[Federal Register Volume 79, Number 70 (Friday, April 11, 2014)]
[Notices]
[Pages 20269-20271]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-08120]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71884; File No. SR-ISE-2014-22]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule
Change Relating to Rule 703A
April 7, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on April 4, 2014, the International Securities Exchange, LLC
(``Exchange'' or ``ISE'') filed with the Securities and Exchange
Commission (the ``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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[[Page 20270]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The ISE proposes to extend a pilot program under Rule 703A(d) that
suspends Rule 720 regarding obvious errors during Limit and Straddle
States in securities that underlie options traded on the ISE. The text
of the proposed rule change is available on the Exchange's Web site
(http://www.ise.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 self-regulatory organization
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 self-regulatory organization
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
On April 5, 2013,\3\ the Commission approved a proposed rule change
designed to address certain issues related to the Plan to Address
Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS
under the Act (the ``Limit Up-Limit Down Plan'' or the ``Plan'').\4\
The rules adopted in that filing established a one year pilot program
to exclude transactions executed during a Limit State \5\ or Straddle
State \6\ from the obvious error provisions of Rule 720. The purpose of
this filing is to extend the effectiveness of this pilot program to
coincide with the proposed extension of the Limit Up-Limit Down Plan to
February 20, 2015.\7\
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\3\ See Securities Exchange Act Release No. 69329 (April 5,
2013), 78 FR 21657 (April 11, 2014) (SR-ISE-2013-22) (Approval
Order); 69110 (March 11, 2013) 78 FR 16726 (March 18, 2013) (SR-ISE-
2013-22) (Notice of Filing).
\4\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down
Release'').
\5\ The term ``Limit State'' means the condition when the
national best bid or national best offer for an underlying security
equals an applicable price band, as determined by the primary
listing exchange for the underlying security. See ISE Rule 703A.
\6\ The term ``Straddle State'' means the condition when the
national best bid or national best offer for an underlying security
is non-executable, as determined by the primary listing exchange for
the underlying security, but the security is not in a Limit State.
See ISE Rule 703A.
\7\ See Exchange Act Release No. 71649 (March 5, 2014), 79 FR
13696 (March 11, 2014) (Seventh Amendment to the Limit-Up Limit-Down
Plan).
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The Exchange believes the benefits to market participants from this
provision should continue on a pilot basis. The Exchange continues to
believe that adding certainty to the execution of orders in Limit or
Straddle States will encourage market participants to continue to
provide liquidity to the Exchange, and, thus, promote a fair and
orderly market during these periods. Barring this provision, the
obvious error provisions of Rule 720 would likely apply in many
instances during Limit and Straddle States. The Exchange believes that
continuing the pilot will protect against any unanticipated
consequences in the options markets during a Limit or Straddle State.
Thus, the Exchange believes that the protections of current rule should
continue while the industry gains further experience operating the
Plan.
Pursuant to a letter filed in connection with the order approving
the establishment of the pilot,\8\ the Exchange committed to submit
monthly data regarding the program. In addition, the Exchange agreed to
submit an overall analysis of the pilot in conjunction with the data
submitted under the Plan and any other data as requested by the
Commission. The Exchange now notes that each month, the Exchange shall
provide to the Commission, and the public, a dataset containing the
data for each Straddle and Limit State in optionable stocks that had at
least one trade on the Exchange.\9\ For each trade on the Exchange, the
Exchange will provide (a) the stock symbol, option symbol, time at the
start of the Straddle or Limit State, an indicator for whether it is a
Straddle or Limit State, and (b) for the trades on the Exchange, the
executed volume, time-weighted quoted bid-ask spread, time-weighted
average quoted depth at the bid, time-weighted average quoted depth at
the offer, high execution price, low execution price, number of trades
for which a request for review for error was received during Straddle
and Limit States, an indicator variable for whether those options
outlined above have a price change exceeding 30% during the underlying
stock's Limit or Straddle State compared to the last available option
price as reported by OPRA before the start of the Limit or Straddle
State (1 if observe 30% and 0 otherwise), and another indicator
variable for whether the option price within five minutes of the
underlying stock leaving the Limit or Straddle State (or halt if
applicable) is 30% away from the price before the start of the Limit or
Straddle State.
