83 FR 7252 - Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Memorialize Functionality Designed To Assist Members in the Event that They Lose Communication

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 34 (February 20, 2018)

Page Range		7252-7255
FR Document		2018-03308
Federal Register, Volume 83 Issue 34 (Tuesday, February 20, 2018)
[Federal Register Volume 83, Number 34 (Tuesday, February 20, 2018)]
[Notices]
[Pages 7252-7255]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-03308]



[[Page 7252]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82699; File No. SR-ISE-2018-12]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Memorialize 
Functionality Designed To Assist Members in the Event that They Lose 
Communication

February 13, 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 February 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, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to memorialize functionality which is 
designed to assist Members in the event that they lose communication 
with their assigned Specialized Quote Feed (``SQF''),\3\ Financial 
Information eXchange (``FIX''),\4\ or Ouch to Trade Options (``OTTO'') 
\5\ Ports due to a loss of connectivity.
---------------------------------------------------------------------------

    \3\ SQF is an interface that allows market makers to connect and 
send quotes, sweeps and auction responses into the Exchange.
    \4\ FIX is an interface that allows market participants to 
connect and send orders and auction orders into the Exchange.
    \5\ OTTO is an interface that allows market participants to 
connect and send orders, auction orders and auction responses into 
the Exchange.
---------------------------------------------------------------------------

    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 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 Exchange proposes to memorialize its detection of loss of 
connection risk protection, which is applicable to all Members, at ISE 
Rule 711(e). This automated process is in effect if a Member's SQF, FIX 
or OTTO Port loses communication with a Client Application due to a 
loss of connectivity. This feature is designed to protect ISE Market 
Makers \6\ and other market participants from inadvertent exposure to 
excessive risk.
---------------------------------------------------------------------------

    \6\ The term ``market makers'' refers to ``Competitive ISE 
Market Makers'' and ``Primary ISE Market Makers'' collectively.
---------------------------------------------------------------------------

    Members currently enter quotes and/or orders utilizing either an 
SQF, FIX or OTTO Port. SQF is utilized by ISE Market Makers and FIX and 
OTTO are utilized by all market participants. These ports are trading 
system components through which a Member communicates its quotes and/or 
orders to the Exchange's match engine through the Member's Client 
Application. The Exchange proposes to define ``Client Application'' as 
the system component of the Member through which the Member 
communicates its quotes and orders to the Exchange at proposed Rule 
711(e)(i)(E). Under the proposed rule change, an SQF Port would be 
defined as the Exchange's proprietary system component through which 
ISE Market Makers communicate their quotes from the Client Application 
at proposed Rule 711(e)(i)(B). A FIX Port would be defined as the 
Exchange's universal system component through which Members communicate 
their orders from the Member's Client Application at proposed Rule 
711(e)(i)(D). An OTTO Port would be defined as the Exchange's 
proprietary system component through which Members communicate their 
orders from the Member's Client Application at proposed Rule 
711(e)(i)(C). ISE Market Makers may submit quotes to the Exchange from 
one or more SQF Ports. Similarly, market participants may submit orders 
to the Exchange from one or more FIX or OTTO Ports. The proposed 
cancellation feature will be mandatory for each ISE Market Maker 
utilizing SQF for the removal of quotes and optional for any market 
participant utilizing FIX or OTTO for the removal of orders.
    When the SQF Port detects the loss of communication with a Member's 
Client Application because the Exchange's server does not receive a 
Heartbeat message \7\ for a certain period of time (a period of ``nn'' 
seconds), the Exchange will automatically logoff the Member's affected 
Client Application and automatically cancel all of the Member's open 
quotes. Quotes will be cancelled across all Client Applications that 
are associated with the same ISE Market Maker ID and underlying issues.
---------------------------------------------------------------------------

    \7\ It is important to note that the Exchange separately sends a 
connectivity message to the Member as evidence of connectivity.
---------------------------------------------------------------------------

    The Exchange proposes to define a ``Heartbeat'' message as a 
communication which acts as a virtual pulse between the SQF, FIX or 
OTTO Port and the Client Application at proposed Rule 711(e)(i)(A). The 
Heartbeat message sent by the Member and subsequently received by the 
Exchange allows the SQF, FIX or OTTO Port to continually monitor its 
connection with the Member.
SQF Ports
    The Exchange's system has a default time period, which will trigger 
a disconnect from the Exchange and remove quotes, set to fifteen (15) 
seconds for SQF Ports. A Member may change the default period of ``nn'' 
seconds of no technical connectivity to trigger a disconnect from the 
Exchange and remove quotes to a number between one hundred (100) 
milliseconds and 99,999 milliseconds for SQF Ports prior to each 
Session of Connectivity to the Exchange. This feature is enabled for 
each ISE Market Maker and may not be disabled.
    There are two ways to change the number of ``nn'' seconds: (1) 
Systematically or (2) by contacting the Exchange's operations staff. If 
the Member changes the default number of ``nn'' seconds, that new 
setting shall be in effect throughout the current Session of 
Connectivity and will then default back to fifteen seconds.\8\ The 
Member may change the default setting prior to each Session of 
Connectivity. A Session of Connectivity would be defined to mean each 
time the Member connects to the Exchange's system. If the Member were 
to connect and then disconnect within a trading day several times, each

