
[Federal Register Volume 82, Number 6 (Tuesday, January 10, 2017)]
[Notices]
[Pages 3043-3044]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-00219]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79735; File No. SR-ISEGemini-2016-14]


Self-Regulatory Organizations; ISE Gemini, LLC; Order Approving a 
Proposed Rule Change To Modify the Response Times in the Block 
Mechanism, Facilitation Mechanism, Solicited Order Mechanism, and Price 
Improvement Mechanism

January 4, 2017.

I. Introduction

    On November 8, 2016, ISE Gemini, LLC (the ``Exchange'' or ``ISE 
Gemini'') 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 Gemini Rules 716 (Block Trades) and 
723 (Price Improvement Mechanism for Crossing Transactions) to modify 
the response times in the Block Order Mechanism, Facilitation 
Mechanism, Solicited Order Mechanism, and Price Improvement Mechanism 
(``PIM'') from 500 milliseconds to a time period designated by the 
Exchange of no less than 100 milliseconds and no more than 1 second. 
The proposed rule change was published for comment in the Federal 
Register on November 25, 2016.\3\ No comment letters were received 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. 79353 (November 18, 
2016), 81 FR 85280 (``Notice'').
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II. Description of the Proposed Rule Change

    ISE Gemini 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 Gemini members to obtain liquidity for the 
execution of a block-size order.\4\ The Facilitation and Solicited 
Order Mechanisms allow ISE Gemini members to enter cross transactions 
seeking price improvement.\5\ ISE Gemini Rule 723 (Price Improvement 
Mechanism for Crossing Transactions) contains the requirements 
applicable to the execution of orders using the PIM. The PIM allows ISE 
Gemini members to enter cross transactions of any size. The 
Facilitation, Solicited Order Mechanisms, and PIM allow for ISE Gemini 
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 Gemini commences an auction 
by broadcasting a message to all ISE Gemini 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 Gemini 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 Gemini Rule 
716(d) and (e).
    \6\ ISE Gemini 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 500 milliseconds, giving them an 
opportunity to enter additional trading interest before the orders are 
automatically executed. Under the proposal, ISE Gemini would determine 
an exposure period for each of the four mechanisms that is no less than 
100 milliseconds and no more than 1 second.\7\
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    \7\ While the proposed rule change would allow ISE Gemini to 
increase the exposure period up to 1 second, ISE Gemini stated that 
it currently intends to decrease the time period allowed for 
responses to 100 milliseconds. See Notice, supra note 3, at 85281. 
ISE Gemini further noted that its proposal is consistent with 
exposure periods permitted in similar mechanisms on other options 
exchanges. See id. at 85281. See also Securities Exchange Act 
Release Nos. 76301 (October 29, 2015), 80 FR 68347 (November 4, 
2015) (SR-BX-2015-032) and 77557 (April 7, 2016), 81 FR 21935 (April 
13, 2016) (SR-Phlx-2016-40).
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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.\8\ 
In particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\9\ 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,\10\ 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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    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(8).
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    The Commission believes that, given the electronic environment of 
ISE Gemini, reducing each of the exposure periods from 500 milliseconds 
to no less than 100 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 Gemini within 100 milliseconds, ISE Gemini stated that it 
surveyed all ISE Gemini members that responded to an auction in the 
period beginning July 1, 2015 and ending January 15, 2016. Each of the 
fifteen members surveyed indicated that they can currently receive, 
process, and communicate a response back to ISE Gemini within 100 
milliseconds. To implement the reduced exposure periods and help ensure 
that ISE Gemini's and its members' systems are working properly given 
the faster response times, ISE Gemini will reduce the auction time over 
a period of weeks, ending at 100 milliseconds. Upon effectiveness of 
the proposal, and at least six weeks prior to implementation of the 
proposed rule change, ISE Gemini will issue a circular to its members, 
informing them of the implementation date of the reduction of the 
auction from 500 milliseconds to the auction time designated by ISE 
Gemini (100 milliseconds), to allow members the opportunity to perform 
systems changes. ISE Gemini also represented that it will issue a 
circular at least four weeks prior to any future changes, as permitted 
by its rules, to the auction time.\11\ In addition, ISE Gemini reviewed 
all executions occurring in the mechanisms by ISE Gemini members from 
March 28, 2016 to April 25, 2016. This review of executions in the 
mechanisms indicated that approximately 98% of responses that resulted 
in price improving executions at the conclusion of an auction were 
submitted within 500 milliseconds. Approximately 94% of responses that 
resulted in price improving executions

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at the conclusion of an auction were submitted within 100 milliseconds, 
and 83% were submitted within 50 milliseconds of the initial order.\12\ 
Furthermore, with regard to the impact of the proposal on system 
capacity, ISE Gemini 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 no less 
than 100 milliseconds.\13\
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    \11\ See Notice, supra note 3, at 85282.
    \12\ See id.
    \13\ See id.
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    Based on ISE Gemini's statements, the Commission believes that 
market participants should continue to have opportunities to compete 
for exposed bids and offers within an exposure period of no less than 
100 milliseconds and no more than 1 second.\14\ Accordingly, the 
Commission believes that it is consistent with the Act for the Exchange 
to modify the response times in the Block Mechanism, Facilitation 
Mechanism, Solicited Order Mechanism, and PIM from 500 milliseconds to 
a time period designated by the Exchange of no less than 100 
milliseconds and no more than 1 second.
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    \14\ The Commission notes that the ability to designate such an 
exposure time period is consistent with the rules of other options 
exchanges. See supra note 7. See also NASDAQ Phlx Rule 
1080(n)(ii)(A)(4) and NASDAQ BX Options Rules Chapter VI, Section 
9(ii)(A)(3).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-ISEGemini-2016-14) be, and 
hereby is, approved.
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    \15\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-00219 Filed 1-9-17; 8:45 am]
 BILLING CODE 8011-01-P


