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5 15 U.S.C. 78s(b)(3)(A). 

6 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6)(iii) requires the Exchange to give the 

Commission written notice of the Exchange’s intent 

to file the proposed rule change along with a brief 

description and the 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 satisfied this pre-filing requirement. 

7 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor 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 after the date of 

the filing, or such shorter time as the 

Commission may designate, it has 

become effective pursuant to 19(b)(3)(A) 

of the Act 5 and Rule 19b–4(f)(6) 6

thereunder. 

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. 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 rule-comments@

sec.gov. Please include File Number SR– 

MIAX–2014–61 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–MIAX–2014–61. 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 

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 20549–1090, 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; 

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–MIAX– 

2014–61 and should be submitted on or 

before December 31, 2014. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.7

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–28876 Filed 12–9–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73736; File No. SR–ISE– 

2014–24] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing of Proposed Rule 

Change To Modify the Opening 

Process 

December 4, 2014. 

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 November 

19, 2014, the International Securities 

Exchange, LLC (the ‘‘Exchange’’ or the 

‘‘ISE’’) 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 Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend its 

rules in order to modify the manner in 

which the Exchange’s trading system 

opens trading at the beginning of the 

day and after trading halts and to codify 

certain existing functionality within the 

trading system regarding opening and 

reopening of options classes traded on 

the Exchange. The text of the proposed 

rule change is available on the 

Exchange’s Web site 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. 

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 amend ISE rules in order to 

modify the manner in which the 

Exchange’s trading system opens trading 

at the beginning of the day and after 

trading halts and to codify certain 

existing functionality within the trading 

system regarding opening and reopening 

of option classes traded on the 

Exchange. Specifically, the Exchange 

proposes to amend Rule 701 to modify 

the opening process by providing away 

market protection at the open and 

making system changes to limit 

instances where an options class goes 

into an imbalance state which prevents 

the Exchange from determining the 

opening price in a timely manner for 

that options class. The Exchange also 

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3See ISE Rule 701(a)(1)–(4). The Exchange 

proposes to delete amend [sic] certain parts of Rule 

701 and add language to the current rule to describe 

in greater detail how the PMM initiates the rotation 

process, and in the absence of a PMM, how the 

trading system initiates the rotation process. 

4The ‘‘market for the underlying security’’ is 

either the primary listing market, the primary 

volume market (defined as the market with the most 

liquidity in that underlying security for the 

previous two calendar months), or the first market 

to open the underlying security, as determined by 

the Exchange on an issue-by-issue basis. See ISE 

Rule 701(b)(2). 

5The time period is currently set to five seconds. 

Members are advised when there is a change to this 

configurable time period through the issuance of 

information circular. 

6The number of ticks is currently set to five. 

Members are advised when there is a change to the 

number of ticks through the issuance of information 

circular. 

7The margin is currently calculated as 10% of 

mid-point of the NBBO with up to a maximum of 

$5.00 and a minimum of $0.10. 

8This process is currently repeated every two 

seconds. 

9The time period is currently set to one second. 

10Pursuant to ISE Rules 100(a)(37A) and 

100(a)(37B), a Priority Customer Order is an order 

for the account of a person or entity that (i) is not 

a broker or dealer in securities, and (ii) does not 

place more than 390 orders in listed options per day 

Continued 

proposes to amend parts of Rule 701 to 

more clearly describe the manner in 

which the trading system functions with 

regards to the rotation process for 

regular orders. 

Currently, for each class of options 

that has been approved for trading, the 

opening rotation is conducted by the 

Primary Market Maker (‘‘PMM’’) 

appointed to such class of options. The 

Exchange may direct that one or more 

trading rotations be employed on any 

business day to aid in producing a fair 

and orderly market. For each rotation so 

employed, except as the Exchange may 

direct, rotations are conducted in the 

order and manner the PMM determines 

to be appropriate under the 

circumstances. The PMM has the 

authority to determine the rotation order 

and manner and may also employ 

multiple trading rotations 

simultaneously.3

Trading rotations are employed at the 

opening of the Exchange each business 

day and during the reopening of the 

market after a trading halt. The opening 

rotation in each class of options is held 

promptly following the opening of the 

market for the underlying security.4 The 

opening rotation for options contracts in 

an underlying security is delayed until 

the market for such underlying security 

has opened unless the Exchange 

determines that the interests of a fair 

and orderly market are best served by 

opening trading in the options contracts. 

