
[Federal Register Volume 82, Number 6 (Tuesday, January 10, 2017)]
[Notices]
[Pages 3055-3056]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-00217]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79733; File No. SR-ISE-2016-26]


Self-Regulatory Organizations; International Securities Exchange, 
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, the International Securities Exchange, LLC 
(the ``Exchange'' or ``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 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. 79352 (November 18, 
2016), 81 FR 85277 (``Notice'').
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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

[[Page 3056]]

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 500 milliseconds, giving them an 
opportunity to enter additional trading interest before the orders are 
automatically executed. Under the proposal, ISE 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 to increase 
the exposure period up to 1 second, ISE stated that it currently 
intends to decrease the time period allowed for responses to 100 
milliseconds. See Notice, supra note 3, at 85278. ISE further noted 
that its proposal is consistent with exposure periods permitted in 
similar mechanisms on other options exchanges. See id. at 85278. 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, 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 within 100 milliseconds, ISE stated that it surveyed all 
ISE members that responded to an auction in the period beginning July 
1, 2015 and ending January 15, 2016. Each of the twenty-one members 
surveyed indicated that they can currently receive, process, and 
communicate a response back to ISE within 100 milliseconds. To 
implement the reduced exposure periods and help ensure that ISE's and 
its members' systems are working properly given the faster response 
times, ISE 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 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 (100 milliseconds) to allow members the 
opportunity to perform systems changes. ISE 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 
reviewed all executions occurring in the mechanisms by ISE 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 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 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 85279.
    \12\ See id.
    \13\ See id.
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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 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-ISE-2016-26) 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. 2017-00217 Filed 1-9-17; 8:45 am]
 BILLING CODE 8011-01-P


