
[Federal Register Volume 80, Number 229 (Monday, November 30, 2015)]
[Notices]
[Pages 74826-74828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-30244]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76508; File No. SR-ISE-2015-42]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change Relating Alternative 
Primary Market Makers

November 23, 2015.
    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 November 16, 2015, 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 purpose of this proposed rule change is to permit any 
Competitive Market Maker (``CMM'') that is appointed to act as an 
Alternative Primary Market Maker (``Alternative PMM'') to voluntarily 
act as a Back-Up Primary Market Maker (``Back-Up PMM''). 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 Exchange proposes to permit any CMM that is approved to act as 
an Alternative PMM to voluntarily act as a Back-Up PMM in options 
series in which it is quoting when the appointed PMM fails to have a 
quote in the System. In doing so, the Exchange would further enhance 
its markets by having additional Back-Up PMMs to take over a PMM's 
responsibilities when the appointed PMM faces operational difficulties 
or ceases operations. The Exchange also proposes to amend the process 
by which a Back-Up PMM is chosen to replace a PMM that fails to have a 
quote in the System, when more than one CMM is quoting in the series.
Background
    Currently, CMMs that are also PMMs on the Exchange may voluntarily 
act as Back-Up PMMs when the appointed PMM has technical difficulties 
that interrupt its participation in the market.\3\ These CMMs/PMMs are 
permitted to be Back-Up PMMs because they already have systems built to 
undertake the responsibilities of a PMM on the Exchange.\4\ Back-Up 
PMMs reduce volatility that occurs during, and the duration of, non-
firm or ``fast market'' states disseminated by the ISE and facilitate 
uninterrupted trading even when a PMM experiences difficulties that 
cause it to remove its quotes from the market. In these situations, the 
Back-Up PMM assumes most of the responsibilities and privileges of a 
PMM under the Rules with respect to any series in which the appointed 
PMM fails to have a quote in the System.\5\ The system automatically 
switches back to the appointed PMM when it re-establishes its quotes in 
the series, but the Back-Up PMM continues to be responsible for any 
outstanding unexecuted orders it is handling.
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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\ If there is more than one eligible member quoting in the 
series, the System will automatically switch to the member with the 
largest offer in the series.
    \5\ A CMM does not become subject to the requirement in Rule 
804(e)(1) to enter continuous quotations in all of the series of all 
of the options classes to which it is appointed, as opposed to only 
60% of the options classes under Rule 804(e)(2), by acting as a 
Back-Up PMM.
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    The Exchange's Rules also allow the Exchange to appoint a CMM as an 
Alternative PMM when a PMM does not wish to trade in an option 
class.\6\ These CMMs are permitted to be Alternative PMMs because they 
have appropriate systems and procedures in place to undertake the 
responsibilities of a PMM. Alternative PMMs enable the Exchange to list 
and retain options classes that PMMs do not wish to trade.\7\ 
Specifically, when no PMMs want the allocation of an option class, the 
Alternative PMMs are offered the opportunity to serve as PMM in the 
option class in accordance with the Exchange's regular allocation 
procedures. In these situations, the Alternative PMM has all of the 
responsibilities and privileges of a PMM with respect to all appointed 
options classes.\8\ Additionally, if an Alternative PMM ceases trading 
in an option class, that option class would be reallocated by the 
Exchange.
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    \6\ Securities Exchange Act Release No. 34-59250 (January 14, 
2009), 74 FR 4062 (January 22, 2009) (SR-ISE-2008-90).
    \7\ Under Rule 802, allocations are voluntary, and at times ISE 
was unable to list new products because none of the PMMs were 
interested in trading the class. As a result, the Exchange was 
unable to list new products because existing PMMs were not 
interested in trading the option class. At other times, ISE delisted 
certain products due to lack of PMM interest. ISE represents that 
this occurs most frequently with respect to options on stocks that 
have pending corporate actions and options products that are not 
listed at any other options exchange. ISE believes that despite the 
lack of PMM interest, these products may be of interest to other 
Members of the Exchange.
    \8\ For example, Alternative PMMs would enjoy privileges that 
include, among other things, participation rights and small order 
execution preference while accepting responsibilities that include, 
among other things, the obligation to provide continuous quotations 
in the option class to which the Alternative PMM is appointed, and 
the obligation to conduct the opening rotation on a daily basis for 
as long as the Alternative PMM is appointed to that option class.
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Proposed Rule Change
    The Exchange now proposes to permit an Alternative PMM to 
voluntarily act as a Back-Up PMM in options series in which it is 
quoting \9\ and assume most of the responsibilities and privileges of a 
PMM under the Rules with respect to any option series in which the 
appointed PMM fails to have a quote in the System.\10\ This may occur 
when, for example, the appointed PMM has technical difficulties that 
interrupt its participation in the market or a PMM exits the options 
market making business. Under the proposal, an Alternative PMM is 
eligible to act as a Back-Up PMM because it already has in place 
written procedures and systems built to assume the responsibilities of 
a

