[Federal Register Volume 79, Number 102 (Wednesday, May 28, 2014)]
[Notices]
[Pages 30672-30674]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-12222]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72204; File No. SR-ISE-2014-12]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change Amending Rule 1614
May 21, 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 May 8, 2014, the International Securities Exchange, LLC (the
``Exchange'' or the ``ISE'') 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 Exchange has filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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)(iii).
\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 proposes to amend ISE Rule 1614 (Imposition of Fines
for Minor Rule Violations) to incorporate violations of ISE Rules 803
(Obligations of Market Makers) and 804 (Market Maker Quotations) into
the Minor Rule Violation Plan (``MRVP'') and to delete obsolete rule
text. The text of the proposed rule change is available on the
Exchange's Web site 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 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 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
The purpose of the proposed rule change is to amend ISE Rule 1614
to: (1) Separate violations of the quotation spread parameters from one
violation into two: One for pre-opening quotation spread parameters and
one for post-opening quotation parameters, as set forth in ISE Rule 803
(Obligations of Market Makers); (2) incorporate violations for failing
to meet the Exchange's continuous quoting obligations, as set forth in
ISE Rule 804 (Market Maker Quotations); and (3) to delete obsolete rule
text.
The Exchange believes most of these violations are inadvertent and
technical in nature. Processing these routine violations under the MRVP
would decrease the administrative burden of regulatory and enforcement
staff, as well as, that of the Business Conduct Committee. In addition,
staff would be able to more expeditiously process routine violations
under the MRVP.
Quote Spread Obligations (Rule 803). The MRVP currently combines
pre-opening and post-opening quote spreads into one MRVP violation and
defines an instance as one quote violation. Under the current plan, if
a member has over forty (40) instances of quote spread violations, the
matter must be handled outside of the MRVP and a formal action must be
brought. Given these limitations, the Exchange has never been able to
use the MRVP for quote spread violations since Members average millions
of quotes per day. Therefore, the Exchange is now proposing to split
the quote spread
[[Page 30673]]
violations into two categories. One category would apply to pre-opening
quote spread violations, and one category would apply to post-opening
quote spread violations. Additionally, we are proposing to change the
application of the MRVP from applying to each ``instance'' of a quote
spread violation to each ``offense.'' For purposes of the MRVP, an
``offense'' will apply to any given month within a 24-month rolling
period.
Given the proposal to split the quote spread violations into two
categories, e.g., pre-opening quote spreads and post-opening quote
spreads, the Exchange is proposing to move violations of Rule
805(b)(1)(i), which addresses order spreads, from Rule 1614(d)(5) to
both 1614(d)(6)(a) and 1614(d)(6)(b). This proposed change ensures that
violations of both quote spreads and order spreads that occur either
pre-open or post-open will be aggregated for the purposes of
determining the number violations under the MRVP.
Continuous Quote Obligations (Rule 804). The Exchange is proposing
to add violations of the continuous quotation rule to the MRVP. These
are routine types of violations and the added flexibility of including
these matters in the MRVP will help streamline our surveillance and
enforcement program.
For violations of Rule 1614(d)(6)(a) and (b) and proposed
1614(d)(11) the Exchange is proposing to consider violations that occur
in any given month within a 24-month rolling period as an ``offense.''
The Exchange is also proposing to change the applicability of the MRVP
for violations of Rule 1614(d)(6)(a) and (b) from violations occurring
within one calendar year to violations that occur within a rolling
twenty-four month period. Since the Exchange is proposing to aggregate
the violations that occur within a month and sanction the violations as
a single offense, the Exchange believes it is appropriate to consider
offenses that have occurred within the past twenty-four month rolling
period, as opposed to a calendar year, to determine the amount to fine
a firm and when to proceed with formal disciplinary action.
The Exchange is proposing that the first offense would result in a
letter of caution, the second offense would result in a $1,000 fine,
the third offense would result in a $2,500 fine, the fourth offense
would result in a $5,000 fine and a fifth offense would result in
formal disciplinary action. With respect to violations of Rule
1614(d)(6)(a) and (b), the Exchange is proposing to change the fine
amounts to those discussed above from a letter of caution for the first
1 to 10 violations, $200 fine for 11 to 20 violations, $400 fine for 21
to 30 violations, $800 fine for 31 to 40 violations and formal
disciplinary actions for more than 40 violations. The Exchange believes
it is appropriate to charge a higher fine amount because the Exchange
is aggregating violations that occur in a month and sanction the
violations as a single offense. Given that the Exchange believes that
the proposed fine amounts are appropriate for violations of quote
spread parameters (proposed Rule 1614(d)(6)(a) and (b)), the Exchange
also believes that these same fine amounts should apply to violations
of the continuous quote spread parameters (proposed Rule 1614(d)(11)).
