[Federal Register Volume 81, Number 16 (Tuesday, January 26, 2016)]
[Notices]
[Pages 4347-4349]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01392]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76936; File No. SR-ISE-2016-02]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change Relating to Back-Up Primary Market Makers
January 20, 2016.
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 January 6, 2016, the International Securities Exchange, LLC
(the ``Exchange'' or the ``ISE'') 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
The ISE proposes to correct, and clarify, .03 of Supplementary
Material to Rule 803, Obligations of Market Makers, which describes the
responsibilities and privileges of a Back-Up Primary Market Maker
(``Back-Up PMM'') that takes the place of a Primary Market Maker
(``PMM'') when that PMM fails to have a quote in the system. This
amendment will specify the PMM responsibilities and privileges that do
not apply to Back-Up PMMs. 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
The purpose of this proposed rule change is to make corrections to,
and clarify, .03 of Supplementary Material to Rule 803, Obligations of
Market Makers, which describes the responsibilities and privileges of a
Back-Up PMM that takes the place of a PMM when that PMM fails to have a
quote in the system. This amendment will specify the PMM
responsibilities and privileges that do not apply to Back-Up PMMs.
In 2006, ISE adopted a rule change that permits Competitive Market
Makers (``CMMs'') that are also PMMs on the Exchange to voluntarily act
as Back-Up PMMs when the appointed PMM has technical difficulties that
interrupt its participation in the market.\3\ Then, in 2015, the
Exchange amended the process by which a Back-Up PMM is
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chosen to replace a PMM that fails to have a quote in the System.\4\
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\3\ Securities Exchange Act Release No. 34-53419 (March 6,
2006), 71 FR 12758 (March 13, 2006) (SR-ISE-2005-50).
\4\ Securities Exchange Act Release No. 34-76508 (November 30,
2015), 80 FR 74826 (November 30, 2015) (SR-ISE-2015-42).
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In these situations, a Back-Up PMM assumes the responsibilities and
privileges of a PMM under ISE rules with respect to any class in which
the appointed PMM fails to have a quote in the ISE System, except that
a CMM does not become subject to the PMM's requirement in ISE Rule
804(e)(1) to enter continuous quotations in all of the series of all of
the options classes to which it is appointed. Instead, under ISE Rule
804(e)(2), the CMM (or Back-Up PMM) is required to maintain continuous
quotations in that class or series for 60% of the time the options
class is open for trading on the Exchange, provided, however, that a
CMM (or Back-Up PMM) is required to maintain continuous quotations for
90% of the time the class is open for trading on the Exchange in any
options class in which it receives preferenced orders.\5\ Additionally,
while PMMs are required to quote LEAPS and adjusted series, a CMM that
has been appointed as the Back-Up PMM is not subject to these
requirements due to their initial status as a CMM.\6\
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\5\ See Rule 804(e)(2)(iii).
\6\ See .02 of Supplementary Material to Rule 804 (The CMM
quoting obligation ``does not include adjusted option series, nor
series with a time to expiration of nine (9) months or greater for
options on equities and exchange-traded funds or with a time to
expiration of twelve (12) months or greater for index options.'')
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Currently, .03 to Supplementary Material to Rule 803 states that,
when a PMM fails to have a quote in the System, a Back-Up PMM ``assumes
all of the responsibilities and privileges of a'' PMM. Unlike the
wording of this rule text, however, ISE's practice has always been to
hold CMMs that are appointed as Back-Up PMMs to the above standards/
exceptions. ISE now proposes to amend .03 to Supplementary Material to
Rule 803 to reflect ISE's longstanding standards/exceptions applicable
to a CMM that has been appointed as the Back-Up PMM in a particular
class.
2. Statutory Basis
The Exchange believes that its proposal is consistent with section
6(b) of the Act \7\ in general, and furthers the objectives of section
6(b)(5) \8\ in particular, in that it is designed to prevent fraudulent
and manipulative acts and practices, 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.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is consistent
with the protection of investors and the public interest, and would
remove impediments to and perfect the mechanism of a free and open
market, because it makes a correction and clarifies ISE's rule text to
more accurately reflect the responsibilities and privileges of a Back-
Up PMM. This will provide members with a better understanding of their
responsibilities and privileges when acting as a Back-Up PMM in
situations where a PMM fails to have a quote in the System.
Additionally, Back-Up PMMs that are CMMs are not held to the heightened
standards of PMMs for continuous quoting, LEAPS, and adjusted series
due to the difficulty associated with meeting the standards for each on
a short-term basis. For example, for continuous quoting, when a Back-Up
PMM assumes responsibility for quoting a series or class, a Back-Up PMM
could have problems meeting the continuous quoting requirement during
such a short period of time. Similarly, a CMM that is a Back-Up PMM is
not required to quote LEAPS because of the difficulty in pricing these
options due their 9 month or greater time to expiration. Also, for
adjusted series, the effect corporate actions have on certain
underlying equity prices makes pricing these options challenging.
B. Self-Regulatory Organization's Statement on Burden on Competition
This proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Exchange Act because ISE is correcting and clarifying its rule text
to accurately reflect the responsibilities and privileges of a Back-Up
PMM when a PMM fails to have a quote in the System.
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) of the Act \9\ and Rule 19b-
4(f)(6) thereunder.\10\ 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, or such shorter time as designated by the Commission, as
required by Rule 19b-4(f)(6).
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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 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 No. SR-ISE-2016-02 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-2016-02. 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 Commissions Internet Web site (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent
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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 the 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-2016-02 and should be submitted by February 16,
2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-01392 Filed 1-25-16; 8:45 am]
BILLING CODE 8011-01-P