[[Page 7253]]

time the Member disconnected the next session would be a new Session of 
Connectivity. This definition is proposed at proposed Rule 
711(e)(i)(F). The Member may also communicate the time to the Exchange 
by calling the Exchange's operations staff. If the time period is 
communicated to the Exchange by calling Exchange operations, the number 
of ``nn'' seconds selected by the Member shall persist for each 
subsequent Session of Connectivity until the Member either contacts 
Exchange operations by phone and changes the setting or the Member 
selects another time period in the Client Application prior to the next 
Session of Connectivity.
---------------------------------------------------------------------------

    \8\ The Exchange's system would capture the new setting 
information that was changed by the Member and utilize the amended 
setting for that particular session. The setting would not persist 
beyond the current Session of Connectivity and the setting would 
default back to 15 seconds for the next session if the Member did 
not change the setting again.
---------------------------------------------------------------------------

FIX and OTTO Ports
    The Exchange's system has a default time period, which will trigger 
a disconnect from the Exchange and remove orders, set to thirty (30) 
seconds for FIX Ports and fifteen (15) seconds for OTTO Ports. The 
Member may disable the removal of orders feature, but not the 
disconnect feature. If the Member elects to have its orders removed, in 
addition to the disconnect for FIX, the Member may determine a time 
period of no technical connectivity to trigger the disconnect and 
removal of orders between one (1) second and thirty (30) seconds. If 
the Member elects to have its orders removed, in addition to the 
disconnect for OTTO, the Member may determine a time period of no 
technical connectivity to trigger the disconnect and removal of orders 
between one hundred (100) milliseconds and 99,999 milliseconds. All 
orders will be automatically cancelled.
    There are two ways to change the number of ``nn'' seconds: (1) 
Systematically or (2) by contacting the Exchange's operations staff. If 
the Member changes the default number of ``nn'' seconds, that new 
setting shall be in effect throughout that Session of Connectivity and 
will then default back to thirty seconds for FIX Ports or fifteen 
seconds for OTTO Ports at the end of that session. The Member may 
change the default setting prior to each Session of Connectivity. The 
Member may also communicate the time to the Exchange by calling the 
Exchange's operations staff. If the time period is communicated to the 
Exchange by calling Exchange operations, the number of ``nn'' seconds 
selected by the Member shall persist for each subsequent Session of 
Connectivity until the Member either contacts Exchange operations by 
phone and changes the setting or the Member selects another time period 
through the Client Application prior to the next Session of 
Connectivity.
    Similar to SQF Ports, when a FIX or OTTO Port detects the loss of 
communication with a Member's Client Application for a certain time 
period (a period of ``nn'' seconds), the Exchange will automatically 
logoff the Member's affected Client Application and if elected, 
automatically cancel all orders. The Member may have an order which has 
routed away prior to the cancellation, in the event that the order 
returns to the Order Book, because it was either not filled or 
partially filled, that order will be cancelled.
    The disconnect feature is mandatory for FIX and OTTO users however 
the user has the ability to elect to also enable a removal feature, 
which will cancel all orders submitted through that FIX or OTTO Port. 
If the removal of orders feature is not enabled, the system will simply 
disconnect the FIX and/or OTTO user and not cancel any orders. The FIX 
and/or OTTO user would have to commence a new Session of Connectivity 
to add, modify or cancel its orders once disconnected.
    The trigger for the SQF, FIX and OTTO Ports is Client Application 
specific. The automatic cancellation of the ISE Market Maker's quotes 
for SQF Ports and open orders, if elected by the Member for FIX or OTTO 
Ports, entered into the respective SQF, FIX or OTTO Ports via a 
particular Client Application will neither impact nor determine the 
treatment of the quotes of other ISE Market Makers (not associated with 
the same Market Maker ID) entered into SQF Ports or orders of the same 
or other Members entered into the FIX or OTTO Ports via a separate and 
distinct Client Application.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \9\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \10\ 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, by imposing this mandatory removal functionality on ISE 
Market Makers to prevent disruption in the marketplace and also 
offering this removal feature to other market participants. Requiring 
ISE Market Makers to utilize the disconnect feature will avoid risks 
associated with inadvertent executions in the event of a loss of 
connectivity. Other market participants will have the option to either 
enable or disable the cancellation feature, thereby offering the same 
risk protections throughout the market.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    ISE Market Makers will be required to utilize this disconnect and 
removal functionality with respect to SQF Ports. This feature will 
remove impediments to and improve the mechanism of a free and open 
market and a national market system aimed at protecting investors and 
the public interest by requiring ISE Market Makers quotes to be removed 
in the event of a loss of connectivity with the Exchange's system. ISE 
Market Makers provide liquidity to the market place and have 
obligations unlike other market participants.\11\ This risk feature is 
important because it will enable ISE Market Makers to avoid risks 
associated with inadvertent executions in the event of a loss of 
connectivity with the Exchange. The proposed rule change is designed to 
not permit unfair discrimination among market participants, as it would 
apply uniformly to all ISE Market Makers utilizing SQF Ports.
---------------------------------------------------------------------------

