[Federal Register Volume 81, Number 42 (Thursday, March 3, 2016)]
[Notices]
[Pages 11309-11311]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-04638]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77247; File No. SR-ISE Gemini-2015-17]
Self-Regulatory Organizations; ISE Gemini, LLC; Order Instituting
Proceedings To Determine Whether To Approve or Disapprove a Proposed
Rule Change To Amend Rule 804(g)
February 26, 2016.
I. Introduction
On November 12, 2015, the ISE Gemini, LLC (``ISE Gemini'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4
[[Page 11310]]
thereunder,\2\ a proposed rule change to require Clearing Member \3\
approval for a market maker to resume trading after the activation of a
market-wide speed bump under ISE Gemini Rule 804(g). The proposed rule
change was published for comment in the Federal Register on November
30, 2015.\4\ On January 13, 2016, the Commission extended the time
period within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
disapprove the proposed rule change to February 28, 2016.\5\ The
Commission did not receive any comments on the proposed rule change.
This order institutes proceedings under Section 19(b)(2)(B) of the Act
\6\ to determine whether to approve or disapprove the proposed rule
change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ A ``Clearing Member'' is a Member that is self-clearing or
an Electronic Access Member that clears transactions for other
members of the Exchange. See ISE Gemini Rule 100(a)(9). An
``Electronic Access Member'' is an Exchange Member that is approved
to exercise trading privileges associated with EAM Rights. See
Article XIII, Section 13.1(j) of the Constitution of ISE Gemini.
\4\ See Securities Exchange Act Release No. 76505 (November 23,
2015), 80 FR 74824 (November 30, 2015) (``Notice'').
\5\ See Securities Exchange Act Release No. 76894 (January 13,
2016), 81 FR 3218 (January 20, 2016).
\6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
II. Description of the Proposal
Pursuant to ISE Gemini Rule 804(g)(1), the Exchange requires market
makers \7\ to provide parameters according to which the Exchange will
automatically remove a market maker's quotations in all series of an
options class. Additionally, the Exchange requires market makers to
provide a market-wide parameter according to which the Exchange will
automatically remove a market maker's quotes in all classes when,
during a time period established by the market maker, the total number
of quote removal events (or ``curtailment events'') specified in Rule
804(g)(1) exceed such specified market-wide parameter.\8\ The latter
market-wide risk management functionality is known as a ``market-wide
speed bump'' and is available for quotes only on ISE Gemini or across
both ISE Gemini and ISE Gemini's affiliated exchange, International
Securities Exchange, LLC.\9\
---------------------------------------------------------------------------
\7\ ISE Gemini has two categories of market makers: Primary
Market Makers (``PMMs'') and Competitive Market Makers (``CMMs''). A
PMM is appointed to each options class traded on the Exchange but a
CMM may or may not be appointed to each such options class. See ISE
Gemini Rule 802.
\8\ See ISE Gemini Rule 804(g)(2).
\9\ Id.
---------------------------------------------------------------------------
Currently, if ISE Gemini's trading system removes all of a market
maker's quotes because a market-wide speed bump is triggered, the
market maker may re-enter the market and resume trading upon
notification to the Exchange's Market Operations.\10\ The Exchange now
proposes to amend ISE Gemini Rule 804(g)(2) to require Clearing Member
approval before a market maker can resume trading.\11\ Specifically,
following a market-wide speed bump, the proposed rule requires a market
maker to notify its Clearing Member(s) when it is ready to resume
trading and requires each applicable Clearing Member to inform the
Exchange directly when its authorization has been given for the market
maker to resume trading.\12\ In order to ``facilitate a better response
time'' from Clearing Members, so that a market maker can re-enter the
market, the proposal also allows Exchange staff to notify Clearing
Member(s) when a market maker's quotes have been removed pursuant to
the market-wide speed bump.\13\
---------------------------------------------------------------------------
\10\ See Notice, supra note 4, at 74824.
\11\ See proposed Rule 804(g)(2).
\12\ See id.
\13\ See id.
---------------------------------------------------------------------------
The Exchange believes that it is appropriate to require Clearing
Member approval before a market maker can re-enter the market after a
market-wide speed bump because the Clearing Member guarantees the
market maker's trades and bears the ultimate financial risk associated
with those transactions. The Exchange notes that, while not all market
makers are Clearing Members, all market makers require a Clearing
Member's consent to clear transactions on their behalf in order to
conduct business on the Exchange.\14\ According to the Exchange, the
proposed rule change will permit Clearing Members to better monitor and
manage the potential risks assumed by a market maker and provide
Clearing Members with greater control and flexibility over their risk
tolerance and exposure.\15\
---------------------------------------------------------------------------
\14\ Each market maker authorized to trade on the Exchange must
obtain from a Clearing Member a ``Market Maker Letter of Guarantee''
wherein the Clearing Member accepts financial responsibility for all
Exchange transactions made by the market maker. See ISE Gemini Rule
808.
\15\ See Notice, supra note 4, at 74825. Under ISE Gemini's
current rules, the Exchange may share any Member-designated risk
settings in the trading system with the Clearing Member that clears
transactions on behalf of the Member. See ISE Gemini Rule 706(a).