Currently, the rotation process can be 

initiated in one of two ways. A PMM 

can initiate the rotation process by 

either sending a rotation request 

through the trading system or by 

selecting an auto-open setting in the 

trading system for each class in which 

it serves as a PMM. 

Once the security underlying an 

options class has opened, the trading 

system checks to see whether the PMM 

assigned to that options class has 

selected to auto-open the options class. 

If the PMM has not selected to autoopen the options class, the trading 

system waits for the PMM to send a 

rotation request to start the rotation 

process. The PMM can initiate the 

rotation process by submitting a quote. 

To initiate the rotation process, a PMM 

quote must be present. If the PMM quote 

is not present, the rotation process for 

that class will not start. 

There may be instances where the 

PMM is unable to initiate the rotation 

process because, for instance, the PMM 

is experiencing technical difficulties in 

sending the rotation request to the 

Exchange, or the PMM has not set the 

auto-open setting or because the PMM 

has not submitted any quotes for an 

options class. In such instances, the 

Exchange will initiate the rotation 

process by using the rapid opening 

mechanism within a configurable time 

period 5 after the underlying security 

has opened. In order for the Exchange 

to use the rapid opening mechanism in 

instances where the Primary Market 

Maker has not initiated the rotation 

process, the following conditions must 

be met: (i) At least one market maker 

quote must be present; (ii) if there are 

more than one market maker quotes 

present, the best quoted market maker 

bid must not be greater than a 

configurable number of ticks than the 

best quoted market maker offer; 6 (iii) if 

a class is traded on an another 

exchange, at least one other exchange 

must have opened that class and a 

NBBO has been published; and (iv) the 

best quoted market maker bid and best 

quoted market maker offer must not 

cross the NBBO by a certain margin. The 

margin is calculated as a percentage of 

the mid-point of the NBBO with up to 

a maximum and a minimum range.7 In 

the event any of the conditions 

described above are not met, the trading 

system will repeat the process after a 

configurable time period until all the 

conditions are met 8 thus allowing the 

Exchange to use the rapid opening 

mechanism to initiate the opening 

rotation process. 

After a rotation process has been 

performed and the option class cannot 

be opened due to an imbalance 

condition, an imbalance broadcast is 

sent to members. The PMM can then reinitiate the rotation process again. If the 

PMM does not re-initiate the rotation 

process within a configurable time 

period,9 the Exchange will re-initiate 

the rotation process as described above. 

The rotation process will repeat until 

the class is opened. The Exchange may 

delay the commencement of the opening 

rotation in any class of options in the 

interests of a fair and orderly market. 

The trading system currently uses 

quotes provided by the PMM for the 

series in question to set a range within 

which to open the options series 

(‘‘Boundary Prices’’). The Boundary 

Prices ensure the opening price is close 

to the reasonable price range for the 

options class. If the PMM for an options 

class is not present on the bid or the 

offer for that options class then the best 

quote from the Competitive Market 

Makers (‘‘CMMs’’) for that options class 

is used. 

To determine the opening price, the 

accumulated quantity for each price 

level is calculated for the buy and sell 

sides. Only quotes, market orders and 

displayed quantities of limit orders are 

used to calculate the accumulated 

quantity. The opening price is 

calculated as the price level where a 

maximum quantity can be traded. If 

there is no overlap between buy and sell 

prices the opening price cannot be 

calculated and the options class is 

opened without a trade. If there are only 

market orders on both sides of the 

quote, an opening price cannot be 

calculated and the options class goes 

into an imbalance state, in which case, 

the options class does not open until the 

imbalance condition is resolved, as 

described above. If the calculated 

opening price is outside the Boundary 

Prices, the options class goes into an 

imbalance state and the options class 

again does not open until the imbalance 

condition is resolved. If the calculated 

opening price is at or inside the 

Boundary Prices then that price is the 

opening price. 

