[Federal Register Volume 75, Number 203 (Thursday, October 21, 2010)]
[Notices]
[Pages 65042-65044]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-26509]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63117; File No. SR-ISE-2010-101]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change Relating to Enhancements to the Exchange's Electronic Trading
Platform
October 15, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on October 7, 2010, International Securities Exchange, LLC
(``ISE'' or the ``Exchange'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I and II below, which Items have been prepared by the
Exchange. The Exchange has filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend certain rules to facilitate
enhancements to its electronic options trading system. 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, at the
Commission's Public Reference Room, and on the Commission's Web site at
http://www.sec.gov.
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 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 has developed an enhanced technology trading platform.
To assure a smooth transition, the Exchange will migrate option classes
from its current trading system to the new trading system over time
(the ``Transition Period'').\5\ While the new trading platform will
conform to the ISE's current trading rules, with a few proposed changes
discussed below, some functionality offered on the current system will
be phased-in during the initial implementation of the new trading
platform. Accordingly, the Exchange seeks to identify in its rules any
differences in the execution of orders on the new trading platform
during the Transition Period. The Exchange will issue an information
circular regarding these rule changes, and will also issue information
circulars prior to transferring options classes to the new trading
platform during the Transition Period.
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\5\ Options classes will be transferred from the current trading
platform to the new trading platform. The same options cannot trade
on both systems at the same time. The Exchange has been working with
its members to assure a smooth transition to the new trading
platform and will continue to do so up to the launch of the new
technology and during the Transition Period. The name of the new
trading platform, which as yet remains unannounced, will be
communicated to Exchange members via circular.
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Changes to Existing ISE Rules
The Exchange proposes to implement two new order types, Opening
Only Orders and Good-Till-Date Orders on the new trading platform. An
Opening Only order is a limit order that can be entered for the opening
rotation only. Any portion of the order that is not executed during the
opening rotation is cancelled. This order type currently is available
on other options exchanges.\6\
[[Page 65043]]
A Good-Till-Date Order is a limit order to buy or sell which, if not
executed, will be cancelled at the sooner of the end of the expiration
date assigned to the order, or the expiration of the series. BATS
Exchange, Inc. (``BATS'') offers an order type that is similar in all
respect but for the time when the order terminates.\7\ ISE proposes to
adopt new Supplementary Material .02 to Rule 715 to specify that these
two new order types are applicable only to option classes that trade on
the new trading platform.
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\6\ See NYSE Arca Rule 6.62(r) which defines an ``Opening Only
Order'' as ``a market order or limit order which is to be executed
in whole or in part during the opening auction of an options series
or not at all. Any portion not so executed is to be treated as
cancelled.'' See also NASDAQ OMX PHLX (``PHLX'') Rule 1066(c)(5),
which defines an ``Opening-Only-Market Order'' as ``a market order
which is to be executed in whole or in part during the opening
rotation of an options series or not at all'' and Rule 1066(c)(9),
which defines a ``Limit on Opening Order'' as ``a limit order which
is to be executed in whole or in part during the opening rotation of
an options series or not at all.
\7\ See BATS Rule 11.9(b)(4), which defines a ``Good `til Day
Order'' as a limit order to buy or sell which, if not executed, will
be cancelled at the expiration time assigned to the order, which can
be no later than the close of the After Hours Trading Session.''
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The Exchange also proposes to modify the Minimum Quantity order
type on the new trading platform. Currently, a minimum quantity order
is an order that is available for partial execution, but each partial
execution must be for the specified number of contracts or greater. If
the balance of the order after one or more partial executions is less
than the minimum, such balance is treated as all-or-none.\8\ On the new
trading platform, the Exchange proposes to offer an enhanced version of
this order type, one that will allow members to determine, after the
initial minimum quantity is executed, whether they want any subsequent
execution to be subject to the specified minimum quantity or not. If
the member chooses not to have the minimum quantity applied after the
first partial execution, the remaining balance of the order will trade
as a regular order. ISE proposes to include the enhanced functionality
of the Minimum Quantity Order in new Supplementary Material .02 to Rule
715, specifying that it is only available to options traded on the new
trading platform.
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\8\ See ISE Rule 715(l). See Also Securities Exchange Act
Release No. 61640 (March 3, 2010), 75 FR 11608 (March 11, 2010) (SR-
ISE-2010-13).
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Finally, the Exchange proposes to enhance one of the services the
ISE offers market makers to help them manage their quotations on the
new trading platform and to discontinue one that is no longer
necessary. While each ISE market maker employs its own sophisticated
proprietary quotation and risk management systems to determine the
prices and sizes at which its quotes, ISE rule 804(g) contains several
voluntary tools that market makers can use to assist them in managing
their quotations.\9\ ISE market makers are not required to use the ISE-
provided functionality and can program their own systems to perform the
same functions if they prefer.
