
[Federal Register Volume 76, Number 132 (Monday, July 11, 2011)]
[Notices]
[Pages 40758-40760]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-17331]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64805; File No. SR-ISE-2011-30]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Order Approving a Proposed Rule Change Relating to Complex Orders

July 5, 2011.

I. Introduction

    On May 23, 2011, the International Securities Exchange, LLC (the 
``Exchange'' or ``ISE''), filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to allow complex orders in 
options classes traded on the ISE's Optimise trading platform to be 
entered into the Price

[[Page 40759]]

Improvement Mechanism (``PIM''). The proposed rule change was published 
for comment in the Federal Register on May 31, 2011.\3\ The Commission 
received no comment letters regarding the proposal. This order approves 
the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 64538 (May 24, 
2011); 76 FR 31385 (``Notice'').
---------------------------------------------------------------------------

II. Description

    The ISE proposes to amend ISE Rule 723, ``Price Improvement 
Mechanism for Crossing Transactions'' to allow complex orders in 
options classes traded on the ISE's Optimise trading platform to be 
entered into the PIM.\4\ Under ISE Rule 723, an ISE member may enter an 
agency order (the ``Agency Order'') in the PIM, together with a 
counter-side order (the ``Counter-Side Order'') for the full size of 
the Agency Order, at a price that is better than the ISE best bid or 
offer (``ISE BBO'') and equal to or better than the national best bid 
or offer (``NBBO'').\5\ The Agency Order and the Counter-Side Order 
(together, the ``Crossing Transaction'') are exposed to all ISE members 
for a one-second exposure period.\6\ During the exposure period, all 
ISE members may submit Improvement Orders for their own account or for 
the account of a Public Customer at the same price as the Crossing 
Transaction or at an improved price.\7\ At the end of the exposure 
period, the Agency Order is executed in full at the best prices 
available, taking into consideration orders and quotes in the Exchange 
market, Improvement Orders, Customer Participation Orders, and the 
Counter-Side Order.\8\
---------------------------------------------------------------------------

    \4\ The Optimise platform is the ISE's enhanced technology 
trading platform. See Securities Exchange Act Release No. 63117 
(October 15, 2010), 75 FR 65042 (October 21, 2010) (notice of filing 
and immediate effectiveness of File No. SR-ISE-2010-101); and 
Securities Exchange Act Release No. 64275 (April 8, 2011), 76 FR 
21087 (April 14, 2011) (notice of filing and immediate effectiveness 
of File No. SR-ISE-2011-24). The Exchange is in the process of 
migrating options classes from its current trading platform to the 
Optimise platform. The same options cannot trade on both platforms 
simultaneously.
    \5\ See ISE Rule 723(b) and (b)(1).
    \6\ See ISE Rule 723(c).
    \7\ See ISE Rule 723(c)(2). Members also may enter Improvement 
Orders with respect to Customer Participation Orders, as defined in 
ISE Rule 715(f). See ISE Rule 723, Supplementary Material .06.
    \8\ See ISE Rule 723(d).
---------------------------------------------------------------------------

    Under the proposal, a complex order submitted to the PIM must be 
entered at a net price that is better than the best net price (i) 
Available on the complex order book; and (ii) achievable from the ISE 
best bids and offers for the individual legs of the order (an 
``improved net price''), and complex orders that are not entered at an 
improved net price will be rejected.\9\ If an improved net price for a 
complex order being executed in the PIM can be achieved from bids and 
offers for the individual legs of the complex order in the ISE's 
auction market, the complex order being executed will receive an 
execution at the better net price.\10\
---------------------------------------------------------------------------

    \9\ See ISE Rule 723, Supplementary Material .10.
    \10\ Id.
---------------------------------------------------------------------------

    The priority provisions in ISE Rule 722(b)(2) will continue to 
apply to complex orders executed in the PIM.\11\
---------------------------------------------------------------------------

    \11\ Id. ISE Rule 722(b)(2) states that a complex order may be 
executed at a total credit or debit price with one other member 
without giving priority to bids or offers established in the 
marketplace that are no better than the bids or offers comprising 
such total credit or debit; provided, however, that if any of the 
bids or offers established in the marketplace consist of a Priority 
Customer Order, the price of at least one leg of the complex order 
must trade at a price that is better than the corresponding bid or 
offer in the marketplace by at least one minimum trading increment 
as defined in ISE Rule 710.
---------------------------------------------------------------------------

    References to the NBBO in ISE Rule 723 and the Supplementary 
Material are inapplicable.\12\ In addition, ISE Rule 723, Supplementary 
Material .08, is not applicable to complex orders.\13\ The provisions 
of ISE Rule 723(c)(5) will apply with respect to the receipt of orders 
for the same complex order, rather than to the receipt of orders for 
the individual legs of the complex order.\14\
---------------------------------------------------------------------------