Once the opening price for an options 

class has been determined, order and 

quotes on the order book in that options 

class are matched to trade in the 

following order: (1) Market orders trade 

first, and can match with other market 

orders, quotes and limit orders. As 

noted above, if market orders on either 

or both sides cannot be traded entirely 

the options class goes into an imbalance 

state; (2) bid quotes and bid limit orders 

priced higher than the opening price 

and ask quotes and ask limit orders 

priced lower than the opening price 

trade next; (3) Priority Customer 10

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on average during a calendar month for its own 

beneficial account(s). 

11See ISE Rule 1901(b). 

12See NASDAQ OMX PHLX (‘‘PHLX’’) Rule 

1017(l); Chicago Board Options Exchange (‘‘CBOE’’) 

Rule 6.2B, Interpretation .03. 

13Pursuant to ISE Rules 100(a)(38) and 

100(a)(39), a Public Customer means a person or 

entity that is not a broker or dealer in securities and 

a Public Customer Order means an order for the 

account of a Public Customer. 

14Under the Options Order Protection and 

Locked/Crossed Market Plan, the Exchange cannot 

execute orders at a price that is inferior to the 

NBBO, nor can the Exchange place an order on its 

book that would cause the ISE best bid or offer to 

lock or cross another exchange’s quote. In 

compliance with this requirement, Non-Customer 

Orders and Public Customer Orders are exposed to 

all ISE Members for up to one second to give them 

an opportunity to execute orders at the NBBO price 

or better before orders are rejected (in the case of 

Non-Customer Orders) or routed out to other 

exchanges (in the case of Public Customer Orders). 

See Supplementary Material .02 to Rule 1901. 

15Pursuant to ISE Rules 100(a)(27) and (28), a 

Non-Customer means a person or entity that is a 

broker or dealer in securities and a Non-Customer 

Order means an order for the account of a NonCustomer. 

16Pursuant to ISE Rule 100(a)(37C), a Professional 

Order is an order that is for the account of a person 

or entity that is not a Priority Customer. 

17Priority Customer orders with the same limit 

price in the regular order book are currently 

executed in time priority during the opening. The 

Exchange believes executing these orders on a 

random basis is a fairer approach because the 

current time priority is dependent on when such 

orders are communicated to the Exchange by a 

Priority Customer’s broker before the market, not 

the time the Priority Customer expressed interest in 

doing the trade. Executing these orders in random 

will provide Priority Customer orders an equal 

opportunity to participate at the open. 

orders with a limit price equal to the 

opening price trade next in time 

priority; and (4) any remaining quantity 

of quotes and limit orders at the opening 

price trade pro rata. Only the displayed 

quantity of orders and quotes participate 

in the opening process. 

There are a number of issues with the 

current opening which has resulted in 

fewer pre-open orders being sent to ISE 

by order flow providers. First, while 

trading through a better away price on 

the open is permitted under the Options 

Order Protection and Locked/Crossed 

Market Plan (the ‘‘Linkage Plan’’) and 

ISE Rules,11 several other exchanges 

provide away market price protection at 

the opening 12 resulting in order flow 

being sent to those exchanges and not to 

ISE due to the lack of such price 

protection on ISE. Second, the opening 

of options series can be delayed by 

imbalances that prevent ISE from 

determining an opening price in a 

timely manner. Such delays exacerbate 

the problem of not providing price 

protection at the opening. 

The Exchange therefore proposes to 

modify the opening process by 

providing away market price protection 

at the opening by including the away 

best bid and offer (‘‘ABBO’’) when 

calculating the Boundary Prices. The 

Exchange also proposes to modify the 

opening process by moving from a 

single price opening, which will reduce 

the imbalance conditions that the 

opening process currently faces. 