    \11\ See ISE Rule 804(e).
---------------------------------------------------------------------------

    The disconnect feature of FIX and OTTO is mandatory, however market 
participants will have the option to either enable or disable the 
cancellation feature, which would result in the cancellation of all 
orders submitted over the applicable FIX or OTTO Port when such port 
disconnect [sic]. It is appropriate to offer this removal feature as 
optional to all market participants utilizing FIX or OTTO, because 
unlike ISE Market Makers who are required to provide quotes in all 
products in which they are registered, market participants utilizing 
FIX or OTTO do not bear the same magnitude of risk of potential 
erroneous or unintended executions. In addition, market participants 
utilizing FIX or OTTO may desire their orders to remain on the order 
book despite a technical disconnect, so as not to miss any 
opportunities for execution of such orders while the FIX and/or OTTO 
port is disconnected.
    Utilizing a time period for SQF and OTTO Ports of fifteen (15) 
seconds and permitting ISE Market Makers and Members to modify the 
setting to between 100 milliseconds and 99,999 milliseconds is 
consistent with the Act because the Exchange does not desire to trigger 
unwarranted logoffs of Members and therefore allows Members the ability 
to set their time in order to enable the Exchange the authority to 
disconnect the Member with this feature. Both SQF and OTTO are 
proprietary system components offered by ISE. The Exchange believes 
that the proposed settings for SQF and OTTO

[[Page 7254]]

are appropriate timeframes. Each ISE Market Maker and Member has 
different levels of sensitivity with respect to this disconnect setting 
and each ISE Market Maker and Member has their own system safeguards as 
well. A default setting of fifteen (15) seconds is appropriate to 
capture the needs of all ISE Market Makers and Members and high enough 
not to trigger unwarranted removal of quotes and orders.
    Further, ISE Market Makers and Members are able to customize their 
settings. The Exchange's proposal to permit a timeframe for SQF and 
OTTO Ports between 100 milliseconds and 99,999 milliseconds is 
consistent with the Act and the protection of investors because the 
purpose of this feature is to mitigate the risk of potential erroneous 
or unintended executions associated with a loss in communication with a 
Client Application. Members are able to better anticipate the 
appropriate time within which they may require prior to a logoff as 
compared to the Exchange. The Member is being offered a timeframe by 
the Exchange within which to select the appropriate time. The Exchange 
does not desire to trigger unwarranted logoffs of Members and therefore 
permits Members to provide an alternative time to the Exchange, within 
the Exchange's prescribed timeframe, which authorizes the Exchange to 
disconnect the Member. The ``nn'' seconds serve as the Member's 
instruction to the Exchange to act upon the loss of connection and 
remove quotes from the system, and if elected, orders from the System. 
This range will accommodate Members in selecting their appropriate 
times within the prescribed timeframes.
    With respect to SQF, the Exchange's proposal is further consistent 
with the Act because it will mitigate the risk of potential erroneous 
or unintended executions associated with a loss in communication with a 
Client Application which protects investors and the public interest. 
Also, any interest that is executable against a ISE Market Maker's 
quotes that is received \12\ by the Exchange prior to the trigger of 
the disconnect to the Client Application, which is processed by the 
system, automatically executes at the price up to the ISE Market 
Maker's size. In other words, the system will process the request for 
cancellation in the order it was received by the system.
---------------------------------------------------------------------------

    \12\ The time of receipt for an order or quote is the time such 
message is processed by the Exchange book.
---------------------------------------------------------------------------

    With respect to FIX, a universal system component, the Exchange's 
proposal would set a default timeframe of thirty (30) seconds and 
permit a FIX user to modify the timeframe for FIX Ports to between 1 
second and 30 seconds for the removal of orders. This proposal is 
consistent with the Act and the protection of investors because this 
feature, which is optional, will mitigate the risk of potential 
erroneous or unintended executions associated with a loss in 
communication with a Client Application. With respect to the longer 
timeframe for FIX, as compared to SQF and OTTO, the Exchange notes that 
unlike SQF and OTTO which are proprietary system components, FIX is a 
universal component. The settings on FIX remain different given FIX is 
not a proprietary system component. ISE Market Makers require a quicker 
timeframe (15 seconds as compared to 30 seconds). ISE Market Makers 
have quoting obligations \13\ and are more sensitive to price movements 
as compared to other market participants. It is consistent with the Act 
to provide a longer timeframe within which to customize settings for 
FIX as compared to SQF Ports because ISE Market Makers need to remain 
vigilant of market conditions and react more quickly to market 
movements as compared to other Members entering orders into the system. 
The proposal acknowledges this sensitivity borne by ISE Market Makers 
and reflects the reaction time of ISE Market Makers as compared to 
Members entering orders. Of note, the proposed customized timeframe for 
FIX might be too long for ISE Market Makers given their quoting 
requirements and sensitivity to price movements. ISE Market Makers 
would be severely impacted by a loss of connectivity of more than 
several seconds. The ISE Market Maker would have exposure during the 
time period in which they are unable to manage their quote and update 
that quote. The Member is best positioned to determine their setting. 
With respect to other market participants that enter orders, they have 
the option of selecting either OTTO or FIX and therefore are able to 
obtain a shortened timeframe with OTTO if they desire.
---------------------------------------------------------------------------