    \12\ See ISE Rule 723, Supplementary Material .10.
    \13\ Id. ISE Rule 723, Supplementary Material .08 provides that, 
when the ISE BBO is equal to the NBBO, a Crossing Transaction may be 
entered at a price equal to the ISE BBO if the Agency Order is on 
the opposite side of the market from the ISE BBO.
    \14\ See ISE Rule 723, Supplementary Material .10. Under ISE 
Rule 723(c)(5)(ii) and (iii), the exposure period will terminate 
automatically upon the receipt of a market or marketable limit order 
on the Exchange in the same series, or upon the receipt of a non-
marketable limit order in the same series on the same side of the 
market as the Agency Order that would cause the price of the 
Crossing Transaction to be outside of the best bid or offer on the 
Exchange.
---------------------------------------------------------------------------

    Under ISE Rule 723, Supplementary Material .03 and Supplementary 
Material .05, the Exchange provides the Commission with monthly 
statistics related to PIM order executions. The ISE represents that 
these statistics will include complex orders executed through the 
PIM.\15\
---------------------------------------------------------------------------

    \15\ See Notice, supra note 3, at note 7.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\16\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\17\ which 
requires, among other things, that the rules of a national securities 
exchange be 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.
---------------------------------------------------------------------------

    \16\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \17\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    By allowing ISE members to enter complex orders in the PIM, the 
Commission believes that the proposal could provide an opportunity for 
complex orders to receive price improvement. Under the proposal, a 
complex order must be entered in the PIM at a net price that is better 
than the best net price (i) Available on the complex order book; and 
(ii) achievable from the ISE best bids and offers for the individual 
legs of the order (an ``improved net price''), and complex orders that 
are not entered at an improved net price will be rejected.\18\ As noted 
above, an ISE member enters an Agency Order in the PIM with a Counter-
Side Order for the full size of the Agency Order.\19\ At the conclusion 
of the PIM exposure period, the Agency Order is executed in full at the 
best prices available, taking into consideration orders and quotes in 
the ISE market, Improvement Orders, Customer Participation Orders, and 
the Counter-Side Order.\20\ Thus, a complex order entered in the PIM 
would receive an execution at the best price available at the 
conclusion of the PIM and, at a minimum, would be executed in full at 
the improved net price. In addition, if an improved net price for a 
complex order entered in the PIM could be achieved from bids and offers 
for the individual legs of the complex order in the ISE's auction 
market, the complex order would be executed at the better net 
price.\21\
---------------------------------------------------------------------------

    \18\ See ISE Rule 723, Supplementary Material .10.
    \19\ See ISE Rule 723(b).
    \20\ See ISE Rule 723(d).
    \21\ See ISE Rule 723, Supplementary Material .10.
---------------------------------------------------------------------------

    ISE Rule 723, Supplementary Material .08, which allows a Crossing 
Transaction to be entered at the ISE BBO when the ISE BBO is equal to 
the NBBO and the Agency Order is on the opposite side of the market 
from the ISE BBO, will not apply to complex orders entered into the PIM 
because complex orders entered into the PIM must be entered at a price 
that is better than the best net price (i) Available on the complex 
order book; and (ii) achievable

[[Page 40760]]

from the best ISE bids and offers for the individual legs.\22\ In 
addition, for complex orders entered into the PIM, the provisions in 
ISE Rule 723(c)(5)(ii) and (iii), which provide for the automatic 
termination of the PIM exposure period following the receipt of certain 
orders in the same series as the order being exposed for price 
improvement, will apply only upon the receipt of a complex order that 
satisfies the conditions in ISE Rule 723(c)(5)(ii) or (iii), rather 
than upon the receipt of an order for one of the individual legs of the 
complex order.\23\
---------------------------------------------------------------------------

    \22\ See ISE Rule 723, Supplementary Material .10.
    \23\ Id.
---------------------------------------------------------------------------

    The Commission notes that the priority rules in ISE Rule 722(b)(2) 
relating to complex orders will continue to apply to complex orders 
entered into the PIM.\24\ In addition, the monthly statistics relating 
to PIM order executions that ISE provides to the Commission pursuant to 
ISE Rule 723, Supplementary Material .03 and Supplementary Material .05 
will include complex orders executed through the PIM.\25\
---------------------------------------------------------------------------

    \24\ Id.
    \25\ See Notice, supra note 3, at note 7.
---------------------------------------------------------------------------

IV. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\26\ that the proposed rule change (SR-ISE-2011-30) is approved.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
---------------------------------------------------------------------------

    \27\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-17331 Filed 7-8-11; 8:45 am]
BILLING CODE 8011-01-P


