[Federal Register Volume 79, Number 128 (Thursday, July 3, 2014)]
[Notices]
[Pages 38086-38088]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-15605]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72489; File No. SR-ISEGemini-2014-18]
Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Establish New
Rule 720A
June 27, 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 June 24, 2014, ISE Gemini, LLC (the ``Exchange'' or ``ISE
Gemini'') filed with the Securities and Exchange Commission the
proposed rule change as described in Items I, II, and III below, which
items have been prepared by the self-regulatory organization. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
ISE Gemini proposes to establish new procedures to account for
erroneous trades occurring from disruptions and/or malfunctions of
Exchange systems. The changes described in this proposal would
establish new ISE Gemini Rule 720A. 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 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
The Exchange proposes to adopt Rule 720A to provide for new
procedures to account for erroneous trades occurring from disruptions
and/or malfunctions of Exchange systems. Specifically, proposed new
Rule 720A would provide that any transaction that arises out of a
``verifiable systems disruption or malfunction'' in the use or
operation of an Exchange automated quotation, dissemination, execution,
or communication system may either be nullified or adjusted by Market
Control.\3\ Under the rule, Market Control may act, on its own motion,
to review erroneous transactions. This filing is based on the rules of
NYSE Arca, Inc. (``NYSE Arca'').\4\
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\3\ Market Control consists of designated personnel in the
Exchange's market control center. See ISE Gemini Rule 720(a)(3)(ii).
\4\ See NYSE Arca Rule 6.89. The proposed rule change is also
based in part on NASDAQ OMX PHLX, LLC (``Phlx'') Rule
1092(c)(ii)(A), and in addition is substantially similar to Chicago
Board Options Exchange, Inc. (``CBOE'') Rule 6.25(a)(3).
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[[Page 38087]]
The Exchange believes that it is appropriate to provide the
flexibility and authority provided for in proposed Rule 720A so as not
to limit the Exchange's ability to plan for and respond to unforeseen
systems problems or malfunctions. The proposed rule change would
provide the Exchange with the same authority to nullify or adjust
trades in the event of a ``verifiable disruption or malfunction'' in
the use of operation of its systems as other exchanges have.\5\ For
this reason, the Exchange believes that, in the interest of maintaining
a fair and orderly market and for the protection of investors,
authority to nullify or adjust trades in these circumstances,
consistent with the authority on other exchanges, is warranted.
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\5\ Id.
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According to the proposal, in the event of any verifiable
disruption or malfunction in the use or operation of an Exchange
automated quotation, dissemination, execution, or communication system,
in which the nullification or modification of transactions may be
necessary for the maintenance of a fair and orderly market or the
protection of investors and the public interest exist, Market Control,
on his or her own motion, may review such transactions and declare such
transactions arising out of the use or operation of such facilities
during such period null and void or modify the terms of the
transactions, in accordance with the guidelines contained in Rule
720(b)(2)(i)(A) and (B). Pursuant to the proposal, Market Control,
absent extraordinary circumstances, must initiate action under this
authority within sixty (60) minutes of the occurrence of the erroneous
transaction that was a result of the verifiable disruption or
malfunction. Each Member involved in the transaction shall be notified
as soon as practicable, and any Member aggrieved by the action may
appeal such action in accordance with the provisions of subsection (b)
of Rule 720A.
If Market Control determines that a transaction(s) is erroneous
pursuant to Rule 720A(a) as described above, any Member aggrieved by
the action may appeal such action in accordance with the provisions
provided in Rule 720(b). The Exchange plans to utilize a Review Panel
(``Panel'') to review decisions made by Market Control under this Rule.