    \13\ See note 11 above.
---------------------------------------------------------------------------

    The system operates consistently with the firm quote obligations of 
a broker-dealer pursuant to Rule 602 of Regulation NMS. Specifically, 
with respect to ISE Market Makers, their obligation to provide 
continuous two-sided quotes on a daily basis is not diminished by the 
automatic removal of such quotes triggered by the disconnect. ISE 
Market Makers are required to provide continuous two-sided quotes on a 
daily basis.\14\ ISE Market Makers will not be relieved of the 
obligation to provide continuous two-sided quotes on a daily basis, nor 
will it prohibit the Exchange from taking disciplinary action against a 
ISE Market Maker for failing to meet the continuous quoting obligation 
each trading day as a result of disconnects.
---------------------------------------------------------------------------

    \14\ See note 11 above.
---------------------------------------------------------------------------

    With respect to FIX and OTTO Ports, the Exchange will offer this 
optional removal functionality to all market participants. Offering the 
removal feature on a voluntary basis to all other market participants 
is consistent with the Act because it permits them an opportunity to 
utilize this risk feature, if desired, and avoid risks associated with 
inadvertent executions in the event of a loss of connectivity with the 
Exchange. The removal feature is designed to mitigate the risk of 
missed and/or unintended executions associated with a loss in 
communication with a Client Application. The proposed rule change is 
designed to not permit unfair discrimination among market participants, 
as this optional removal feature will be offered uniformly to all 
Members utilizing FIX and/or OTTO.
    The Exchange will disconnect Members from the Exchange and not 
cancel a Member's orders if the removal feature is disabled. The 
disconnect feature is mandatory and will cause the Member to be 
disconnected within the default timeframe or the timeframe otherwise 
specified by the Member. This feature is consistent with the Act 
because it enables FIX and OTTO users the ability to disconnect from 
the Exchange, assess the situation and make a determination concerning 
their risk exposure. The Exchange notes that in the event that orders 
need to be removed, the Member may elect to utilize the Kill Switch 
\15\ feature. The Exchange believes that it is consistent with the Act 
to require other market participants to be disconnected because the 
participant is otherwise not connected to the Exchange's system and the 
Member simply needs to reconnect to commence submitting and cancelling 
orders. The Exchange believes requiring a disconnect when a loss of 
communication is detected is a rational course of action for the 
Exchange to alert the Member of the technical connectivity issue.
---------------------------------------------------------------------------

    \15\ See ISE Rule 711(d).
---------------------------------------------------------------------------

    The proposed rule change will help maintain a fair and orderly 
market which promotes efficiency and protects investors. This mandatory 
removal feature for ISE Market Makers and optional removal for all 
other market

[[Page 7255]]

participants will mitigate the risk of potential erroneous or 
unintended executions associated with a loss in communication with a 
Client Application.

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. Specifically, the Exchange does 
not believe the proposed rule change will cause an undue burden on 
intra-market competition because ISE Market Makers, unlike other market 
participants, have greater risks in the market place. Quoting across 
many series in an option creates large principal positions that expose 
ISE Market Makers, who are required to continuously quote in assigned 
options, to potentially significant market risk. Providing a broader 
timeframe for the disconnect and removal of orders for FIX as compared 
to the removal of quotes for SQF Ports and OTTO orders does not create 
an undue burden on competition because ISE Market Makers have quoting 
obligations \16\ and are more sensitive to price movements as compared 
to other market participants. ISE Market Makers need to remain vigilant 
of market conditions and react more quickly to market movements as 
compared to other Members entering multiple orders into the system. The 
proposal reflects this sensitivity borne by ISE Market Makers and 
reflects the reaction time of ISE Market Makers as compared to other 
Members entering orders. With respect to other market participants that 
enter orders, they have the option of selecting either OTTO or FIX and 
therefore are able to obtain a shortened timeframe with OTTO if they 
desire.
---------------------------------------------------------------------------

    \16\ See note 11 above.
---------------------------------------------------------------------------