As is the case today, the PMM or the 

Exchange will continue to initiate a 

rotation in an options class. Once the 

PMM or the Exchange initiates a 

rotation, the trading system will 

automatically process quotes and orders 

in each series. When there is no 

executable interest in a particular series, 

i.e., there are no quotes or orders that 

lock or cross each other, the trading 

system will open that series by 

disseminating the Exchange’s best bid 

and offer among quotes and orders. Any 

Public Customer Orders 13 that would 

lock or cross a bid or offer from another 

exchange are not included in the 

Exchange’s disseminated best bid and 

offer and are simultaneously processed 

in accordance with Supplementary 

Material .02 to Rule 1901.14 If there are 

any Non-Customer Orders 15 that would 

lock or cross a bid or an offer from 

another exchange by more than two 

ticks, such orders are canceled. 

If there are non-customer orders that 

would lock or cross a bid or offer from 

another exchange by two ticks or less 

they will be included in the Exchange’s 

disseminated best bid and offer. Any 

quotes that would lock or cross a bid or 

an offer from another exchange, will 

also be included in the Exchange’s 

disseminated best bid and offer. 

The proposed opening process is an 

iterative process. In the first iteration, 

the trading system attempts to derive 

the opening price to be at or better than 

the ISE market maker quotes and ABBO 

prices. When there is executable 

interest, i.e., there are quotes or orders 

on the Exchange that lock or cross each 

other, the trading system will first 

calculate the Boundary Prices. As is the 

case today, the trading system will use 

quotes provided by the PMM for the 

series in question to set the Boundary 

Prices. If the PMM is not present on 

either side of the market then the best 

quotes from the CMMs are used on the 

corresponding side. ISE Market Maker 

quotes therefore are the PMM’s best bid 

and offer, or in the absence of a PMM 

quote, best bid and offer of CMMs. If 

there are no PMM or CMM quotes on 

the bid side, the lowest minimum 

trading increment for the option class is 

used on the bid side. If there are no 

PMM or CMM quotes on the offer side, 

the options class will not open because 

in the absence of an offer there is no 

limit as to the price at which an opening 

trade can occur. If the options class is 

open on another exchange, the 

Boundary Prices are determined to be 

the higher of the ISE Market Maker’s bid 

in that options class and the national 

best bid, and the lower of the ISE 

Market Maker’s offer in that options 

class and the national best offer. 

Once the trading system has 

determined the Boundary Prices, it then 

determines the price at which the 

maximum number of contracts can trade 

at or within the Boundary Prices (the 

‘‘execution price’’). Once the trading 

system determines the execution price, 

orders and quotes are processed as 

follows. At the execution price, market 

orders will be given priority before limit 

orders and quotes, and limit orders and 

quotes will be given priority by price. 

For limit orders and quotes with the 

same price, priority will be accorded 

first to Priority Customer Orders over 

Professional Orders 16 and quotes. 

Priority Customer Orders with the same 

limit price will be executed in 

random 17 order while Professional 

Orders and quotes with the same limit 

price will be executed pro-rata based on 

size. If the Boundary Prices are 

calculated using the national best bid 

and/or offer, any remaining Public 

Customer Orders after this iteration that 

would lock or cross a bid or offer from 

another exchange are processed in 

accordance with Supplementary 

Material .02 to Rule 1901. Any 

remaining Non-Customer Orders that 

would lock or cross a bid or offer from 

another exchange may trade outside the 

Boundary Prices by up to two trading 

increments as further described under 

the third iteration below. 

Example 1 

Suppose the following market in 

option class A: 

Away Market BBO: 10 @1.00 x 10 @1.05 

ISE PMM Quote: 10 @1.01 x 10 @1.04 

ISE CMM Quote: 10 @0.90 x 50 @1.03 

Suppose further the following buy 

and sell orders in option class A: 

Priority Customer 1: Buy 10 @1.00 

Non-Customer 1: Buy 10 @0.99 

Non-Customer 2: Buy 5 @0.95 

Priority Customer 2: Sell 50 @0.96 

Non-Customer 3: Sell 50 @0.95 

Non-Customer 4: Sell 50 @0.95 

In example 1 above, since the ISE 

PMM quote is better than the away 

market quote, the Boundary Prices are 

calculated using the ISE PMM quote, or 

1.01 × 1.04. The highest bid at ISE is 

1.01 and lowest offer is 0.95. To keep 

the trade within the Boundary Prices, 

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18The ABBO prices considered in the first 

iteration are also used during the second iteration. 