Once a Member has properly notified the Exchange that it wishes to
appeal the decision of Market Control, a four person Panel will review
and make a determination as to the appeal. The Panel as described in
proposed Rule 720A(b)(1)(i) will be comprised of representatives from
four (4) Members. Two (2) of the representatives must be directly
engaged in market making activity and two (2) of the representatives
must be employed by an Electronic Access Member (``EAM'').\6\ The
Exchange feels that by having a four person panel will help to ensure
that determinations regarding erroneous transactions resulting from
system malfunctions or extraordinary market conditions are made by a
diverse representative group in a manner that will help to ensure
fairness and impartiality. To qualify as a representative of an
Electronic Access Member on a Review Panel, a person must (i) be
employed by a Member whose revenues from options market making activity
do not exceed ten percent (10%) of its total revenues; or (ii) have as
his or her primary responsibility the handling of Public Customer
orders or supervisory responsibility over persons with such
responsibility, and not have any responsibilities with respect to
market making activities.\7\
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\6\ The composition of the Review Panel is similar to that of
the ISE Gemini Obvious and Catastrophic Errors Panel, as defined in
ISE Gemini Rule 720(d).
\7\ The qualification requirements of the Review Panel are
identical to those of the ISE Gemini Obvious and Catastrophic Errors
Panel, as provided in Supplementary Material .02 to ISE Gemini Rule
720.
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The Exchange shall designate at least five (5) market maker
representatives and at least five (5) EAM representatives to be called
upon to serve on the Panel as needed. In no case shall a Panel include
a person related to a party to the trade in question. To the extent
reasonably possible, the Exchange shall call upon the designated
representatives to participate in a Panel on an equally frequent basis.
The Exchange notes that the options markets are currently in the
process of identifying how to harmonize their respective obvious and
catastrophic error rules, including a rule specifying the circumstances
in which an options exchange may nullify or adjust trades because of a
systems problem or malfunction. Because it is uncertain when this
harmonized rule will be filed with and approved by the Commission, the
Exchange believes it is critical to its current ability to maintain a
fair and orderly market and to protect investors to propose an
amendment to its current rules. The proposed rule would be superseded
by a future proposed harmonized rule.
2. Statutory Basis
The Exchange believes that the proposed rule change will allow the
Exchange, in extraordinary market conditions, to maintain a fair and
orderly market. The Exchange believes the proposed rule change is
consistent with the Act and the rules and regulations thereunder and,
in particular, the requirements of section 6(b) of the Act.
Specifically, the Exchange believes the proposed rule change is
consistent with the section 6(b)(5) \8\ requirements that the rules of
an exchange be designed to promote just and equitable principles of
trade, to prevent fraudulent and manipulative acts, to remove
impediments to and perfect the mechanism for a free and open market and
a national market system, and, in general, to protect investors and the
public interest.
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\8\ 15 U.S.C. 78(f)(b)(5).
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The Exchange believes that the proposed rule change would remove
impediments to and perfect the mechanism of a free and open market and
national market system and promote a fair and orderly market because it
would provide authority for the Exchange to nullify or adjust trades
that may have resulted from a verifiable systems disruption or
malfunction. The Exchange believes that it is appropriate to provide
the flexibility and authority provided for in proposed Rule 720A so as
not to limit the Exchange's ability to plan for and respond to
unforeseen systems problems or malfunctions that may result in harm to
the public. Allowing for the nullification or modification of
transactions that result from verifiable disruptions and/or
malfunctions of Exchanges systems will offer market participants on ISE
Gemini a level of relief presently not available. The Exchange further
notes that when acting under its own motion to nullify or adjust trades
pursuant to proposed Rule 720A, the Exchange must consider whether
taking such action would be in the interest of maintaining a fair and
orderly market and for the protection of investors. The Exchange notes
that the proposed rule change is based on NYSE Arca rules and is
substantially similar to rules of other markets.\9\
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\9\ See supra note 4.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Rather, the Exchange
believes that the proposed rule change is pro-competitive because
[[Page 38088]]
it will align the Exchange's rules with the rules of other markets,
including CBOE, NYSE Arca, and Phlx. By adopting proposed Rule 720A,
the Exchange will be in a position to treat transactions that are a
result of a verifiable systems issue or malfunction in a manner similar
to other exchanges.
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 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) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\ 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
as required by Rule 19b-4(f)(6).
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
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At any time within 60 days of the filing of such 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-ISEGemini-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-ISEGemini-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 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-ISEGemini-2014-18 and should
be submitted on or before July 24, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-15605 Filed 7-2-14; 8:45 am]
BILLING CODE 8011-01-P