    Offering the removal feature to other market participants on an 
optional basis does not create an undue burden on intra-market 
competition because unlike ISE Market Makers, other market participants 
do not bear the same risks of potential erroneous or unintended 
executions. FIX and OTTO users have the opportunity to disable the 
cancellation feature and simply disconnect from the Exchange. FIX and 
OTTO users may also set a timeframe that is appropriate for their 
business. It is appropriate to offer this optional cancellation 
functionality to other market participants for open orders, because 
those orders are subject to risks of missed and/or unintended 
executions due to a lack of connectivity which the participants needs 
to weigh. Finally, the Exchange does not believe that such change will 
impose any burden on inter-market competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. Other options 
exchanges offer similar functionality.\17\
---------------------------------------------------------------------------

    \17\ See Phlx Rule 1019(c), NOM Rules at Chapter VI, Section 
6(e) and BX Rules at Chapter VI, Section 6(e).
---------------------------------------------------------------------------

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 \18\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \19\ 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.
---------------------------------------------------------------------------

    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-2018-12 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2018-12. 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-2018-12, and should be submitted on 
or before March 13, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
---------------------------------------------------------------------------

    \20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-03308 Filed 2-16-18; 8:45 am]
 BILLING CODE 8011-01-P
Federal Register / Vol. 83, No. 34 / Tuesday, February 20, 2018 / Notices 7253

time the Member disconnected the next Similar to SQF Ports, when a FIX or either enable or disable the cancellation
session would be a new Session of OTTO Port detects the loss of feature, thereby offering the same risk
Connectivity. This definition is communication with a Member’s Client protections throughout the market.
proposed at proposed Rule 711(e)(i)(F). Application for a certain time period (a ISE Market Makers will be required to
The Member may also communicate the period of ‘‘nn’’ seconds), the Exchange utilize this disconnect and removal
time to the Exchange by calling the will automatically logoff the Member’s functionality with respect to SQF Ports.
Exchange’s operations staff. If the time affected Client Application and if This feature will remove impediments
period is communicated to the elected, automatically cancel all orders. to and improve the mechanism of a free
Exchange by calling Exchange The Member may have an order which and open market and a national market
operations, the number of ‘‘nn’’ seconds has routed away prior to the system aimed at protecting investors
selected by the Member shall persist for cancellation, in the event that the order and the public interest by requiring ISE
each subsequent Session of Connectivity returns to the Order Book, because it Market Makers quotes to be removed in
until the Member either contacts was either not filled or partially filled, the event of a loss of connectivity with
Exchange operations by phone and that order will be cancelled. the Exchange’s system. ISE Market
changes the setting or the Member The disconnect feature is mandatory Makers provide liquidity to the market
selects another time period in the Client for FIX and OTTO users however the place and have obligations unlike other
Application prior to the next Session of user has the ability to elect to also market participants.11 This risk feature
Connectivity. enable a removal feature, which will is important because it will enable ISE
cancel all orders submitted through that Market Makers to avoid risks associated
FIX and OTTO Ports FIX or OTTO Port. If the removal of with inadvertent executions in the event
The Exchange’s system has a default orders feature is not enabled, the system of a loss of connectivity with the
time period, which will trigger a will simply disconnect the FIX and/or Exchange. The proposed rule change is
disconnect from the Exchange and OTTO user and not cancel any orders. designed to not permit unfair
remove orders, set to thirty (30) seconds The FIX and/or OTTO user would have discrimination among market
for FIX Ports and fifteen (15) seconds for to commence a new Session of participants, as it would apply
OTTO Ports. The Member may disable Connectivity to add, modify or cancel uniformly to all ISE Market Makers
the removal of orders feature, but not its orders once disconnected. utilizing SQF Ports.
the disconnect feature. If the Member The trigger for the SQF, FIX and The disconnect feature of FIX and
elects to have its orders removed, in OTTO Ports is Client Application OTTO is mandatory, however market
addition to the disconnect for FIX, the specific. The automatic cancellation of participants will have the option to
Member may determine a time period of the ISE Market Maker’s quotes for SQF either enable or disable the cancellation
no technical connectivity to trigger the Ports and open orders, if elected by the feature, which would result in the
disconnect and removal of orders Member for FIX or OTTO Ports, entered cancellation of all orders submitted over
between one (1) second and thirty (30) into the respective SQF, FIX or OTTO the applicable FIX or OTTO Port when
seconds. If the Member elects to have its Ports via a particular Client Application such port disconnect [sic]. It is
orders removed, in addition to the will neither impact nor determine the appropriate to offer this removal feature
disconnect for OTTO, the Member may treatment of the quotes of other ISE as optional to all market participants
determine a time period of no technical Market Makers (not associated with the utilizing FIX or OTTO, because unlike
connectivity to trigger the disconnect same Market Maker ID) entered into ISE Market Makers who are required to
and removal of orders between one SQF Ports or orders of the same or other provide quotes in all products in which
hundred (100) milliseconds and 99,999 Members entered into the FIX or OTTO they are registered, market participants
milliseconds. All orders will be Ports via a separate and distinct Client utilizing FIX or OTTO do not bear the
automatically cancelled. Application. same magnitude of risk of potential
There are two ways to change the erroneous or unintended executions. In
number of ‘‘nn’’ seconds: (1) 2. Statutory Basis addition, market participants utilizing
Systematically or (2) by contacting the The Exchange believes that its FIX or OTTO may desire their orders to
Exchange’s operations staff. If the proposal is consistent with Section 6(b) remain on the order book despite a
Member changes the default number of of the Act 9 in general, and furthers the technical disconnect, so as not to miss
‘‘nn’’ seconds, that new setting shall be objectives of Section 6(b)(5) of the Act 10 any opportunities for execution of such
in effect throughout that Session of in particular, in that it is designed to orders while the FIX and/or OTTO port
Connectivity and will then default back promote just and equitable principles of is disconnected.
to thirty seconds for FIX Ports or fifteen trade, to remove impediments to and Utilizing a time period for SQF and
seconds for OTTO Ports at the end of perfect the mechanism of a free and OTTO Ports of fifteen (15) seconds and
that session. The Member may change open market and a national market permitting ISE Market Makers and
the default setting prior to each Session system, and, in general to protect Members to modify the setting to
of Connectivity. The Member may also investors and the public interest, by between 100 milliseconds and 99,999
communicate the time to the Exchange imposing this mandatory removal milliseconds is consistent with the Act
by calling the Exchange’s operations functionality on ISE Market Makers to because the Exchange does not desire to
staff. If the time period is communicated prevent disruption in the marketplace trigger unwarranted logoffs of Members
to the Exchange by calling Exchange and also offering this removal feature to and therefore allows Members the
operations, the number of ‘‘nn’’ seconds other market participants. Requiring ISE ability to set their time in order to
selected by the Member shall persist for
sradovich on DSK3GMQ082PROD with NOTICES

