14\
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    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-ISE-2018-03 on the subject line.

[[Page 2268]]

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2018-03. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-ISE-2018-03, and should be submitted on 
or before February 6, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12) and (59).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00529 Filed 1-12-18; 8:45 am]
 BILLING CODE 8011-01-P
Federal Register / Vol. 83, No. 10 / Tuesday, January 16, 2018 / Notices 2265

The proposed change is to increase IV. Solicitation of Comments For the Commission, by the Division of
the monthly subscription fee for Trading and Markets, pursuant to delegated
FilterView from $500 to $750 per month Interested persons are invited to authority.38
per subset of data. The proposal will not submit written data, views, and Eduardo A. Aleman,
impose any burden on competition arguments concerning the foregoing, Assistant Secretary.
because it is simply a price change that including whether the proposed rule [FR Doc. 2018–00524 Filed 1–12–18; 8:45 am]
will not alter the overall market change is consistent with the Act. BILLING CODE 8011–01–P
structure. Because the proposed fees Comments may be submitted by any of
will become one aspect of the total cost the following methods:
of interacting with the Exchange, the SECURITIES AND EXCHANGE
Electronic Comments COMMISSION
Exchange will lose revenue if these total
costs prove to be excessive. • Use the Commission’s internet
Accordingly, the Exchange does not comment form (http://www.sec.gov/ [Release No. 34–82472; File No. SR–ISE–
believe that the proposed changes will rules/sro.shtml); or 2018–03]
impair the ability of members or • Send an email to rule-comments@ Self-Regulatory Organizations; Nasdaq
competing order execution venues to sec.gov. Please include File Number SR– ISE, LLC; Notice of Filing and
maintain their competitive standing in NASDAQ–2017–134 on the subject line. Immediate Effectiveness of Proposed
the financial markets. Rule Change To Amend the Price Level
Paper Comments
Self-Regulatory Organization’s Protection Rule
Statement on Comments on the • Send paper comments in triplicate January 9, 2018.
Proposed Rule Change Received From to Secretary, Securities and Exchange Pursuant to Section 19(b)(1) of the
Members, Participants, or Others Commission, 100 F Street NE, Securities Exchange Act of 1934
Washington, DC 20549–1090. (‘‘Act’’),1 and Rule 19b–4 thereunder,2
No written comments were either
solicited or received. All submissions should refer to File notice is hereby given that on January 2,
Number SR–NASDAQ–2017–134. This 2018, Nasdaq ISE, LLC (‘‘ISE’’ or
III. Date of Effectiveness of the file number should be included on the ‘‘Exchange’’) filed with the Securities
Proposed Rule Change and Timing for subject line if email is used. To help the and Exchange Commission
Commission Action Commission process and review your (‘‘Commission’’) the proposed rule
comments more efficiently, please use change as described in Items I and II
The foregoing rule change has become below, which Items have been prepared
effective pursuant to Section only one method. The Commission will
by the Exchange. The Commission is
19(b)(3)(A)(ii) of the Act.37 post all comments on the Commission’s
publishing this notice to solicit
internet website (http://www.sec.gov/
At any time within 60 days of the comments on the proposed rule change
rules/sro.shtml). Copies of the
filing of the proposed rule change, the from interested persons.
submission, all subsequent
Commission summarily may I. Self-Regulatory Organization’s
amendments, all written statements
temporarily suspend such rule change if Statement of the Terms of Substance of
with respect to the proposed rule
it appears to the Commission that such the Proposed Rule Change
change that are filed with the
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection Commission, and all written The Exchange proposes to amend
of investors; or (iii) otherwise in communications relating to the Rule 714(b)(4) (Price Level Protection)
furtherance of the purposes of the Act. proposed rule change between the to clarify the operation of the Price
If the Commission takes such action, the Commission and any person, other than Level Protection.
Commission shall institute proceedings those that may be withheld from the The text of the proposed rule change
to determine whether the proposed rule public in accordance with the is available on the Exchange’s website at
should be approved or disapproved. provisions of 5 U.S.C. 552, will be http://ise.cchwallstreet.com/, at the
available for website viewing and principal office of the Exchange, and at
printing in the Commission’s Public the Commission’s Public Reference
numerous alternative venues that compete for order
flow, including SRO markets, internalizing BDs and Reference Room, 100 F Street NE, Room.
various forms of alternative trading systems Washington, DC 20549, on official
(‘‘ATSs’’), including dark pools and electronic
II. Self-Regulatory Organization’s
communication networks (‘‘ECNs’’). Each SRO
business days between the hours of Statement of the Purpose of, and
market competes to produce transaction reports via 10:00 a.m. and 3:00 p.m. Copies of the Statutory Basis for, the Proposed Rule
trade executions, and two FINRA-regulated TRFs filing also will be available for Change
compete to attract internalized transaction reports. inspection and copying at the principal
It is common for BDs to further and exploit this In its filing with the Commission, the
competition by sending their order flow and office of the Exchange. All comments Exchange included statements
transaction reports to multiple markets, rather than received will be posted without change. concerning the purpose of and basis for
providing them all to a single market. Competitive Persons submitting comments are
markets for order flow, executions, and transaction the proposed rule change and discussed
reports provide pricing discipline for the inputs of cautioned that we do not redact or edit any comments it received on the
proprietary data products. The large number of personal identifying information from proposed rule change. The text of these
SROs, TRFs, BDs, and ATSs that currently produce comment submissions. You should statements may be examined at the
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proprietary data or are currently capable of
producing it provides further pricing discipline for
submit only information that you wish places specified in Item IV below. The
proprietary data products. Each SRO, TRF, ATS, to make available publicly. All Exchange has prepared summaries, set
and BD is currently permitted to produce submissions should refer to File forth in sections A, B, and C below, of
proprietary data products, and many currently do Number SR–NASDAQ–2017–134 and
or have announced plans to do so, including
Nasdaq, NYSE, NYSE MKT, NYSE Arca, IEX, and should be submitted on or before 38 17 CFR 200.30–3(a)(12).
BATS/Direct Edge. February 6, 2018. 1 15 U.S.C. 78s(b)(1).
37 15 U.S.C. 78s(b)(3)(A)(ii). 2 17 CFR 240.19b–4.

