[Federal Register Volume 76, Number 72 (Thursday, April 14, 2011)]
[Notices]
[Pages 21087-21089]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8973]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64275; File No. SR-ISE-2011-24]
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
April 8, 2011.
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 April 7, 2011, the International Securities Exchange, LLC (the
``Exchange'' or the ``ISE'') 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 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 being implemented
as part of the Optimise platform. 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 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.
[[Page 21088]]
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
(the ``Optimise platform''). To assure a smooth transition, the
Exchange will migrate option classes from its current trading system to
the Optimise platform over time (the ``Transition Period'').\5\ The
Optimise platform will offer members the same trading functionality as
the current trading system with some minor enhancements, several of
which were previously added to the ISE's rules.\6\ Additionally, the
Exchange previously adopted rule changes to identify certain
functionality that it anticipated would be phased-in during the
Transition Period.\7\ However, since the adoption of these rule
changes, the initial plan for the launch of the Optimise platform has
changed, and the Optimise platform will now have most of the current
functionality available during the Transition Period. The purpose of
this rule filing is to remove language from the Exchange's rules
indicating that certain functionality is not available on the Optimise
platform and to identify additional minor enhancements that will be
included on the Optimise platform.
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\5\ Options classes will be transferred from the current trading
platform to the Optimise 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
Optimise trading platform and will continue to do so up to the
launch of the new technology and during the Transition Period.
\6\ See Securities Exchange Act Release No. 63117 (October 15,
2010), 75 FR 65042 (October 21, 2010) (SR-ISE-2010-101).
\7\ Id.
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Specifically, the Exchange proposes to delete Supplementary
Material .10 to Rule 716 (Block Trades), Supplementary Material .03 to
Rule 722 (Complex Orders), and Supplementary Material .09 to Rule 723
(Price Improvement Mechanism for Crossing Transactions), which indicate
that the Block Order Mechanism, Facilitation Mechanism, Solicited Order
Mechanism, Price Improvement Mechanism and complex order functionality
will not be available for options traded on the Optimise platform.\8\
The Optimise platform will now include all of this functionality during
the Transition Period.
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\8\ The only functionality that will be phased-in is related to
cabinet trades pursuant to ISE Rule 718.
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With the Optimise platform, the Exchange proposes to add the
flexibility for the Exchange to determine, on a class basis, whether
orders on the complex order book at the same price are executed in time
priority, as they are currently, or among participants pursuant to ISE
Rule 713(e) and Supplementary Material .01(a) to ISE Rule 713(e).\9\
Under ISE Rule 713(e), priority customer orders are given priority over
Professional Orders and market maker quotes at the same price, which
will also be the case on the complex order book. However, because there
is no obligation for primary market makers to enter quotes on the
complex order book, primary market makers will not receive the enhanced
participation rights to which they are entitled in the regular
market.\10\ The Exchange notes that this proposed rule change does not
affect the provisions of paragraph (b)(2) of Rule 722 which limits the
execution of complex orders when there are Priority Customer orders on
the Exchange for the individual series of a complex order.
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\9\ Exchanges have previously been given the ability to choose
an allocation methodology on a class or series basis. See, e.g.,
CBOE Rule 6.53C. The Exchange will notify Exchange members regarding
allocation methodology for executions on the complex order book via
circular.
\10\ Supplementary Material to Rule 713, paragraphs .01(b) and
(c) (enhanced participation rights for Primary Market Makers).
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For options traded on the Optimise platform, the Exchange also
proposes to modify the Price Improvement Mechanism so that Counter-Side
Orders and Improvement Orders only execute against the Agency Order
that is being exposed. Currently, when members respond to an order
entered into the Price Improvement Mechanism, they may be executed
against certain other, unrelated orders.\11\ While the Exchange
initially implemented this particular feature of the Price Improvement
Mechanism to differentiate its service from those offered by other
exchanges and to potentially attract additional unrelated order flow to
the Exchange, this feature may discourage market participants from
responding to Agency Orders. Accordingly, the Exchange believes that
removing this feature could increase competition for orders entered
into the Price Improvement Mechanism and thereby result in additional
price improvement for agency orders.\12\
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\11\ Pursuant to ISE Rule 723(d)(6), when a market order or
marketable limit order on the same side of the market as the Agency
Order ends the exposure period, it will execute against any
unexecuted interest in the Price Improvement Mechanism after the
Agency Order is executed in full.
