[Federal Register Volume 79, Number 65 (Friday, April 4, 2014)]
[Notices]
[Pages 18944-18947]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-07511]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71832; File No. SR-ISE-2014-18]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Amend ISE Rule 623 (``Options Communications'') To Conform
With the Rules of the Financial Industry Regulatory Authority Inc.
March 31, 2014.
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 March 20, 2014, the International Securities Exchange, LLC
(``Exchange'' or ``ISE'')
[[Page 18945]]
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which items
have been substantially prepared by the Exchange. ISE has designated
the proposed rule change as constituting a ``non-controversial'' rule
change under Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6)
\4\ thereunder, which renders the proposal effective upon receipt of
this filing by the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing to update ISE Rule 623 (Options
Communications) to conform with the rules of the Financial Industry
Regulatory Authority, Inc. (``FINRA'') for purposes of an agreement
between the Exchange and FINRA pursuant to Exchange Act Rule 17d-2.\5\
The text of the proposed rule change is available on the Exchange's Web
site at http://www.ise.com, at the Exchange's principal office, and at
the Commission's Public Reference Room.
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\5\ 17 CFR 240.17d-2.
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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
Pursuant to Exchange Act Rule 17d-2,\6\ the Exchange and FINRA
entered into an agreement to allocate regulatory responsibility for
common rules (``17d-2 Agreement''). The 17d-2 Agreement covers common
members of the Exchange and FINRA (``Common Members'') and allocates to
FINRA regulatory responsibility, with respect to Common Members, for
the following: (i) Examination of Common Members for compliance with
federal securities laws, rules and regulations and rules of the
Exchange that the Exchange has certified as identical or substantially
similar to FINRA rules; (ii) investigation of Common Members for
violations of federal securities laws, rules and regulations, and the
rules of the Exchange that the Exchange has certified as identical or
substantially identical to FINRA rules; and (iii) enforcement of
compliance by Common Members with the federal securities laws, rules
and regulations, and the rules of the Exchange that the Exchange has
certified as identical or substantially similar to FINRA rules.
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\6\ Id.
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The 17d-2 Agreement included a certification by the Exchange that
states that the requirements contained in certain Exchange rules are
identical to, or substantially similar to, certain FINRA rules that
have been identified as comparable. To conform with comparable FINRA
rules for purposes of the 17d-2 Agreement, the Exchange is proposing to
amend ISE Rule 623 to conform with changes made by FINRA to its
corresponding rule, Rule 2220.\7\
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\7\ See Exchange Act Release No. 68650 (Jan. 14, 2013), 78 FR
4182 (Jan. 18, 2013) (Approving, among other things, amendments to
FINRA Rule 2220 (Options Communications) to update cross-references
to FINRA Rule 2210 (Communications with the Public)); see also
Exchange Act Release No. 66681 (Mar. 29, 2012), 77 FR 20452 (Apr. 4,
2012) (Approving, among other things, amendments to FINRA Rule
2210).
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First, the Exchange proposes to amend Rule 623(a) to reduce the
number of defined categories of communication from six (in the current
rule) to three: ``Retail communications,'' ``correspondence,'' and
``institutional communications.'' Current definitions of ``sales
literature,'' ``advertisement,'' and ``independently prepared reprint''
would be combined into a single category of ``retail communications.''
Specifically, the proposal would define ``retail communication'' to
mean ``any written (including electronic) communication that is
distributed or made available to more than 25 retail investors within
any 30 calendar-day period.'' The Exchange would also update the
current definition of ``correspondence'' to mean ``any written
(including electronic) communication distributed or made to 25 or fewer
retail customers within any 30 calendar-day period.'' Finally, the
Exchange would define ``institutional communication'' to include
written (including electronic) communications that are distributed or
made available only to institutional investors. The Exchange believes
the proposed changes to the definitions in Rule 623(a) would create a
more concise and descriptive rule, and clarify the terms for ISE
members.
Second, the Exchange is proposing to amend Rule 623(b), ``Approval
by Registered Options Principal.'' More specifically, the Exchange is
proposing to replace the phrase ``advertisements, sales literature . .
. and independently prepared reprints'' in Rule 623(b)(1) with the new
term, ``retail communications.'' The Exchange believes that this change
would make the rule more coherent with the other proposed changes.
In addition, the proposal would amend Rule 623(b)(2) to delete the
requirement for prior approval by a Registered Options Principal of
correspondence (as currently defined) that is distributed to 25 or more
existing retail customers within a 30 calendar-day period that makes
any financial or investment recommendation or otherwise promotes the
product or service of a member. Under the proposal, such communications
would be considered retail communications and therefore subject to the
principal approval requirement of amended Rule 623(b)(1). Under the
proposal, correspondence (as amended) would continue to be excluded
from the requirement to be approved by a Registered Options Principal
prior to use but would still be subject to the supervision and review
requirements of Rule 609. As such, ISE believes that the proposed
change would not substantively change the scope of options
communications that would require principal approval.