VerDate Sep<11>2014 22:48 Jan 12, 2018 Jkt 244001 PO 00000 Frm 00135 Fmt 4703 Sfmt 4703 E:\FR\FM\16JAN1.SGM 16JAN1
2266 Federal Register / Vol. 83, No. 10 / Tuesday, January 16, 2018 / Notices

the most significant aspects of such system to Nasdaq INET.4 The Exchange A are at or inside the ABBO for the
statements. proposes to re-introduce this language series (e.g., if the ABBO in series A is
to clarify that the trading system $1.30 and all 20 contracts can be traded
A. Self-Regulatory Organization’s continues to apply this protection only at permitted prices in series B, the
Statement of the Purpose of, and when there is no ABBO available. corresponding 20 contracts in series A
Statutory Basis for, the Proposed Rule Furthermore, Rule 714(b)(4) also could be executed at $0.95, $1.00, $1.05,
Change contains references to quotes that were $1.10, $1.15, $1.20, $1.25, and $1.30
1. Purpose not removed when the Exchange filed without triggering the protection).
SR–ISE–2017–03 to apply the Price Although currently implied by the rule,
The purpose of the proposed rule Level Protection solely to complex the Exchange believes that it is
change is to amend Rule 714(b)(4) (Price orders. Although the previous version of appropriate to explicitly reference that
Level Protection) to specify that the the Price Level Protection for simple the number of price levels is determined
Price Level Protection: (1) Only applies orders applied to both orders and based on a component leg where the
when there is no away market best bid quotes, quotes have never been included protection has been triggered to avoid
or offer (‘‘ABBO’’), (2) does not apply to in the Price Level Protection for any potential member confusion.
quotes on the complex order book, complex orders. Specifically, quotes are Although a complex order that legs into
which are not eligible to trade with bids excluded from the Price Level the regular market must trade with all
and offers for the component legs, and Protection for complex orders because component legs to satisfy the complex
(3) determines the maximum number of quotes are not permitted to leg into the order, the Price Level Protection is
price levels by reference to the regular market to trade with bids and applied solely on component legs that
component leg(s) where the protection offers on the Exchange for the trigger the protection—i.e., where there
has been triggered. The proposed individual legs of the complex strategy.5 is no away market as discussed earlier
changes will increase transparency Because quotes on the complex order in this proposed rule change. As such,
book do not leg into the regular market, the maximum number of price levels
around the operation of the Exchange
they are excluded from the Price Level discussed in Rule 714(b)(4) is computed
with respect to the Price Level
Protection, which applies when a by reference to component legs where
Protection, and no changes to the
complex order is executed with bids the protection has been triggered.
Exchange’s trading or other systems are
being proposed. and offers for the component legs of the 2. Statutory Basis
complex strategy. The Exchange
Currently, Rule 714(b)(4), which therefore proposes to amend Rule The Exchange believes that its
applies to complex orders executed on 714(b)(4) by removing outdated proposal is consistent with Section 6(b)
the Exchange, provides that ‘‘[t]here is references to quotes. In addition, to of the Act,7 in general, and furthers the
a limit on the number of price levels at further reinforce that the Price Level objectives of Section 6(b)(5) of the Act,8
which an incoming order or quote to Protection applies to complex orders in particular, in that it is designed to
sell (buy) will be executed automatically promote just and equitable principles of
and not simple orders, the Exchange
with the bids or offers of each trade, to remove impediments to and
also proposes to add the word
component leg.’’ Furthermore, as perfect the mechanism of a free and
‘‘complex’’ before references to orders
currently written, Rule 714(b)(4) also open market and a national market
contained in Rule 714(b)(4).
provides that ‘‘orders and quotes are Finally, the Exchange proposes to add system, and, in general to protect
executed at each successive price level investors and the public interest. The
language to the rule that specifies that
until the maximum number of price Exchange believes that the proposed
complex orders are executed at each
levels is reached, and any balance is rule change is consistent with the
successive price level until the
canceled.’’ The number of price levels protection of investors and the public
maximum number of price levels is
for the component leg, which may be interest as it will increase transparency
reached on a component leg where the
between one (1) and ten (10), is around the operation of the Exchange
protection has been triggered. For
determined by the Exchange from time- and, in particular, the Price Level
example, assume a member enters a
to-time on a class-by-class basis.3 Protection for complex orders.
complex order to buy 20 contracts of
The Price Level Protection is designed
Previously, this rule, which applied to series A and 20 contracts of series B. If
to ensure that complex orders that leg
both simple and complex orders there is no ABBO at any price in series
into the regular order book and trade
executed on the Exchange, provided B and the complex order legs into the
against bids and offers for the
additionally that the protection applied regular order book, the complex order
component legs are protected from
‘‘when there are no bids (offers) from would be able to trade up to five price
trading at unreasonable prices when
other exchanges at any price for the levels in series B (e.g., $1.00, $1.05,
there is no away market. Thus, this
options series.’’ This language was $1.10, $1.15, and $1.20 but not $1.25 or
protection only applies when there are
inadvertently removed in SR–ISE–2017– greater).6
no bids (offers) from other exchanges at
03, when the Exchange adopted its The complex order would also trade
any price for the options series, as stated
Acceptable Trade Range (‘‘ATR’’) with the corresponding number of
in the previous version of the rule. The
protection for simple orders and contracts of series A but there would be
Exchange believes that applying this
retained the Price Level Protection for no restriction on the number of price
protection when there is no away
complex orders in connection with the levels that could be traded in series A
market promotes just and equitable
migration of the Exchange’s trading if there is sufficient quantity available at
principles of trade as executions are
daltland on DSKBBV9HB2PROD with NOTICES

