[Federal Register Volume 83, Number 84 (Tuesday, May 1, 2018)]
[Notices]
[Pages 19130-19133]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-09111]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83101; File No. SR-ISE-2018-40]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Extend the Delay 
for the Re-introduction of Concurrent Complex Order Auction 
Functionality

April 25, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 19, 2018, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``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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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to extend the delay for re-introduction of 
functionality which permits concurrent complex order auctions in the 
same complex strategy by an additional one year.
    The text of the proposed rule change is available on the Exchange's 
website at http://ise.cchwallstreet.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 Exchange 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

[[Page 19131]]

Exchange 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 extend the delay for 
re-introduction of functionality which permits concurrent \3\ complex 
order auctions in the same complex strategy by an additional one year. 
The Exchange previously filed \4\ a rule change which delayed 
functionality permitting concurrent complex auctions in conjunction 
with a migration to the INET \5\ platform. The April 2017 Rule Change 
provided that with the delay, a complex order auction in a particular 
complex strategy would not be initiated if another complex order 
auction is already ongoing in that complex strategy. In conjunction 
with the April 2017 Rule Change, the Exchange issued an Options Trader 
Alert notifying Members that concurrent complex auctions would not be 
offered at this time.\6\
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    \3\ The current ISE Rule 722 rule text refers to these auctions 
as ``simultaneous''. The Exchange is proposing to amend the rule 
text to replace the word ``simultaneous'' with ``concurrent.'' This 
change is designed to make the rule text more accurately describe 
the functionality. The functionality is not being changed.
    \4\ See Securities and Exchange Act Release No. 80525 (April 25, 
2017), 82 FR 20405 (May 1, 2017) (SR-ISE-2017-33) (``April 2017 Rule 
Change'').
    \5\ INET is the proprietary core technology utilized across 
Nasdaq's global markets and utilized on The Nasdaq Options Market 
LLC (``NOM''), Nasdaq PHLX LLC (``Phlx'') and Nasdaq BX, Inc. 
(``BX'') (collectively, ``Nasdaq Exchanges''). The migration of ISE 
to the Nasdaq INET architecture resulted in higher performance, 
scalability, and more robust architecture.
    \6\ See Options Trader Alert #2017-35.
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    By way of background, ISE offers various complex order auctions 
that are designed to provide members an opportunity to trade and to 
potentially receive price improvement for complex orders that are 
entered on the Exchange, including an Exposure auction pursuant to Rule 
722(b)(3)(iii), a Complex Price Improvement Mechanism (``PIM'') 
pursuant to Supplementary Material .09 to Rule 723, a Complex 
Facilitation Mechanism pursuant to Supplementary Material .08 to Rule 
716, and Complex Solicited Order Mechanism also pursuant to 
Supplementary Material .08 to Rule 716. While only one PIM auction may 
be ongoing at any given time in a series or complex strategy, and PIMs 
are not permitted to queue or overlap in any manner,\7\ there are no 
similar restrictions for non-PIM auctions, and any such auctions may be 
processed concurrently, including in parallel with a PIM auction. For 
example, while the trading system would prohibit a member from entering 
a PIM auction when another PIM auction is already ongoing in a complex 
strategy, if there was an Exposure auction already running a member 
would be able to start a PIM, Facilitation, Solicitation, or even 
another Exposure auction in that strategy. This allows maximum ability 
of members to express their trading intent on the Exchange by 
permitting multiple complex order auctions in the same complex strategy 
to be ongoing at any particular time.
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    \7\ See Supplementary Material .04 to Rule 723.
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    When the Exchange initially delayed this functionality, the 
Exchange noted in the April 2017 Rule Change that it would reintroduce 
concurrent complex order auctions in the same complex strategy at a 
later date within one year of date of the filing. The Exchange filed 
the initial rule change on April 17, 2017, with a one year delay, and 
the additional one year delay would extend the implementation timeframe 
for this functionality to April 17, 2019. The extended delay would 
provide the Exchange additional time to develop and test this 
functionality on INET. The Exchange will issue an Options Trader Alert 
notifying Members when this functionality will be available. 
Furthermore, in connection with this change, the Exchange also proposes 
to amend Rule 722 to remove language about the migration of symbols to 
INET as this migration has been completed and all symbols listed by the 
Exchange are currently trading on the INET platform.
    With the delay, only one complex order auction would continue to be 
ongoing at any given time in a complex strategy, and such auctions 
would not queue or overlap in any manner. For PIM, Facilitation, or 
Solicitation auctions, the Exchange would continue to reject a complex 
order auction of the same or different auction type in a complex 
strategy that would be initiated while another complex order auction is 
ongoing in that complex strategy.\8\ In the case where a complex order 
auction has already been initiated in a complex strategy, an Exposure 
auction for an order for that strategy would continue to not be 
initiated and the order would be processed as a complex order that is 
not marked for price improvement,\9\ instead of rejecting the complex 
order. If the member requested the order to be cancelled after the 
exposure period, then the complex order would continue to be cancelled 
back to the member.
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    \8\ The rejection message sent to the member will contain an 
appropriate reason code indicating that the auction was rejected due 
to another ongoing complex order auction in the same complex 
strategy.
    \9\ Currently, an Exposure order auction is automatically 
initiated when a member submits an eligible complex order that is 
marked for price improvement. See Rule 722(b)(3)(iii). Pursuant to 
Rule 722(b)(3)(iii), complex orders may be marked for price 
improvement, and if so marked, the complex order may be exposed on 
the complex order book for a period of up to one-second before being 
automatically executed. Members can also request that their complex 
orders be cancelled after the exposure period.
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    The Exchange believes that implementing concurrent complex order 
auctions in the same complex strategy at a later date will not have a 
significant impact on members as it is rare for multiple complex order 
auctions in a complex strategy to be ongoing at a particular time. This 
is particularly the case today due to the recent decrease in the 
Exchange's auction timers to 100 milliseconds.\10\ The Exchange notes 
that prior to the migration to the INET platform concurrent complex 
order auctions in a strategy only occurred approximately 0.5% of the 
time that an auction runs on the Exchange. The Exchange therefore 
believes that the impact on Members will continue to be insignificant, 
and if a member does have auction eligible interest to execute when 
another complex order auction is ongoing, the member can either re-
submit that order to the Exchange, after the auction has concluded, or 
submit it to another options market that provides similar auction 
functionality. In this regard, the Exchange notes that its market data 
feeds provide information to Members about when a complex order auction 
is ongoing, and Members can therefore use this information to make 
appropriate routing decisions based on applicable market conditions.
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    \10\ See Securities Exchange Act Release No. 79733 (January 4, 
2017), 82 FR 3055 (January 10, 2017) (SR-ISE-2016-26) (permitting 
the Exchange to determine auction timers for PIM, Facilitation, and 
Solicitation within a range of 100 milliseconds and one second). 
Each of these auction timers are currently set to 100 milliseconds--
i.e., the bottom of the range approved in the filing. Exposure 
auctions can be any duration up to one second (See Rule 722(b)(3)), 
and are also currently set to 100 milliseconds.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\11\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\12\ in particular, in that it is designed to 
promote just and equitable principles of