19The PMM has the obligation under existing 

Exchange rules to engage in dealings for his own 

account when, among other things, there is a 

temporary disparity between the supply of and 

demand for a particular options contract, and to act 

with due diligence in handling orders. See ISE Rule 

803(c). 

the opening trade would be executed at 

1.01 as follows: 

• ISE PMM buys 10 contracts 

• Non-Customer 3 and Non-Customer 

4 sell 5 contracts each using the pro-rata 

allocation method. 

If after the first iteration there remain 

unexecuted orders and quotes that lock 

or cross each other, the trading system 

will initiate a second iteration. In the 

second iteration, the trading system uses 

either the ISE market maker quotes or 

the ABBO prices,18 whichever was not 

used in the first iteration. For example, 

if the ISE market maker quotes were 

used in the first iteration, the second 

iteration will use ABBO prices, and vice 

versa. If there were no ABBO prices for 

consideration for the first iteration, then 

this second iteration does not occur and 

the trading system will initiate the third 

iteration as described below. The 

second iteration only occurs if there are 

both ISE market maker quotes and 

ABBO prices available in the first 

iteration to determine the opening price. 

The trading system then determines 

the price at which the maximum 

number of contracts can trade at or 

within the widened Boundary Prices. 

Once the trading system determines the 

execution price following the second 

iteration, orders and quotes are 

processed as follows. At the execution 

price following the second iteration, 

market orders are given priority before 

limit orders and quotes, and limit orders 

and quotes are given priority by price. 

For limit orders and quotes with the 

same price, priority is accorded first to 

Priority Customer Orders over 

Professional Orders and quotes. Priority 

Customer Orders with the same limit 

price are executed in random order 

while Professional Orders and quotes 

with the same limit price are executed 

pro-rata based on size. If the Boundary 

Prices in the second iteration are 

calculated using the national best bid 

and/or offer, any remaining Public 

Customer Orders after this iteration that 

would lock or cross a bid or offer from 

another exchange are processed in 

accordance with Supplementary 

Material .02 to Rule 1901. Any 

remaining Non-Customer Orders that 

would lock or cross a bid or offer from 

another exchange may trade outside the 

Boundary Prices by up to two trading 

increments as further described under 

the third iteration below. 

In example 1 above, the following 

orders and quotes remain on the ISE 

order book following the first iteration: 

ISE PMM Quote: 0 @0.00 × 10 @1.04 

ISE CMM Quote: 10 @0.90 × 50 @1.03 

Priority Customer 1: Buy 10 @1.00 

Non-Customer 1: Buy 10 @0.99 

Non-Customer 2: Buy 5 @0.95 

Priority Customer 2: Sell 50 @0.96 

Non-Customer 3: Sell 45 @0.95 

Non-Customer 4: Sell 45 @0.95 

Since in the first iteration the 

Boundary Prices were calculated using 

the ISE PMM Quotes, the second 

iteration will use away market prices 

that were not used in the first iteration 

and the Boundary Prices are calculated 

to be 1.00 × 1.05. The highest bid at ISE 

is now 1.00 and lowest offer is 0.95. To 

keep the trade within the Boundary 

Prices, the second opening trade will be 

executed at 1.00 as follows: 

• Priority Customer 1 buys 10 

contracts 

• Non-Customer 3 and Non-Customer 

4 sell 5 contracts each using the pro-rata 

allocation method 

• Priority Customer 2 is exposed to 

all ISE Members to give them an 

opportunity to execute the order at the 

NBBO price and is routed out if not 

completely executed on ISE. 