\12\ The Price Improvement Period on the Boston Options Exchange
(``BOX'') currently contains this feature. See Chapter 5, Sec. 18(i)
of the BOX Rules.
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Finally, the Exchange notes that members initially will not be able
to enter reserve orders, nor complex orders with an all-or-none or
minimum quantity modifier in options classes that are traded on the
Optimise platform. The Exchange will make these order types available
on the Optimise platform as promptly as possible within the first month
of the Transition Period, and assure that members are informed of the
status of these order types.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b),\13\ in general, and Section 6(b)(5)\14\
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 Optimise platform will improve
the efficiency and quality of options executions on the Exchange. The
Exchange further believes that liquidity on the complex order book may
be enhanced by executing all interest at the same price pro-rata based
on size (with Priority Customer priority) as it does in its regular
market. Having the ability to determine on a class basis whether orders
on the complex order book at the same price will be executed in time
priority or pro-rata based on size (with Priority Customer priority)
will give the Exchange greater flexibility to respond to market needs
and enhance its ability to compete more effectively. Finally, the
Exchange believes that limiting the availability of Counter-Side Orders
and Improvement Orders to execute only against the agency order being
exposed in the Price Improvement Mechanism will encourage greater price
competition with larger size, thereby increasing the opportunity for
such agency order to receive additional price improvement.
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\13\ 15 U.S.C. 78f(b).
\14\ 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.
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
[[Page 21089]]
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: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) by its terms does not become operative for 30 days after the
date of this filing, or such shorter time as the Commission may
designate if consistent with the protection of investors and the public
interest, the proposed rule change has become effective pursuant to
Section 19(b)(3)(A) of the Act \15\ and Rule 19b-4(f)(6)
thereunder.\16\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to provide the Commission
with 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 Exchange has fulfilled 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 filing. However,
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter
time if such action is consistent with the protection of investors and
the public interest.
The Exchange requests that the Commission waive the 30 day period
for this filing to become operative so that it may become effective and
operative upon filing with the Commission pursuant to Section
19(b)(3)(A) of the Act and rule 19b-4(f)(6) thereunder. The Exchange
believes that waiver of the operative delay period is consistent with
the protection of investors and the public interest in that it will
allow the Exchange to effect an orderly launch of the Optimise platform
on April 11, 2011. Specifically, the Exchange previously adopted rule
changes to identify certain existing functionality that it anticipated
would be phase-in during the Transition Period.\17\ However, virtually
all of that functionality has been fully tested and is available for
the launch. The Exchange believes that it will be less disruptive to
members for this existing functionality to be available on the Optimise
platform at the launch, as the trading environment will be more similar
to the Exchange's existing market. In this respect, the Exchange notes
that it has been conducting extensive testing with members and that it
will initially trade only ten securities that have very limited trading
volume on the Optimise platform. The Exchange will gradually transition
additional securities to the Optimise platform to assure an orderly
implementation of the new system.
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\17\ See Securities Exchange Act Release No. 63117 (October 15,
2010), 75 FR 65042 (October 21, 2010) (SR-ISE-2010-101).
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The Commission notes that in October of 2010, the Exchange filed a
proposed rule change relating to the functionalities that are the
subject of the current proposal.\18\ At that time, the Exchange
identified certain functionalities, including the functionalities that
are the subject of the current proposal, which will not be immediately
available on the Optimise platform but would be phased in during the
Transition Period. However, the Exchange now represents that the
functionalities discussed in this filing are fully tested and available
for launch on April 11. Allowing the functionalities to be available on
the Optimise platform at the launch rather than after a delay should
contribute to a more orderly launch and should facilitate
implementation of Optimise under the Transition Period contemplated by
the Exchange's rules. Further, as stated above, the Exchange has
already noted its intent to later adopt these functionalities in a
previous proposal. Therefore, Commission believes that waiving the 30-
day operative delay is appropriate and consistent with the protection
of investors and the public interest \19\ and designates the proposed
rule change as operative upon filing.
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\18\ See id.
\19\ 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 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-2011-24 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-2011-24. 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 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
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.\20\ 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-2011-24 and should be
submitted on or before May 5, 2011.
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\20\ The text of the proposed rule change is available on the
Commission's Web site at http://www.sec.gov.
\21\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8973 Filed 4-13-11; 8:45 am]
BILLING CODE 8011-01-P