Market Makers to utilize the disconnect enable the Exchange the authority to
each subsequent Session of Connectivity feature will avoid risks associated with disconnect the Member with this
until the Member either contacts inadvertent executions in the event of a feature. Both SQF and OTTO are
Exchange operations by phone and loss of connectivity. Other market proprietary system components offered
changes the setting or the Member participants will have the option to by ISE. The Exchange believes that the
selects another time period through the proposed settings for SQF and OTTO
Client Application prior to the next 9 15 U.S.C. 78f(b).
Session of Connectivity. 10 15 U.S.C. 78f(b)(5). 11 See ISE Rule 804(e).

VerDate Sep<11>2014 17:55 Feb 16, 2018 Jkt 244001 PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 E:\FR\FM\20FEN1.SGM 20FEN1
7254 Federal Register / Vol. 83, No. 34 / Tuesday, February 20, 2018 / Notices

are appropriate timeframes. Each ISE of thirty (30) seconds and permit a FIX a daily basis.14 ISE Market Makers will
Market Maker and Member has different user to modify the timeframe for FIX not be relieved of the obligation to
levels of sensitivity with respect to this Ports to between 1 second and 30 provide continuous two-sided quotes on
disconnect setting and each ISE Market seconds for the removal of orders. This a daily basis, nor will it prohibit the
Maker and Member has their own proposal is consistent with the Act and Exchange from taking disciplinary
system safeguards as well. A default the protection of investors because this action against a ISE Market Maker for
setting of fifteen (15) seconds is feature, which is optional, will mitigate failing to meet the continuous quoting
appropriate to capture the needs of all the risk of potential erroneous or obligation each trading day as a result
ISE Market Makers and Members and unintended executions associated with of disconnects.
high enough not to trigger unwarranted a loss in communication with a Client With respect to FIX and OTTO Ports,
removal of quotes and orders. Application. With respect to the longer the Exchange will offer this optional
Further, ISE Market Makers and timeframe for FIX, as compared to SQF removal functionality to all market
Members are able to customize their and OTTO, the Exchange notes that participants. Offering the removal
settings. The Exchange’s proposal to unlike SQF and OTTO which are feature on a voluntary basis to all other
permit a timeframe for SQF and OTTO proprietary system components, FIX is a market participants is consistent with
Ports between 100 milliseconds and universal component. The settings on the Act because it permits them an
99,999 milliseconds is consistent with FIX remain different given FIX is not a opportunity to utilize this risk feature,
the Act and the protection of investors proprietary system component. ISE if desired, and avoid risks associated
because the purpose of this feature is to Market Makers require a quicker with inadvertent executions in the event
mitigate the risk of potential erroneous timeframe (15 seconds as compared to of a loss of connectivity with the
or unintended executions associated 30 seconds). ISE Market Makers have Exchange. The removal feature is
with a loss in communication with a quoting obligations 13 and are more designed to mitigate the risk of missed
Client Application. Members are able to sensitive to price movements as and/or unintended executions
better anticipate the appropriate time compared to other market participants. associated with a loss in communication
within which they may require prior to It is consistent with the Act to provide with a Client Application. The proposed
a logoff as compared to the Exchange. a longer timeframe within which to rule change is designed to not permit
The Member is being offered a customize settings for FIX as compared unfair discrimination among market
timeframe by the Exchange within to SQF Ports because ISE Market Makers participants, as this optional removal
which to select the appropriate time. need to remain vigilant of market feature will be offered uniformly to all
The Exchange does not desire to trigger conditions and react more quickly to Members utilizing FIX and/or OTTO.
