
[Federal Register Volume 79, Number 70 (Friday, April 11, 2014)]
[Notices]
[Pages 20269-20271]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-08120]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71884; File No. SR-ISE-2014-22]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change Relating to Rule 703A

April 7, 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 April 4, 2014, the International Securities Exchange, LLC 
(``Exchange'' or ``ISE'') filed with the Securities and Exchange 
Commission (the ``Commission'') the proposed rule change as described 
in Items I and II below, which Items have been prepared by the 
Exchange. 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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[[Page 20270]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The ISE proposes to extend a pilot program under Rule 703A(d) that 
suspends Rule 720 regarding obvious errors during Limit and Straddle 
States in securities that underlie options traded on the ISE. 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
    On April 5, 2013,\3\ the Commission approved a proposed rule change 
designed to address certain issues related to the Plan to Address 
Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS 
under the Act (the ``Limit Up-Limit Down Plan'' or the ``Plan'').\4\ 
The rules adopted in that filing established a one year pilot program 
to exclude transactions executed during a Limit State \5\ or Straddle 
State \6\ from the obvious error provisions of Rule 720. The purpose of 
this filing is to extend the effectiveness of this pilot program to 
coincide with the proposed extension of the Limit Up-Limit Down Plan to 
February 20, 2015.\7\
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    \3\ See Securities Exchange Act Release No. 69329 (April 5, 
2013), 78 FR 21657 (April 11, 2014) (SR-ISE-2013-22) (Approval 
Order); 69110 (March 11, 2013) 78 FR 16726 (March 18, 2013) (SR-ISE-
2013-22) (Notice of Filing).
    \4\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (the ``Limit Up-Limit Down 
Release'').
    \5\ The term ``Limit State'' means the condition when the 
national best bid or national best offer for an underlying security 
equals an applicable price band, as determined by the primary 
listing exchange for the underlying security. See ISE Rule 703A.
    \6\ The term ``Straddle State'' means the condition when the 
national best bid or national best offer for an underlying security 
is non-executable, as determined by the primary listing exchange for 
the underlying security, but the security is not in a Limit State. 
See ISE Rule 703A.
    \7\ See Exchange Act Release No. 71649 (March 5, 2014), 79 FR 
13696 (March 11, 2014) (Seventh Amendment to the Limit-Up Limit-Down 
Plan).
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    The Exchange believes the benefits to market participants from this 
provision should continue on a pilot basis. The Exchange continues to 
believe that adding certainty to the execution of orders in Limit or 
Straddle States will encourage market participants to continue to 
provide liquidity to the Exchange, and, thus, promote a fair and 
orderly market during these periods. Barring this provision, the 
obvious error provisions of Rule 720 would likely apply in many 
instances during Limit and Straddle States. The Exchange believes that 
continuing the pilot will protect against any unanticipated 
consequences in the options markets during a Limit or Straddle State. 
Thus, the Exchange believes that the protections of current rule should 
continue while the industry gains further experience operating the 
Plan.
    Pursuant to a letter filed in connection with the order approving 
the establishment of the pilot,\8\ the Exchange committed to submit 
monthly data regarding the program. In addition, the Exchange agreed to 
submit an overall analysis of the pilot in conjunction with the data 
submitted under the Plan and any other data as requested by the 
Commission. The Exchange now notes that each month, the Exchange shall 
provide to the Commission, and the public, a dataset containing the 
data for each Straddle and Limit State in optionable stocks that had at 
least one trade on the Exchange.\9\ For each trade on the Exchange, the 
Exchange will provide (a) the stock symbol, option symbol, time at the 
start of the Straddle or Limit State, an indicator for whether it is a 
Straddle or Limit State, and (b) for the trades on the Exchange, the 
executed volume, time-weighted quoted bid-ask spread, time-weighted 
average quoted depth at the bid, time-weighted average quoted depth at 
the offer, high execution price, low execution price, number of trades 
for which a request for review for error was received during Straddle 
and Limit States, an indicator variable for whether those options 
outlined above have a price change exceeding 30% during the underlying 
stock's Limit or Straddle State compared to the last available option 
price as reported by OPRA before the start of the Limit or Straddle 
State (1 if observe 30% and 0 otherwise), and another indicator 
variable for whether the option price within five minutes of the 
underlying stock leaving the Limit or Straddle State (or halt if 
applicable) is 30% away from the price before the start of the Limit or 
Straddle State.
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    \8\ See letter from Michael Simon, General Counsel, 
International Securities Exchange, LLC, dated April 4, 2013.
    \9\ The Exchange also notes that it will be supplying the 
Commission this data retroactively from April 2013-March 2014 as 
soon as practicable. The Exchange will also provide the Commission 
with this data on a monthly basis from March 2014 through the end of 
the pilot.
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    In addition, the Exchange will provide to the Commission, no later 
than September 30, 2014, assessments relating to the impact of the 
operation of the obvious error rules during Limit and Straddle States 
including: (1) an evaluation of the statistical and economic impact of 
Limit and Straddle States on liquidity and market quality in the 
options markets, and (2) an assessment of whether the lack of obvious 
error rules in effect during the Straddle and Limit States are 
problematic. This data will be submitted under separate cover. 
Confidential treatment under the Freedom of Information Act is 
requested regarding the analysis.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of Section 6(b) of the Act.\10\ In particular, 
the proposal is consistent with Section 6(b)(5) of the Act,\11\ because 
it is designed to promote just and equitable principles of trade, 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system and, in general, to protect 
investors and the public interest. Additionally, the Exchange believes 
the proposed rule change is consistent with the Section 6(b)(5) \12\ 
requirement that the rules of an exchange not be designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ Id.
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    In particular, the Exchange further believes that it is necessary 
and appropriate in the interest of promoting fair and orderly markets 
to exclude transactions executed during a Limit or Straddle State from 
certain aspects of Rule 720. The Exchange believes the application of 
the current rule will be impracticable given the lack of a reliable 
national best bid or offer in the options market during Limit and 
Straddle