If after the second iteration there 

remain unexecuted orders and quotes 

that lock or cross each other, the trading 

system will initiate a third iteration. In 

the third iteration, the Boundary Prices, 

i.e., the prices used in the second 

iteration, and in the case where the 

second iteration does not occur, the 

prices used in the first iteration, are 

widened by two trading increments. The 

trading system then determines the 

price at which the maximum number of 

contracts can trade at or within the 

widened Boundary Prices. Once the 

trading system determines the execution 

price following the third iteration, 

orders and quotes are processed as 

follows. At the execution price 

following the third iteration, market 

orders are given priority before limit 

orders and quotes, and limit orders and 

quotes are given priority by price. For 

limit orders and quotes with the same 

price, priority is accorded first to 

Priority Customer Orders over 

Professional Orders and quotes. Priority 

Customer Orders with the same limit 

price are executed in random order 

while Professional Orders and quotes 

with the same limit price are executed 

pro-rata based on size. Thereafter, any 

unexecuted Priority Customer Orders 

that lock or cross the Boundary Prices 

are handled by the PMM 19 and any 

unexecuted Professional Orders and 

Non-Customer Orders that lock or cross 

the Boundary Prices are canceled. While 

Professional Orders and Non-Customer 

Orders are canceled in these 

circumstances, the Exchange seeks to 

provide a higher level of service for 

Priority Customer orders by having 

them handled by the PMM, which has 

an affirmative obligation to provide 

liquidity and price continuity. The 

Exchange believes that providing this 

service for Priority Customer orders is 

appropriate and consistent with 

feedback from members that enter 

Priority Customer orders on the 

Exchange, who prefer that Priority 

Customer orders not be canceled in 

these circumstances. 

In example 1 above, the following 

orders and quotes remain on the ISE 

order book following the second 

iteration: 

ISE PMM Quote: 0 @0.00 × 10 @1.04 

ISE CMM Quote: 10 @.90 × 50 @1.03 

Non-Customer 1: Buy 10 @0.99 

Non-Customer 2: Buy 5 @.95 

Non-Customer 3: Sell 40 @.95 

Non-Customer 4: Sell 40 @.95 

In the third iteration, the Boundary 

Prices are widened by two trading 

increments and are calculated to be 0.98 

× 1.07 (best bid of 1.00 widened by two 

trading increments × best offer of 1.05 

widened by two trading increments). 

The highest bid at ISE is now 0.99 and 

lowest offer remains at 0.95. To keep the 

trade within the Boundary Prices, the 

third opening trade will be executed at 

0.98 as follows: 

• Non-Customer 1 buys 10 contracts 

• Non-Customer 3 and Non-Customer 

4 sell 5 contracts each using the pro-rata 

allocation method. 

Since the remaining quantity of NonCustomer 3 and Non-Customer 4 orders 

are priced more than two trading 

increments away from the Boundary 

Prices, these orders are cancelled. 

If after the third iteration there remain 

unexecuted orders and quotes that lock 

or cross each other, the trading system 

will initiate a fourth and final iteration. 

In the fourth iteration, the trading 

system does not calculate new 

Boundary Prices. The trading system 

will simply trade any remaining 

interest. Thereafter, the trading system 

opens the options series by 

disseminating the Exchange’s best bid 

and offer derived from the remaining 

orders and quotes. 

Continuing with example 1 above, 

following the third iteration, the 

following orders and quotes remain on 

the ISE order book: 

ISE PMM Quote: 0 @0.00 × 10 @1.04 

ISE CMM Quote: 10 @0.90 × 50 @1.03 

Non-Customer 2: Buy 5 @0.95 

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73358 Federal Register / Vol. 79, No. 237 / Wednesday, December 10, 2014 / Notices 

20 15 U.S.C. 78f(b). 

21 15 U.S.C. 78f(b)(5). 

Since there are no marketable orders 

or quotes left on the ISE order book, the 

trading system opens the class and 

disseminates the Exchange’s best bid 

and offer as 5 @0.95 × 50 @1.03. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with the 

requirements of the Securities Exchange 

Act of 1934 (the ‘‘Act’’) and the rules 

and regulations thereunder that are 

applicable to a national securities 

exchange, and, in particular with the 

requirements of Section 6(b) of the 

Act.20 Specifically, the proposed rule 

change is consistent with Section 6(b)(5) 

of the Act,21 because it is designed 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. The 

Exchange believes that the proposed 

opening process for options listed on 

the Exchange will help ensure that ISE 

opens trading in options contracts in a 

fair and orderly manner and in a greater 

number of options classes. Specifically, 

the proposed rule change will provide 

away market protection at the opening 

which the Exchange believes will 

encourage market participants to direct 

their pre-opening order flow to the 

Exchange and therefore foster greater 

competition at the open for the benefit 

of all market participants. 