the five price levels permitted to trade
prevented only when there is no ABBO
in series B and the executions in series
3 Currently, this limit is set to five price levels. to establish reasonable execution
The Exchange will provide at least a two week bounds. When there is an away market,
4 See Securities Exchange Act Release No. 80432
notice to members via an Options Trader Alert prior
to changing the price level limit to allow members (April 11, 2017), 82 FR 18191 (April 17, 2017) (SR– the Exchange believes that this
the opportunity to perform any system changes. ISE–2017–03) (Approval Order).
5 See Supplementary Material .03 to Rule 722. 7 15 U.S.C. 78f(b).
Any change to the price level limit would be subject
to consultations with members. 6 See footnote 3 supra. 8 15 U.S.C. 78f(b)(5).

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Federal Register / Vol. 83, No. 10 / Tuesday, January 16, 2018 / Notices 2267

protection is not necessary, as B. Self-Regulatory Organization’s change would clarify the operation of
executions on the regular order book, Statement on Burden on Competition the Exchange by re-introducing
including the execution of complex The Exchange does not believe that inadvertently deleted rule language
orders that leg in to access liquidity on the proposed rule change will impose indicating that the Price Level
the bids and offers for the individual any burden on competition not Protection only applies when there is no
legs, must occur at or inside the ABBO. necessary or appropriate in furtherance away market, eliminating outdated
The Exchange believes that it is of the purposes of the Act. The references to quotes, and reinforcing
appropriate to re-introduce the proposed rule change would increase that the maximum number of price
proposed language described above so transparency around the operation of levels is determined by reference to the
that members are properly apprised of the Exchange and, in particular, the component leg(s) that trigger the
when the Price Level Protection will Price Level Protection by re-introducing protection. The Commission believes
prevent the execution of complex orders inadvertently deleted language about that waiving the 30-day operative delay
when the protection is triggered, is consistent with the protection of
that leg into the regular order book.
eliminating outdated references to investors and the public interest. By re-
The proposed rule change also introducing inadvertently deleted rule
quotes, and reinforcing that the
clarifies that the Price Level Protection language indicating that the Price Level
maximum number of price levels is
applies only to complex orders and not Protection applies only when there is no
determined by reference to the
to quotes entered on the complex order component leg(s) that trigger the ABBO, eliminating references to quotes,
book. The Exchange believes that this protection. The Exchange therefore which do not execute against the
change is consistent with the protection believes that the proposed rule change individual legs of a complex strategy,
of investors and the public interest will have no impact on competition. and indicating that the maximum
because quotes are not permitted to leg number of price levels is determined by
into the regular market 9 and therefore C. Self-Regulatory Organization’s reference to the component leg(s) that
are not eligible to trigger the Price Level Statement on Comments on the trigger the protection, the proposal will
Protection, which only affects complex Proposed Rule Change Received From correct errors and provide additional
orders that trade with bids and offers for Members, Participants, or Others clarity to the rule, thereby helping to
the component legs. The Exchange No written comments were either assure that ISE’s rule clearly and
therefore believes that this change better solicited or received. accurately describes the operation of the
reflects functionality offered on the Price Level Protection. Accordingly, the
III. Date of Effectiveness of the Commission waives the 30-day
Exchange and will increase Proposed Rule Change and Timing for