unwarranted logoffs of Members and market movements as compared to other The Exchange will disconnect
therefore permits Members to provide Members entering orders into the Members from the Exchange and not
an alternative time to the Exchange, cancel a Member’s orders if the removal
system. The proposal acknowledges this
within the Exchange’s prescribed feature is disabled. The disconnect
sensitivity borne by ISE Market Makers
timeframe, which authorizes the feature is mandatory and will cause the
and reflects the reaction time of ISE
Exchange to disconnect the Member. Member to be disconnected within the
Market Makers as compared to Members
The ‘‘nn’’ seconds serve as the default timeframe or the timeframe
entering orders. Of note, the proposed
Member’s instruction to the Exchange to otherwise specified by the Member.
customized timeframe for FIX might be
act upon the loss of connection and This feature is consistent with the Act
too long for ISE Market Makers given
remove quotes from the system, and if because it enables FIX and OTTO users
their quoting requirements and
elected, orders from the System. This the ability to disconnect from the
sensitivity to price movements. ISE
range will accommodate Members in Exchange, assess the situation and make
Market Makers would be severely a determination concerning their risk
selecting their appropriate times within impacted by a loss of connectivity of
the prescribed timeframes. exposure. The Exchange notes that in
more than several seconds. The ISE the event that orders need to be
With respect to SQF, the Exchange’s Market Maker would have exposure
proposal is further consistent with the removed, the Member may elect to
during the time period in which they utilize the Kill Switch 15 feature. The
Act because it will mitigate the risk of are unable to manage their quote and
potential erroneous or unintended Exchange believes that it is consistent
update that quote. The Member is best with the Act to require other market
executions associated with a loss in positioned to determine their setting.
communication with a Client participants to be disconnected because
With respect to other market the participant is otherwise not
Application which protects investors participants that enter orders, they have
and the public interest. Also, any connected to the Exchange’s system and
the option of selecting either OTTO or the Member simply needs to reconnect
interest that is executable against a ISE FIX and therefore are able to obtain a
Market Maker’s quotes that is received 12 to commence submitting and cancelling
shortened timeframe with OTTO if they orders. The Exchange believes requiring
by the Exchange prior to the trigger of desire.
the disconnect to the Client a disconnect when a loss of
The system operates consistently with communication is detected is a rational
Application, which is processed by the the firm quote obligations of a broker-
system, automatically executes at the course of action for the Exchange to
dealer pursuant to Rule 602 of alert the Member of the technical
price up to the ISE Market Maker’s size. Regulation NMS. Specifically, with
In other words, the system will process connectivity issue.
respect to ISE Market Makers, their The proposed rule change will help
the request for cancellation in the order obligation to provide continuous two-
sradovich on DSK3GMQ082PROD with NOTICES

it was received by the system. maintain a fair and orderly market
sided quotes on a daily basis is not which promotes efficiency and protects
With respect to FIX, a universal diminished by the automatic removal of
system component, the Exchange’s investors. This mandatory removal
such quotes triggered by the disconnect. feature for ISE Market Makers and
proposal would set a default timeframe ISE Market Makers are required to optional removal for all other market
12 The time of receipt for an order or quote is the
provide continuous two-sided quotes on
14 See note 11 above.
time such message is processed by the Exchange
book. 13 See note 11 above. 15 See ISE Rule 711(d).

VerDate Sep<11>2014 17:55 Feb 16, 2018 Jkt 244001 PO 00000 Frm 00119 Fmt 4703 Sfmt 4703 E:\FR\FM\20FEN1.SGM 20FEN1
Federal Register / Vol. 83, No. 34 / Tuesday, February 20, 2018 / Notices 7255