Next, the Exchange is proposing to amend Rule 623(b)(3) to modify
the required approvals of Institutional communications. Specifically,
the Exchange is proposing to add that its members shall ``establish
written procedures that are appropriate to its business, size,
structure, and customers for review by a Registered Options Principal
of institutional communications used by the member.'' The Exchange
believes this would better align ISE Rule 623 with FINRA Rule 2220.
Third, the Exchange is proposing to amend Rule 623(c) to replace
the phrase ``advertisements, sales literature, and independently
prepared reprints'' with the new proposed term, ``retail
communications.'' The Exchange is also proposing to exempt options
disclosure documents and prospectuses from Exchange review and approval
as these documents have other further requirements under the Securities
Act of 1933 (``Securities Act''). The Exchange
[[Page 18946]]
believes these changes would better align Exchange Rule 623 with FINRA
Rule 2220.
Fourth, the Exchange is proposing to amend Rule 623(d) to specify
that its members may not use any options communications that would
constitute a prospectus (as defined in the Securities Act) unless it
would meet the requirements of Securities Act Section 10.\8\ The
Exchange believes this change would put its members on notice that all
documents that may constitute a prospectus would be required to comply
with the Securities Act.
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\8\ 15 U.S.C. 78j.
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In addition, the Exchange is proposing to modify Rule 623(d) to
provide that any statement made referring to potential opportunities or
advantages presented by options must be accompanied by a statement
identifying the potential risks posed as well. The Exchange believes
that moving this language to the end of paragraph (d) would help alert
the public of potential risks associated with options, as well as the
advantages, which would create more awareness of the potential harms
that may arise in the participation of such securities. The Exchange
believes that this would help ensure that investors are protected from
potentially false or misleading communications distributed by its
members. The Exchange also believes this would better align ISE Rule
623 with FINRA Rule 2220 and provide greater clarity to its members and
the public regarding the Exchange's rules.
In sum, the Exchange believes the proposed changes would alert its
members to their requirements with respect to Options Communications
while further regulating all communications for compliance with
Exchange rules, and the Act and rules promulgated thereunder. In
addition, the Exchange believes that the proposed rule change would
help ensure that investors are protected from potentially false or
misleading communications with the public distributed by its members.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\9\ Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) requirements that the rules of an
exchange be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public
interest.\10\ Additionally, the Exchange believes the proposed rule
change is consistent with the Section 6(b)(5) requirement that the
rules of an exchange are not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.\11\
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\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(5).
\11\ Id.
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In particular, the Exchange believes the proposed rule changes
would provide greater clarity to its members and the public regarding
the Exchange's rules and provide greater harmonization between the
Exchange and FINRA rules of similar purpose, resulting in greater
uniformity and less burdensome and more efficient regulatory
compliance. In addition, the Exchange believes that the proposed rule
change would help ensure that investors are protected from potentially
false or misleading communications with the public distributed by its
members.
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
believes that the proposed rule change will merely bring clarity and
consistency to Exchange rules. The Exchange does not believe the
proposed rule change will impose any burden on any intramarket
competition as it applies to its members. In addition, the Exchange
does not believe the proposed rule filing will bring any unnecessary
burden on intermarket competition as it is consistent with FINRA Rule
2220 (Options Communications).
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the 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 if consistent with the protection of investors
and the public interest, it has become effective pursuant to Section
19(b)(3)(A) of the Act\12\ and Rule 19b-4(f)(6) thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6). Rule 19b-4(f)(6) also requires the
Exchange to give the Commission written notice of its intent to file
the proposed rule change, along with a brief description and text of
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 satisfied this
requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. Pursuant to
Rule 19b-4(f)(6)(iii), however, the Commission may designate a shorter
time if such action is consistent with the protection of investors and
the public interest.\14\ The Exchange has asked the Commission to waive
the 30-day operative delay so that the proposal may become operative
immediately upon filing.
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\14\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest
because it will allow the Exchange to immediately conform its rules to
corresponding FINRA rules. This will help ensure that such ISE rules
will continue to be covered by the existing 17d-2 Agreement between the
Exchange and FINRA and reduce duplicative regulation of Common
Members.\15\
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\15\ For purposes of waiving the 30-day operative delay, the
Commission has 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 sixty (60) days of the filing the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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:
[[Page 18947]]
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 No. SR-ISE-2014-18 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-2014-18. 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 Web site (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 Web site 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 such filing also will be available for inspection
and copying at the principal office of ISE. All comments received will
be posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-ISE-2014-18 and should be submitted on
or before April 25, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-07511 Filed 4-3-14; 8:45 am]
BILLING CODE 8011-01-P