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\8\ See letter from Michael Simon, General Counsel,
International Securities Exchange, LLC, dated April 4, 2013.
\9\ The Exchange also notes that it will be supplying the
Commission this data retroactively from April 2013-March 2014 as
soon as practicable. The Exchange will also provide the Commission
with this data on a monthly basis from March 2014 through the end of
the pilot.
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In addition, the Exchange will provide to the Commission, no later
than September 30, 2014, assessments relating to the impact of the
operation of the obvious error rules during Limit and Straddle States
including: (1) an evaluation of the statistical and economic impact of
Limit and Straddle States on liquidity and market quality in the
options markets, and (2) an assessment of whether the lack of obvious
error rules in effect during the Straddle and Limit States are
problematic. This data will be submitted under separate cover.
Confidential treatment under the Freedom of Information Act is
requested regarding the analysis.
2. Statutory Basis
The Exchange believes that its proposal is consistent with the
requirements of the Act and the rules and regulations thereunder that
are applicable to a national securities exchange, and, in particular,
with the requirements of Section 6(b) of the Act.\10\ In particular,
the proposal is consistent with Section 6(b)(5) of the Act,\11\ because
it is designed to promote just and equitable principles of trade,
remove impediments to and perfect the mechanisms of a free and open
market and a national market system and, in general, to protect
investors and the public interest. Additionally, the Exchange believes
the proposed rule change is consistent with the Section 6(b)(5) \12\
requirement that the rules of an exchange not be designed to permit
unfair discrimination between customers, issuers, brokers, or dealers.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(5).
\12\ Id.
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In particular, the Exchange further believes that it is necessary
and appropriate in the interest of promoting fair and orderly markets
to exclude transactions executed during a Limit or Straddle State from
certain aspects of Rule 720. The Exchange believes the application of
the current rule will be impracticable given the lack of a reliable
national best bid or offer in the options market during Limit and
Straddle
[[Page 20271]]
States, and that the resulting actions (i.e., nullified trades or
adjusted prices) may not be appropriate given market conditions.
Extension of this pilot would ensure that limit orders that are filled
during a Limit or Straddle State would have certainty of execution in a
manner that promotes just and equitable principles of trade, removes
impediments to, and perfects the mechanism of a free and open market
and a national market system. Thus, the Exchange believes that the
protections of the pilot should continue while the industry gains
further experience operating the Plan.
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 that is not necessary or appropriate
in furtherance of the purposes of the Act. Specifically, the Exchange
believes that, by extending the expiration of the pilot, the proposed
rule change will allow for further analysis of the pilot and a
determination of how the pilot shall be structured in the future. In
doing so, the proposed rule change will also serve to promote
regulatory clarity and consistency, thereby reducing burdens on the
marketplace and facilitating investor protection. The Exchange further
notes that other options exchanges have filed to extend their own
obvious error pilots to coincide with the proposed extension of the
Limit Up-Limit Down Plan.\13\
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\13\ See CBOE-2014-033.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.
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, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-
4(f)(6)(iii) thereunder.\15\
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the 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.
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The Exchange has asked the Commission to waive the 30-day operative
delay so that the proposal may become operative immediately upon
filing. The Exchange stated that waiver of this requirement will allow
the Exchange to extend the pilot program prior to its expiration on
April 8, 2014. The Exchange also stated that the proposal will allow
for the least amount of market disruption as the pilot will continue as
it currently does, maintaining the status quo. For these reasons, the
Commission believes that the proposed rule change presents no novel
issues and that waiver of the 30-day operative delay is consistent with
the protection of investors and the public interest. Therefore, the
Commission designates the proposed rule change to be operative upon
filing.\16\
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\16\ 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 necessary or
appropriate in the public interest, for the protection of investors, or
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-2014-22 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-2014-22. 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 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 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; 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-2014-22 and should be
submitted on or before May 2, 2014.
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\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-08120 Filed 4-10-14; 8:45 am]
BILLING CODE 8011-01-P