As with other violations covered under the Exchange's Minor Rule
Violation Plan, any egregious activity may be referred to the
Exchange's Business Conduct Committee.
Additionally, the Exchange is proposing to delete the reference to
Rule 717(a) and (f) in Rule 1614(d)(5) as those sections were rescinded
and to delete the sentence stating that each paragraph of Rule 717
subject to this Rule shall be treated separately for purposes of
determining the number of cumulative violations because this Rule now
only applies to sections (d) and (e) of Rule 717. Violations of
Sections (d) and (e) of Rule 717 will be aggregated for the purposes of
determining the number of violations under the MRVP because both
sections of the rule address order exposure requirements. The Exchange
is also proposing to rescind (d)(4) (Conduct and Decorum Policies) of
Rule 1614 as it is inapplicable to ISE's market structure as ISE is an
electronic exchange and this provision seems to relate to conduct and
decorum on floor-based exchanges.
By promptly imposing a meaningful financial penalty for such
violations, the MRVP focuses on correcting conduct before it gives rise
to more serious enforcement action. The MRVP provides a reasonable
means of addressing rule violations that do not necessarily rise to the
level of requiring formal disciplinary proceedings, while also
providing a greater flexibility in handling certain violations.
Adopting a provision that would allow the Exchange to sanction
violators under the MRVP by no means minimizes the importance of
compliance with these rules. The Exchange believes that the violation
of any of its rules is a serious matter. The addition of a sanction
under the MRVP simply serves to add an additional method for
disciplining violators of the additional rules. The Exchange will
continue to conduct surveillance with due diligence and make its
determination, on a case by case basis, whether a violation of these
additional rules should be subject to formal disciplinary proceedings.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \5\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \6\ in particular, because it
is designed to prevent fraudulent and manipulative acts and practices,
and 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, allowing the Exchange to have consistency between its
Minor Rule Violation Plan and the Minor Rule Violation Plan of other
SROs. Many other options exchanges administer violations for their
quotation spread rules and continuous quoting rules under their
MRVP.\7\ The Exchange believes that the proposed such change furthers
the objectives of Section 6(b)(1) \8\ of the Act to enforce compliance
by its Members of the Exchange's Rules, Section 6(b)(6) \9\ of the Act
to appropriately discipline Members for violations of Exchange Rules,
and Section 6(b)(7) \10\ of the Act to provide a fair procedure of
disciplining Members as the proposal will strengthen its ability to
carry out its oversight responsibilities as a self-regulatory
organization and reinforce its surveillance and enforcement functions.
Processing these routine violations under the MRVP would decrease the
administrative burden of regulatory and enforcement staff, as well as,
that of the Business Conduct Committee. In addition, staff would be
able to more expeditiously process routine violations under the MRVP.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
\7\ See Chicago Board Options Exchange Rule 17.50, C2 Rule
17.50, NYSE Arca Rule 10.12, BATS Exchange Rule 8.15, Nasdaq Options
Market rule, Chapter 10, Section 7, Boston Options Exchange Rule
12140 and Miami International Securities Exchange Rule 1014.
\8\ 15 U.S.C. 78f(b)(1).
\9\ 15 U.S.C. 78f(b)(6).
\10\ 15 U.S.C. 78f(b)(7).
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B. Self-Regulatory Organization's Statement on Burden on Competition
Since this rule change is merely allowing the Exchange to process
certain rule violations through its MRVP that other exchanges already
process
[[Page 30674]]
through their MRVP, this filing does not implicate the burden analysis.
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 foregoing proposed rule change does not significantly
affect the protection of investors or the public interest, does not
impose any significant burden on competition, and, by its terms, does
not 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) \11\ of the Act and Rule 19b-
4(f)(6) \12\ thereunder. The Exchange provided the Commission with
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 the proposed rule
change.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4(f)(6).
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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-2014-12 on the subject line.
Paper Comments
Send paper comments in triplicate to the Secretary,
Securities and Exchange Commission, 100 F Street NE., Washington, DC
20549-1090.
All submissions should refer to File Number SR-ISE-2014-12. 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 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-2014-12 and should be
submitted on or before June 18, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-12222 Filed 5-27-14; 8:45 am]
BILLING CODE 8011-01-P