[[Page 19132]]

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 because the Exchange desires to 
rollout the concurrent complex order auctions functionality at a later 
date to allow additional time to test and implement this functionality. 
As proposed herein, within a year from April 17, 2018, the Exchange 
will offer concurrent auction functionality.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Exchange does not anticipate that the proposed rule change will 
have any meaningful impact with respect to members' ability to execute 
complex order auctions as similar restrictions are already in place on 
other options exchanges.\13\ Concurrent complex order auctions in a 
complex strategy are rare, and therefore the vast majority of the time 
members would be able to enter a complex order auction notwithstanding 
the temporary delay of the implementation of concurrent auctions. With 
respect to Exposure auctions, in the case where another complex order 
auction in the same strategy has already been initiated, the Exchange 
proposes to allow the complex order to continue to be processed without 
an auction in the same manner as complex orders that are not marked for 
price improvement. If the Member has marked the complex order to be 
cancelled after the exposure period, however, the Exchange would cancel 
the order back to the member consistent with that instruction. If the 
Member is not able to initiate a complex order auction because another 
complex order auction in the same strategy has been initiated, the 
Member may either re-initiate the auction after the auction concludes 
or submit the order to another options market that offers similar 
functionality. Thus, Members will be able to continue to express their 
trading intent regardless of the proposed delay in concurrent auction 
functionality.
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    \13\ See Phlx Rule 1098(e)(2) [sic]. Nasdaq Phlx, LLC 
(``Phlx''), for example, does not allow the initiation of a Complex 
Order Live Auction (``COLA'') when there is already a Price 
Improvement XL (``PIXL'') auction already ongoing in the strategy. 
Similarly, Miami International Securities Exchange LLC (``MIAX'') 
can limit the frequency of Complex Auctions by establishing a 
minimum time period between such auctions, and permits only one 
Complex Auction per strategy to be in progress at any particular 
time. See MIAX Rule 518(d)(2).
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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 not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not believe 
that the proposed rule change will impact the intense competition that 
exists in the options market. The Exchange does not believe that the 
proposed delay will impose any significant burden on inter-market 
competition as it does not impact the ability of other markets to offer 
or not offer competing functionality.
    The Exchange does not believe that the proposed rule change will 
impose any burden on intra-market competition because all Members 
uniformly will not be able to initiate concurrent auctions in the same 
complex order strategy. Within a year from April 17, 2018, the Exchange 
will offer concurrent complex auction functionality.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing 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, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \14\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of the filing. However, 
Rule 19b-4(f)(6)(iii) \16\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. In its filing, ISE requests that the 
Commission waive the 30-day operative delay to allow the proposed one-
year extension of the time for re-introducing concurrent complex order 
auction functionality to begin at the conclusion of the current delay 
period, which was scheduled to end on April 17, 2018. As noted above, 
ISE states that extending the delay for re-introducing concurrent 
complex order auction functionality will provide ISE with additional 
time to develop and test this functionality. The Exchange also notes 
that the proposed rule change is not expected to have any meaningful 
impact on members' ability to express their trading intent; ISE 
indicates that such auctions are rare and do not usually occur 
concurrently. The Commission believes that waiving the operative delay 
is consistent with the protection of investors and the public interest 
because it will provide ISE with additional time to develop and test 
concurrent complex order auction functionality. Accordingly, the 
Commission waives the 30-day operative delay and designates the 
proposed rule change operative upon filing.\17\
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    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ 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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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 [email protected]. Please include 
File Number SR-ISE-2018-40 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-2018-40. 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

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post all comments on the Commission's internet website (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 website 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. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-ISE-
2018-40, and should be submitted on or before May 22, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12) and (59).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-09111 Filed 4-30-18; 8:45 am]
BILLING CODE 8011-01-P