The Exchange believes the proposed 

rule change is consistent with the Act 

because it will also facilitate the price 

formation process by taking into 

account away market prices when 

calculating the Boundary Prices which 

the Exchange believes will limit 

instances of an options class going into 

an imbalance state and therefore not 

opening for trading on the Exchange in 

a timely fashion. Additionally, the 

proposal to move away from a single 

opening price will permit the Exchange 

to execute a greater number of contracts 

at the open and therefore remove 

impediments to a free and open market 

and foster competition at the open. 

The proposed rule change to codify 

the rapid opening mechanism into the 

Exchange’s rules will benefit investors 

and promotes an open market by adding 

detail to the rules regarding how the 

trading system facilitates the opening of 

option classes on the Exchange. 

The Exchange’s proposal to permit the 

execution of Priority Customer orders 

with the same limit price in the regular 

order book on a random basis is a fairer 

approach because the current time 

priority is dependent on when such 

orders are communicated to the 

Exchange, not the time the order 

originator expressed an interest in doing 

the trade. The Exchange believes that in 

the interest of promoting just and 

equitable principles of trade, it is 

appropriate to execute such orders on a 

random basis to ensure that all orders 

are afforded the same opportunity for 

execution. For example, suppose order 

1 originating from a retail customer was 

sent at 11 p.m. to its broker who is a 

member of the Exchange (member 1) 

and order 2, also originating from a 

retail customer, was sent at 8 a.m. the 

following day to its broker who too is 

a member of the Exchange (member 2). 

If member 2 initiates its connection to 

the Exchange before member 1 does and 

therefore sends its retail customer order 

before member 1 sends its retail 

customer order, member 2’s retail 

customer order will have time priority 

over member 1’s retail customer order 

even though member 1’s customer had 

expressed an interest in trading earlier 

than member 2’s customer. The 

Exchange believes it is in the public 

interest to execute these orders in 

random as means to provide them an 

equal opportunity to participate at the 

open. 

As a participant exchange of the 

Linkage Plan, the Exchange has adopted 

rules implementing various 

requirements specified in the Linkage 

Plan. The Linkage Plan provides a set of 

rules and procedures designed to avoid 

trade-throughs and locked markets. 

Specifically, Section 5(a)—Order 

Protection—of the Linkage Plan requires 

that each participant exchange establish 

written policies and procedures that are 

reasonably designed to prevent tradethroughs and to conduct surveillance to 

ascertain the effectiveness of such 

policies and procedures. Section 5(b) 

provides a number of exceptions to the 

order protection requirements. Section 

5(b)(ii), in particular, permits tradethroughs to happen during a trading 

rotation. 

The Exchange notes that each 

iteration of the proposed iterative 

process complies with Section 5(a) of 

the Linkage Plan, or qualifies as an 

exception under Section 5(b)(ii) of the 

Linkage Plan. For the purposes of the 

Linkage Plan, each iteration is a trading 

rotation to determine Boundary Prices at 

which the most amount of contracts can 

be traded. 

The Exchange represents that the first 

iteration complies with the order 

protection requirements of the Linkage 

Plan if it utilizes ISE PMM quotes to 

determine the Boundary Prices because 

the ISE PMM quotes are better than any 

away market quotes and therefore 

would not trade-through better prices at 

away markets. The first iteration also 

complies with the order protection 

requirements of the Linkage Plan if it 

utilizes away market quotes to 

determine the Boundary Prices in that 

any Public Customer orders that remain 

after this iteration that would lock or 

cross a bid or offer from another 

exchange would be processed in 

accordance with the requirements of the 

Linkage Plan, as provided in 

Supplementary Material .02 to Rule 

1901. 