transparency for members. operative delay and designates the
Commission Action proposed rule change operative upon
Finally, the proposed rule change Because the foregoing proposed rule filing.14
makes clear that the maximum number change does not: (i) Significantly affect At any time within 60 days of the
of price levels described in Rule the protection of investors or the public filing of the proposed rule change, the
714(b)(4) is determined by reference to interest; (ii) impose any significant Commission summarily may
component leg(s) where the protection burden on competition; and (iii) become temporarily suspend such rule change if
is triggered. Although all legs of a operative for 30 days from the date on it appears to the Commission that such
complex order must be executed in which it was filed, or such shorter time action is: (i) Necessary or appropriate in
order for the complex order to be traded, as the Commission may designate, it has the public interest; (ii) for the protection
the Price Level Protection is designed to become effective pursuant to Section of investors; or (iii) otherwise in
prevent executions at unreasonable 19(b)(3)(A)(iii) of the Act 10 and furtherance of the purposes of the Act.
prices when there is no away market in subparagraph (f)(6) of Rule 19b–4 If the Commission takes such action, the
one or more component legs. As such, thereunder.11 Commission shall institute proceedings
the maximum number of price levels is A proposed rule change filed to determine whether the proposed rule
determined by reference to the pursuant to Rule 19b–4(f)(6) under the should be approved or disapproved.
component leg(s) that trigger the Act 12 normally does not become
operative prior to 30 days after the date IV. Solicitation of Comments
protection by virtue of there being no
of the filing. However, Rule 19b– Interested persons are invited to
away market prices to constrain
4(f)(6)(iii) under the Act 13 permits the submit written data, views, and
executions in that particular options
Commission to designate a shorter time arguments concerning the foregoing,
series. Once this limit has been
if such action is consistent with the including whether the proposed rule
exceeded on a component leg where the protection of investors and the public change is consistent with the Act.
protection has been triggered, no further interest. ISE has asked the Commission Comments may be submitted by any of
executions can take place, and any to waive the 30-day operative delay so the following methods:
remaining balance of the complex order that it may implement the proposed rule
is cancelled. The Exchange believes that Electronic Comments
change immediately. In support of its
adding the proposed language will request, ISE notes that the proposed rule • Use the Commission’s internet
increase transparency and avoid comment form (http://www.sec.gov/
potential confusion about when a 10 15 U.S.C. 78s(b)(3)(A)(iii). rules/sro.shtml); or
complex order that legs into the regular 11 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– • Send an email to rule-comments@
daltland on DSKBBV9HB2PROD with NOTICES

market will trigger the Price Level 4(f)(6) requires a self-regulatory organization to give sec.gov. Please include File Number SR–
the Commission written notice of its intent to file
Protection. The Exchange therefore the proposed rule change at least five business days ISE–2018–03 on the subject line.
believes that this change is consistent prior to the date of filing of the proposed rule
with the protection of investors and the change, or such shorter time as designated by the 14 For purposes only of waiving the 30-day
Commission. The Exchange has satisfied this operative delay, the Commission has also
public interest. requirement. considered the proposed rule’s impact on
12 17 CFR 240.19b–4(f)(6).
efficiency, competition, and capital formation. See
9 See Supplementary Material .03 to Rule 722. 13 17 CFR 240.19b–4(f)(6)(iii). 15 U.S.C. 78c(f).

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Document Created: 2018-01-13 02:02:51
Document Modified: 2018-01-13 02:02:51
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		83 FR 2265