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\9\ See Securities Exchange Act Release No. 51050 (January 18,
2005), 70 FR 3758 (January 26, 2005) (order approving SR-ISE-2004-
31).
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On the new trading platform, the Exchange proposes to expand on the
so call ``speed bump'' functionality contained in Rule 804(g)(1), which
helps market makers manage their exposure across all series of a class.
Currently, this functionality permits a market maker to establish
parameters in the central system to move its quotations in all series
of an option to an inferior price when the market maker trades a
specified number of contracts in that class as a whole within a fixed
time period. On the new trading platform, a market maker will have the
ability to have its quotations removed based on the number of contracts
traded, the percentage of the total of the market maker quotes that
have traded, the absolute value of the net between contracts bought and
contracts sold, and/or the absolute value of the net between (a) calls
purchased plus puts sold, and (b) calls sold plus puts purchased. The
Exchange will not offer the so called ``step-up'' functionality on the
new trading platform contained in Rule 804(g)(3), which was designed to
replenish the size of a market maker's quotation when it fell below an
exchange-established minimum quotation size. This functionality has not
proved useful to market makers. The Exchange proposes to include the
services offered on the new trading platform in Supplementary Material
.01 to Rule 804.
The Exchange notes that using the speed bump functionality offered
by the Exchange does not alleviate market makers from any of the
quotation requirements contained in the Exchanges rules.
Phased-In Functionality
Certain functionality currently available on the ISE will not
immediately be available on the new trading platform. This
functionality will be phased-in by the Exchange shortly after the
initial launch of the system. Accordingly, the Exchange proposes to add
supplementary material to the applicable rules to specify that such
functionality is not available for options traded on the new trading
platform,\10\ as follows:
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\10\ As the functionality is phased-in, the Exchange will file a
proposal under Section 19(b)(3)(A) of the Exchange Act and Rule 19b-
4(f)(5) thereunder and delete the supplementary material from its
rules. The Exchange will also notify members via circular as the
functionality is made available on the new trading platform.
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(i) The Exchange proposes to adopt Supplementary Material .10 to
Rule 716 to specify that the Block, Facilitation and Solicited Order
Mechanisms will not be available for options traded on the new trading
platform.
(ii) The Exchange proposes to adopt Supplementary Material .01 to
Rule 718, to specify that Cabinet trading will not be available for
options traded on the new trading platform.
(iii) The Exchange proposes to adopt Supplementary Material .03 to
Rule 722 to specify that Complex Orders will not be available for
options traded on the new trading platform.
(iv) The Exchange proposes to adopt Supplementary Material .08 to
Rule 723 to specify that the Price Improvement Mechanism will not be
available for options traded on the new trading platform.
2. Statutory Basis
The basis under the Securities Exchange Act of 1934 (the ``Act'')
for this proposed rule change is the requirement under Section
6(b),\11\ in general, and Section 6(b)(5)\12\ in particular, that an
exchange have rules that are 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
for a free and open market and a national market system, and, in
general, to protect investors and the public interest. In particular,
the Exchange believes the new trading platform will improve the
efficiency and quality of options executions on the Exchange, and that
the proposed new order types and enhanced speed bump functionality on
the new trading platform will provide greater flexibility for Exchange
users in how they quote and trade, while also enhancing the overall
market quality for options traded on the Exchange. The Exchange further
believes that the proposed rule change will facilitate an orderly
transition from the Exchange's current technology trading platform to
the new trading platform.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
[[Page 65044]]
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: (1)
Significantly affect the protection of investors or the public
interest; (2) impose any significant burden on competition; and (3)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate if consistent with
the protection of investors and the public interest, it has become
effective pursuant to Section 19(b)(3)(A) of the Act\13\ and Rule 19b-
4(f)(6) thereunder.\14\
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6). When filing a proposed rule change
pursuant to Rule 19b-4(f)(6) under the Act, an exchange is required
to give the Commission 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 of the proposed rule change, or such shorter time as
designated by the Commission. The Commission notes that the Exchange
has satisfied this requirement.
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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 necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.
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 e-mail to [email protected]. Please include
File Number SR-ISE-2010-101 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-ISE-2010-101. This file
number should be included on the subject line if e-mail 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 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
a.m. and 3 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-2010-101 and should be
submitted on or before November 12, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-26509 Filed 10-20-10; 8:45 am]
BILLING CODE 8011-01-P