If the first iteration utilized ISE PMM 

quotes then the second iteration would 

utilize away market quotes. If there were 

no away market quotes for consideration 

for the first iteration then the second 

iteration would not occur. The 

Exchange represents that the second 

iteration complies with the order 

protection requirements of the Linkage 

Plan if it utilizes away market quotes to 

determine the Boundary Prices in that 

any Public Customer orders that remain 

after this iteration that would lock or 

cross a bid or offer from another 

exchange would be processed in 

accordance with the requirements of the 

Linkage Plan, as provided in 

Supplementary Material .02 to Rule 

1901. If the first iteration utilized the 

away market quotes then the second 

iteration would utilize ISE PMM quotes. 

To the extent the second iteration 

results in any trade-throughs, the 

Exchange represents that such tradethroughs are permissible under Section 

5(b)(ii) of the Linkage Plan, the Trading 

Rotation exception, which permits a 

participant exchange to trade through a 

Protected Quotation disseminated by an 

Eligible Exchange during a trading 

rotation. 

In the third iteration, the Boundary 

Prices are widened by two trading 

increments to determine the price at 

which the maximum number of 

contracts can trade at or within the 

widened Boundary Prices. To the extent 

the third iteration results in any tradethroughs, the Exchange represents that 

such trade-throughs are permissible 

under Section 5(b)(ii) of the Linkage 

Plan. Section 5(b)(ii) of the Linkage 

Plan, the Trading Rotation exception, 

permits a participant exchange to trade 

through a Protected Quotation 

disseminated by an Eligible Exchange 

during a trading rotation. 

In the fourth and final iteration, the 

Boundary Prices are not calculated and 

any remaining interest is traded. To the 

extent the fourth iteration results in any 

trade-throughs, the Exchange represents 

that such trade-throughs are permissible 

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Federal Register / Vol. 79, No. 237 / Wednesday, December 10, 2014 / Notices 73359 

22 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

under Section 5(b)(ii) of the Linkage 

Plan. Section 5(b)(ii) of the Linkage 

Plan, the Trading Rotation exception, 

permits a participant exchange to trade 

through a Protected Quotation 

disseminated by an Eligible Exchange 

during a trading rotation. 

The proposed iterative opening 

process will provide market makers and 

other market participants greater 

opportunity to participate at the open 

and provide option classes with an 

increased chance to determine an 

opening price which removes 

impediments to a free and open market 

and benefits all market participants. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe the 

proposed rule change will impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act. To the contrary, the 

Exchange’s inability to provide away 

market protection limits competition in 

that other exchanges currently provide 

such protection and therefore are able to 

attract pre-opening order flow. Thus, 

approval of the proposed rule change 

will promote intermarket competition 

because it will allow the Exchange to, 

among other things, provide away 

market price protection at the open and 

thus, compete with other exchanges for 

order flow that market participants do 

not currently send to the ISE. The 

Exchange does not believe the proposed 

rule change will impose any burden on 

intramarket competition. The Exchange 

believes the proposed rule change will 

encourage ISE Members to send their 

pre-open order flow to the Exchange 

rather to a competing exchange and will 

therefore increase competition at the 

open. 

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 

Within 45 days of the publication date 

of this notice in the Federal Register or 

within such longer period up to 90 days 

(i) as the Commission may designate if 

it finds such longer period to be 

appropriate and publishes its reasons 

for so finding or (ii) as to which the selfregulatory organization consents, the 

Commission will: 

(A) By order approve or disapprove 

such proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be 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 Exchange 

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 rule-comments@

sec.gov. Please include File No. SR–ISE– 

2014–24 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–ISE–2014–24. 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 

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 

10:00 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 ISE. 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– 

2014–24 and should be submitted by 

December 31, 2014. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.22

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–28874 Filed 12–9–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73745; File No. SR–BATS– 

2014–062] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change to Rule 11.1 of BATS 

Exchange, Inc. 

December 4, 2014. 

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 November 

28, 2014, BATS Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BATS’’) 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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

The Exchange filed a proposal to 

amend Rule 11.1 to accept orders 

beginning at 6:00 a.m. Eastern Time. 

The text of the proposed rule change 

is available at the Exchange’s Web site 

at http://www.batstrading.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 

Exchange has prepared summaries, set 

forth in Sections A, B, and C below, of 

the most significant parts of such 

statements. 

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