---------------------------------------------------------------------------
III. Proceedings To Determine Whether To Approve or Disapprove SR-ISE
Gemini-2015-17 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \16\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change, as discussed below.
Institution of proceedings does not indicate that the Commission has
reached any conclusions with respect to any of the issues involved.
Rather, as described in greater detail below, the Commission seeks and
encourages interested persons to provide additional comment on the
proposed rule change.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also
provides that proceedings to determine whether to disapprove a
proposed rule change must be concluded within 180 days of the date
of publication of notice of the filing of the proposed rule change.
See id. The time for conclusion of the proceedings may be extended
for up to 60 days if the Commission finds good cause for such
extension and publishes its reasons for so finding. See id.
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Act, the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings because the proposal raises
important issues that warrant further public comment and Commission
consideration. Specifically, the Commission is instituting proceedings
to allow for additional analysis of, and input from commenters with
respect to, the proposed rule change's consistency with Section 6(b)(5)
of the Act,\17\ which requires that the rules of a national securities
exchange be designed, among other things, 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.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Under ISE Gemini's current rules, a market maker must enter
continuous quotations for the options classes to which it is
appointed.\18\ In return, the market maker receives certain benefits,
including participation entitlements \19\ and an exception from the
prohibition in Section 11(a) of the Act.\20\ As the Commission has
stated in the past, a market maker must be subject to sufficient and
commensurate affirmative obligations, including the obligation to hold
itself out as willing to buy and sell options for its own account on a
regular or continuous basis, to justify favorable
[[Page 11311]]
treatment.\21\ As discussed above, however, the Exchange now proposes
to amend ISE Gemini Rule 804(g) to require Clearing Member approval
before a market maker can resume trading after triggering a market-wide
speed bump.
---------------------------------------------------------------------------
\18\ See ISE Gemini Rule 804(e).
\19\ See, e.g., ISE Gemini Rule 713.
\20\ 15 U.S.C. 78k(a).
\21\ See, e.g., Securities Exchange Act Release No. 68341
(December 3, 2012), 77 FR 73065, 73076 (December 7, 2012) (approving
the application of Miami International Securities Exchange, LLC for
registration as a national securities exchange); Securities Exchange
Act Release No. 70050 (July 26, 2013), 78 FR 46622 (August 1, 2013)
(approving the application of Topaz Exchange, LLC for registration
as a national securities exchange); Securities Exchange Act Release
No. 76998 (January 29, 2016), 81 FR 6066 (February 4, 2016)
(approving the application of ISE Mercury, LLC for registration as a
national securities exchange).
---------------------------------------------------------------------------
The Exchange justifies the change as appropriate because, ``[w]hile
in some cases this may result in a minimal delay for a market maker
that wants to reenter the market quickly following a market-wide speed
bump, the Exchange believes that Clearing Member approval . . .
ensure[s] that the market maker does not prematurely enter the market
without adequate safeguards . . .'' \22\ The Exchange, however, does
not provide any basis for its statement that the proposed rule would
result in only a ``minimal delay'' for a market maker seeking to resume
quoting. Moreover, the Exchange does not address how the proposal
impacts the continuous quoting obligations of market makers. The
Commission accordingly believes the proposed rule change raises
questions regarding the ability of market makers to meet their quoting
obligations and, therefore, whether the proposed rule change is
consistent with the requirements of Section 6(b)(5) of the Act.
---------------------------------------------------------------------------
\22\ See Notice, supra note 4, at 74825.
---------------------------------------------------------------------------
IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data and arguments with respect to the
concerns identified above, as well as any other concerns they may have
with the proposed rule change. In particular, the Commission invites
the written views of interested persons concerning whether the proposal
is consistent with Sections 6(b)(5) \23\ or any other provision of the
Act, or the rules and regulations thereunder. Although there does not
appear to be any issue relevant to approval or disapproval which would
be facilitated by an oral presentation of views, data, and arguments,
the Commission will consider, pursuant to Rule 19b-4 under the Act,\24\
any request for an opportunity to make an oral presentation.\25\
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78f(b)(5).
\24\ 17 CFR 240.19b-4.
\25\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Pub. L. 94-29 (June 4, 1975), grants to the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
---------------------------------------------------------------------------
Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal should be approved or
disapproved by March 24, 2016. Any person who wishes to file a rebuttal
to any other person's submission must file that rebuttal by April 7,
2016. In light of the concerns raised by the proposed rule change, as
discussed above, the Commission invites additional comment on the
proposed rule change as the Commission continues its analysis of the
proposed rule change's consistency with Sections 6(b)(5) and
6(b)(8),\26\ or any other provision of the Act, or the rules and
regulations thereunder. The Commission asks that commenters address the
sufficiency and merit of the Exchange's statements in support of the
proposed rule change, in addition to any other comments they may wish
to submit about the proposed rule change.
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78f(b)(5), (b)(8).
---------------------------------------------------------------------------
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 Gemini-2015-17 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 Gemini-2015-17. 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 Gemini-2015-17 and
should be submitted by March 24, 2016. Rebuttal comments should be
submitted by April 7, 2016.
---------------------------------------------------------------------------
\27\ 17 CFR 200.30-3(a)(57).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-04638 Filed 3-2-16; 8:45 am]
BILLING CODE 8011-01-P