participants will mitigate the risk of due to a lack of connectivity which the • Send an email to rule-comments@
potential erroneous or unintended participants needs to weigh. Finally, the sec.gov. Please include File Number SR–
executions associated with a loss in Exchange does not believe that such ISE–2018–12 on the subject line.
communication with a Client change will impose any burden on inter-
Application. market competition that is not necessary Paper Comments
B. Self-Regulatory Organization’s or appropriate in furtherance of the • Send paper comments in triplicate
Statement on Burden on Competition purposes of the Act. Other options to Secretary, Securities and Exchange
exchanges offer similar functionality.17
The Exchange does not believe that Commission, 100 F Street NE,
the proposed rule change will impose C. Self-Regulatory Organization’s Washington, DC 20549–1090.
any burden on competition not Statement on Comments on the
All submissions should refer to File
necessary or appropriate in furtherance Proposed Rule Change Received From
Members, Participants, or Others Number SR–ISE–2018–12. This file
of the purposes of the Act. Specifically, number should be included on the
the Exchange does not believe the No written comments were either subject line if email is used. To help the
proposed rule change will cause an solicited or received. Commission process and review your
undue burden on intra-market
competition because ISE Market Makers, III. Date of Effectiveness of the comments more efficiently, please use
unlike other market participants, have Proposed Rule Change and Timing for only one method. The Commission will
greater risks in the market place. Commission Action post all comments on the Commission’s
Quoting across many series in an option Because the foregoing proposed rule internet website (http://www.sec.gov/
creates large principal positions that change does not: (i) Significantly affect rules/sro.shtml). Copies of the
expose ISE Market Makers, who are the protection of investors or the public submission, all subsequent
required to continuously quote in interest; (ii) impose any significant amendments, all written statements
assigned options, to potentially burden on competition; and (iii) become with respect to the proposed rule
significant market risk. Providing a operative for 30 days from the date on change that are filed with the
broader timeframe for the disconnect which it was filed, or such shorter time Commission, and all written
and removal of orders for FIX as as the Commission may designate, it has communications relating to the
compared to the removal of quotes for become effective pursuant to Section proposed rule change between the
SQF Ports and OTTO orders does not 19(b)(3)(A)(iii) of the Act 18 and Commission and any person, other than
create an undue burden on competition subparagraph (f)(6) of Rule 19b–4 those that may be withheld from the
because ISE Market Makers have thereunder.19 public in accordance with the
quoting obligations 16 and are more At any time within 60 days of the provisions of 5 U.S.C. 552, will be
sensitive to price movements as filing of the proposed rule change, the available for website viewing and
compared to other market participants. Commission summarily may printing in the Commission’s Public
ISE Market Makers need to remain temporarily suspend such rule change if Reference Room, 100 F Street NE,
vigilant of market conditions and react it appears to the Commission that such Washington, DC 20549 on official
more quickly to market movements as action is: (i) Necessary or appropriate in
compared to other Members entering business days between the hours of
the public interest; (ii) for the protection
multiple orders into the system. The 10:00 a.m. and 3:00 p.m. Copies of the
of investors; or (iii) otherwise in
proposal reflects this sensitivity borne filing also will be available for
furtherance of the purposes of the Act.
by ISE Market Makers and reflects the If the Commission takes such action, the inspection and copying at the principal
reaction time of ISE Market Makers as Commission shall institute proceedings office of the Exchange. All comments
compared to other Members entering to determine whether the proposed rule received will be posted without change.
orders. With respect to other market should be approved or disapproved. Persons submitting comments are
participants that enter orders, they have cautioned that we do not redact or edit
the option of selecting either OTTO or IV. Solicitation of Comments personal identifying information from
FIX and therefore are able to obtain a Interested persons are invited to comment submissions. You should
shortened timeframe with OTTO if they submit written data, views, and submit only information that you wish
desire. arguments concerning the foregoing, to make available publicly. All
Offering the removal feature to other including whether the proposed rule submissions should refer to File
market participants on an optional basis change is consistent with the Act. Number SR–ISE–2018–12, and should
does not create an undue burden on Comments may be submitted by any of be submitted on or before March 13,
intra-market competition because unlike the following methods: 2018.
ISE Market Makers, other market
participants do not bear the same risks Electronic Comments For the Commission, by the Division of
of potential erroneous or unintended • Use the Commission’s internet Trading and Markets, pursuant to delegated
executions. FIX and OTTO users have comment form (http://www.sec.gov/ authority.20
the opportunity to disable the rules/sro.shtml); or Eduardo A. Aleman,
cancellation feature and simply Assistant Secretary.
disconnect from the Exchange. FIX and 17 See Phlx Rule 1019(c), NOM Rules at Chapter
[FR Doc. 2018–03308 Filed 2–16–18; 8:45 am]
OTTO users may also set a timeframe VI, Section 6(e) and BX Rules at Chapter VI, Section
6(e). BILLING CODE 8011–01–P
sradovich on DSK3GMQ082PROD with NOTICES

that is appropriate for their business. It 18 15 U.S.C. 78s(b)(3)(A)(iii).
is appropriate to offer this optional 19 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
cancellation functionality to other 4(f)(6) requires a self-regulatory organization to give
market participants for open orders, the Commission written notice of its intent to file
because those orders are subject to risks the proposed rule change at least five business days
prior to the date of filing of the proposed rule
of missed and/or unintended executions change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
16 See note 11 above. requirement. 20 17 CFR 200.30–3(a)(12).

VerDate Sep<11>2014 17:55 Feb 16, 2018 Jkt 244001 PO 00000 Frm 00120 Fmt 4703 Sfmt 9990 E:\FR\FM\20FEN1.SGM 20FEN1
Document Created: 2018-02-17 02:29:30
Document Modified: 2018-02-17 02:29:30
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 7252