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PMM on the Exchange. The Exchange also proposes to further amend the 
process by which a Back-Up PMM is chosen to replace a PMM that fails to 
have a quote in the System, when more than one Back-Up PMM is quoting 
in the series.
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    \9\ The Exchange notes that under its current rules it may only 
appoint PMMs (i.e. CMMs that are also PMMs in other option classes) 
as Back-up PMMs.
    \10\ See Supplementary Material .03(a) to ISE Rule 803.
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    In situations where a PMM fails to have a quote in the System, the 
System will choose a Back-Up PMM, from the available CMMs, to replace 
the PMM. The System will choose the CMM with the lowest offer price in 
the series at that time. If there are two or more CMMs at the same 
offer price, the CMM with the highest bid price will be chosen. If 
there are two or more CMMs at the same bid and offer price, the CMM 
with the largest offer quantity will be chosen. If there are two or 
more CMMs with the same offer quantity, the CMM with the largest bid 
quantity will be chosen. If there remains two or more CMMs with the 
same bid and offer quantity and prices, the one with the highest time 
priority on the offer will be chosen as the Back-Up PMM.\11\ 
Additionally, when possible, the System will automatically switch back 
to the appointed PMM when it re-establishes its quotes in the series, 
but the Back-Up PMM will continue to be responsible for any outstanding 
unexecuted orders it is handling.
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    \11\ See Supplementary Material .03(b) to ISE Rule 803.
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    The proposed rule change enhances ISE's market because it ensures 
ISE has an adequate number of willing Members to act as Back-Up PMMs 
for PMMs that are not participating in the market. Ultimately, having 
more Back-Up PMMs will further: (1) Reduce the volatility that occurs 
during, and the duration of, non-firm or ``fast market'' \12\ states 
disseminated by ISE and (2) allow for virtually seamless trading even 
when multiple PMMs experience difficulties that cause PMMs to remove 
their quotes from the market.
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    \12\ Fast markets occur when there is rapid trading in a 
security that causes a delay in the electronic updating of its last 
sale. Trades can occur so rapidly that market orders may be executed 
at a very different price from the price at the time the order was 
placed. This leads to investors being disadvantaged because 1) 
quotes can be inaccurate when PMMs are unable to keep up with the 
pace of trading or 2) a broker may not be able to fill orders when 
investors want or expect them to because the PMM is not quoting the 
other side of the market resulting in the purchase or sale of an 
investor's securities at undesirable price levels.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \13\ in general, and furthers the objectives of Section 
6(b)(5) \14\ 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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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change would remove 
impediments to and perfect the mechanism of a free and open market by 
enhancing the Exchange's market by reducing volatility that occurs 
during and the duration of non-firm or ``fast market'' states 
disseminated by the ISE and allowing for virtually uninterrupted 
trading even when multiple PMMs experience difficulties that cause PMMs 
to remove their quotes from the market. Uninterrupted trading is 
possible because 1) Back-Up PMMs have appropriate systems and 
procedures in place to undertake the responsibilities of a PMM when 
necessary and 2) having an adequate amount of Back-Up PMMs means a 
Back-Up PMM will be available to take over for a PMM, and post firm and 
accurate quotes when a situation causes a PMM to fail to have a quote 
in the System. The Exchange believes that the proposed rule change is 
consistent with the protection of investors and the public interest 
because it enhances the Exchange's ability to disseminate firm markets. 
Additionally, by amending and explaining the detailed steps for 
choosing Back-Up PMMs, members will have additional clarity on the 
process by which a Back-Up PMM is chosen in certain situations.

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 enhancing its market by allowing 
additional Members, which have systems built to assume the 
responsibilities of a PMM on the Exchange to be Backup-PMMs when 
appointed PMMs face operational difficulties or cease market making 
operations.

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 \15\ and Rule 19b-
4(f)(6) thereunder.\16\ 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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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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 rule-comments@sec.gov. Please include 
File No. SR-ISE-2015-42 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-2015-42. 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

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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 such 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-2015-42 and should be 
submitted by December 21, 2015.
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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\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-30244 Filed 11-27-15; 8:45 am]
 BILLING CODE 8011-01-P


