
[Federal Register Volume 78, Number 29 (Tuesday, February 12, 2013)]
[Notices]
[Pages 9973-9974]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-03106]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68849; File No. SR-ISE-2012-100]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Order Approving a Proposed Rule Change To Reduce the Response 
Times in the Block Mechanism, Facilitation Mechanism, Solicited Order 
Mechanism and Price Improvement Mechanism From One Second to 500 
Milliseconds

February 6, 2013.

I. Introduction

    On December 19, 2012, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``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 amend ISE Rules 716 (Block 
Trades) and 723 (Price Improvement Mechanism for Crossing Transactions) 
to reduce the response times in the Block Mechanism, Facilitation 
Mechanism, Solicited Order Mechanism and Price Improvement Mechanism 
(``PIM'') from one second to 500 milliseconds (i.e., \1/2\ of one 
second). The proposed rule change was published for comment in the 
Federal Register on December 27, 2012.\3\ The Commission received no 
comment letters on the proposed rule change. This order approves the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 68492 (December 20, 
2012), 77 FR 76336 (``Notice'').

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[[Page 9974]]

II. Description of the Proposed Rule Change

    ISE Rule 716 (Block Trades) contains the requirements applicable to 
the execution of orders using the Block Order Mechanism, Facilitation 
Mechanism and Solicited Order Mechanism. The Block Order Mechanism 
allows ISE members to obtain liquidity for the execution of a block-
size order.\4\ The Facilitation and Solicited Order Mechanisms allow 
ISE members to enter cross transactions seeking price improvement.\5\ 
ISE Rule 723 (Price Improvement Mechanism for Crossing Transactions) 
contains the requirements applicable to the execution of orders using 
the PIM. The PIM allows ISE members to enter cross transactions of any 
size. The Facilitation, Solicited Order Mechanisms and PIM allow for 
ISE members to designate certain customer orders for price improvement 
and submit such orders into one of the mechanisms with a matching 
contra order. Once such an order is submitted, ISE commences an auction 
by broadcasting a message to all ISE members that includes the series, 
price, size and side of the market.\6\ Further, responses within the 
PIM (i.e., Improvement Orders), are also broadcast to market 
participants during the auction.
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    \4\ Block-size orders are orders for 50 contracts or more. See 
ISE Rule 716(a).
    \5\ Only block-size orders can be entered into the Facilitation 
Mechanism, whereas only orders for 500 contracts or more can be 
entered into the Solicited Order Mechanism. See ISE Rule 716(d) and 
(e).
    \6\ ISE members may choose to hide the size, side and price when 
entering orders into the Block Order Mechanism.
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    Orders entered into the Block Order Mechanism, Facilitation 
Mechanism, Solicited Order Mechanism, and PIM are currently exposed to 
all market participants for one second, giving them an opportunity to 
enter additional trading interest before the orders are automatically 
executed. Under the proposal, the exposure period for each of the four 
mechanisms would be reduced from one second to 500 milliseconds.

III. Discussion and Commission's 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.\7\ 
In particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\8\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating 
transactions in securities, 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, and not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. The Commission also finds that the proposed rule 
change is consistent with Section 6(b)(8) of the Act,\9\ which requires 
that the rules of an exchange not impose any burden on competition that 
is not necessary or appropriate in furtherance of the purposes of the 
Act.
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    \7\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78f(b)(8).
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    The Commission believes that, given the electronic environment of 
ISE, reducing each of the exposure periods from one second to 500 
milliseconds could facilitate the prompt execution of orders, while 
continuing to provide market participants with an opportunity to 
compete for exposed bids and offers. To substantiate that its members 
could receive, process and communicate a response back to ISE within 
500 milliseconds, ISE stated that it surveyed all ISE members that have 
participated in the mechanisms in 2011 and 2012. Seventeen of the 
twenty-one firms surveyed indicated that they can currently receive, 
process and communicate a response back to ISE within 500 milliseconds. 
Of the four firms that cannot currently respond within 500 
milliseconds, one firm stated that 500 milliseconds is sufficient for 
non-complex orders in the mechanisms, but had not yet tested for 
complex orders. Each of the four firms indicated that with six weeks' 
notice of the implementation date, they can perform the systems work 
necessary to respond to an ISE broadcast within 500 milliseconds.\10\ 
To give ISE members an opportunity to make any necessary modifications 
to coincide with the implementation date, ISE, upon effectiveness of 
the proposal, and at least six weeks prior to implementation of the 
proposed rule change, will issue an Informational Circular to Members, 
informing its members of the implementation date of the reduction of 
the auction from one second to 500 milliseconds in the mechanisms to 
allow members the opportunity to perform systems changes. In addition, 
ISE reviewed all executions occurring in the mechanisms by ISE members 
for the month of October 2012. This review of executions in the 
mechanisms indicated that approximately ninety-three percent (93%) of 
responses in the mechanisms (excluding PIM) and approximately eighty-
nine percent (89%) of responses in the PIM that resulted in price 
improving executions at the conclusion of an auction were submitted 
within 500 milliseconds.\11\ Furthermore, with regard to the impact of 
the proposal on system capacity, ISE has analyzed its capacity and 
represented that it has the necessary systems capacity to handle the 
potential additional traffic associated with the additional 
transactions that may occur with the implementation of the reduction in 
the auction duration to 500 milliseconds.\12\
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    \10\ See Notice, supra note 3, at 76337.
    \11\ Id., supra note 3, at 76337.
    \12\ Id., supra note 3, at 76338.
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    Based on ISE's statements, the Commission believes that market 
participants should continue to have opportunities to compete for 
exposed bids and offers within a 500 millisecond exposure period. 
Accordingly, the Commission believes that it is consistent with the Act 
for the Exchange to reduce the response times in the Block Mechanism, 
Facilitation Mechanism, Solicited Order Mechanism and PIM from one 
second to 500 milliseconds.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-ISE-2012-100) be, and it 
hereby is, approved.
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    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03106 Filed 2-11-13; 8:45 am]
BILLING CODE 8011-01-P