[[Page 20271]]

States, and that the resulting actions (i.e., nullified trades or 
adjusted prices) may not be appropriate given market conditions. 
Extension of this pilot would ensure that limit orders that are filled 
during a Limit or Straddle State would have certainty of execution in a 
manner that promotes just and equitable principles of trade, removes 
impediments to, and perfects the mechanism of a free and open market 
and a national market system. Thus, the Exchange believes that the 
protections of the pilot should continue while the industry gains 
further experience operating the Plan.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. Specifically, the Exchange 
believes that, by extending the expiration of the pilot, the proposed 
rule change will allow for further analysis of the pilot and a 
determination of how the pilot shall be structured in the future. In 
doing so, the proposed rule change will also serve to promote 
regulatory clarity and consistency, thereby reducing burdens on the 
marketplace and facilitating investor protection. The Exchange further 
notes that other options exchanges have filed to extend their own 
obvious error pilots to coincide with the proposed extension of the 
Limit Up-Limit Down Plan.\13\
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    \13\ See CBOE-2014-033.
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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 proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-
4(f)(6)(iii) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Exchange stated that waiver of this requirement will allow 
the Exchange to extend the pilot program prior to its expiration on 
April 8, 2014. The Exchange also stated that the proposal will allow 
for the least amount of market disruption as the pilot will continue as 
it currently does, maintaining the status quo. For these reasons, the 
Commission believes that the proposed rule change presents no novel 
issues and that waiver of the 30-day operative delay is consistent with 
the protection of investors and the public interest. Therefore, the 
Commission designates the proposed rule change to be operative upon 
filing.\16\
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    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the 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 rule-comments@sec.gov. Please include 
File Number SR-ISE-2014-22 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-2014-22. 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-2014-22 and should be 
submitted on or before May 2, 2014.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-08120 Filed 4-10-14; 8:45 am]
BILLING CODE 8011-01-P


