
[Federal Register Volume 80, Number 229 (Monday, November 30, 2015)]
[Notices]
[Pages 74829-74831]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-30242]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76506; File No. SR-ISE-2015-30]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing of Proposed Rule Change To Amend Rule 804(g)

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 10, 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 
and II 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange proposes to amend Rule 804(g) to require Clearing 
Member approval for market makers to resume trading after a market-wide 
speed bump is triggered. 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 purpose of the proposed rule change is to amend Rule 804(g) on 
``Automated Quotation Adjustments'' to

[[Page 74830]]

require Clearing Member \3\ approval for Primary Market Makers 
(``PMMs'') and Competitive Market Makers (``CMMs'') (collectively, 
``market makers'') to resume trading after a market-wide speed bump is 
triggered. The Exchange offers market makers functionality whereby the 
Exchange will automatically remove a market maker's quote in all series 
or complex order strategies in an options class if a ``curtailment 
event'' occurs based on parameters set by the market maker on a class-
by-class basis.\4\ In particular, the Exchange will automatically 
remove a market maker's quote in a class when, during a time period 
established by the market maker, the market maker exceeds: (i) The 
specified number of total contracts in the class, (ii) the specified 
percentage of the total size of the market maker's quotes in the class, 
(iii) the specified absolute value of the net between contracts bought 
and contracts sold in the class, or (iv) the specified absolute value 
of the net between (a) calls purchased plus puts sold in the class, and 
(b) calls sold plus puts purchased in the class.\5\ In addition, the 
Exchange provides market-wide functionality whereby a market maker's 
quote in all options classes are automatically cancelled if, during a 
configurable time period, the total number of curtailment events in 
simple and complex instruments exceeds a market-wide parameter set by 
the market maker.\6\ This market-wide functionality, which is available 
for ISE only or across both ISE and ISE's affiliate, ISE Gemini, 
LLC,\7\ is useful to members as numerous curtailment events triggered 
across multiple options classes, and if chosen, multiple exchanges, may 
signify a larger problem being experienced by the market maker that 
warrants its quotes being removed from the market. Currently, the 
Exchange only requires that a market maker notify Market Operations of 
its intention to reenter the market to resume trading after the market-
wide speed bump has been activated. Due to the significant nature of 
events that may trigger this market-wide speed bump functionality, the 
Exchange now proposes also to require Clearing Member approval prior to 
allowing the market maker to resume quoting. Pursuant to the proposed 
rule change, a market maker must notify its Clearing Member(s) when it 
is ready to resume trading following a market-wide speed bump. Exchange 
staff may also notify the Clearing Member(s) when the market maker's 
quotes have been removed, to facilitate a better response time. Each 
Clearing Member must then contact the Exchange directly to give their 
authorization for the market maker to resume trading.\8\
---------------------------------------------------------------------------

    \3\ The term ``Clearing Member'' means a Member that is self-
clearing or an Electronic Access Member that clears Exchange 
Transactions for other Members of the Exchange. See Rule 100(a)(8).
    \4\ See Rule 804(g)(i) for simple instruments, and Supplementary 
Material .04 to Rule 722 for complex instruments.
    \5\ Id.
    \6\ See Rule 804(g)(ii). This functionality is known as 
``market-wide speed bump'' and is the subject of this filing.
    \7\ Id.
    \8\ If a market maker has multiple Clearing Members, it must 
receive approval from each Clearing Member to resume trading.
---------------------------------------------------------------------------

    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.\9\ The Exchange believes that it 
is appropriate to require Clearing Member approval before a market 
maker can reenter the market after the market-wide speed bump has been 
triggered as the Clearing Member guarantees the market makers trades, 
and therefore bears 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. As the Clearing Member ultimately bears the risk for a 
trade they clear on any market makers behalf, the Exchange believes it 
is reasonable to require that the Clearing Member authorize the market 
maker to continue trading after the market-wide speed bump is 
triggered.
---------------------------------------------------------------------------

    \9\ See Rule 808.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change 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, to 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change removes 
impediments to and perfects the mechanism of a free and open market by 
requiring that Clearing Members authorize continued trading by a market 
maker after that market maker triggers a market-wide speed bump. The 
Exchange believes that the proposed rule change is consistent with the 
protection of investors and the public interest because it will permit 
Clearing Members with a financial interest in a market maker's risk 
management to better monitor and manage the potential risks assumed by 
that market maker. The Exchange already shares market makers' risk 
settings with their Clearing Members in order to assist those Clearing 
Members in monitoring risks at firms on whose behalf they clear 
trades.\12\ The proposed rule change would further assist Clearing 
Members in monitoring risk, and provide these Clearing Members with 
greater control and flexibility over their risk tolerance and exposure. 
Because the Clearing Member guarantees all of the market maker's trades 
it is in a unique position to objectively evaluate the risk of a market 
maker reentering the market following a serious systems or other issue. 
While 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 is 
appropriate to ensure that the market maker does not prematurely enter 
the market without adequate safeguards in place.
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release No. 74623 (April 1, 
2015), 80 FR 18447 (April 6, 2015) (SR-ISE-2015-12).
---------------------------------------------------------------------------

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

    The Exchange believes the proposal is consistent with Section 
6(b)(8) of the Act \13\ in that it does not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The proposed rule change is not designed to 
address any aspect of competition, but is rather intended to provide 
additional safeguards by requiring Clearing Member approval before 
market makers are allowed to reenter the market following a market-wide 
speed bump. The Exchange believes that this would allow Clearing 
Members to better monitor and manage the potential risks assumed by 
market makers on whose behalf they have executed a Market Maker Letter 
of Guarantee, and does not

[[Page 74831]]

impose any unnecessary burden on competition.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

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

    Within 45 days of the publication date of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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-2015-30 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-2015-30. 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-2015-30 and should be 
submitted on or before December 21, 2015.
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-30242 Filed 11-27-15; 8:45 am]
 BILLING CODE 8011-01-P


