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###### Securities and Exchange Commission

          - [Release No. 34-73808; File No. SR-ISE-2014-54]

                    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 December 3, 2014, the International Securities Exchange, LLC (the “Exchange” or the “ISE”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change, as described in Items I and II below, which Items have been prepared by the self-regulatory organization. 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 ISE proposes to make certain technical corrections to ISE rules as described in more detail below. 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 self-regulatory organization 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is to eliminate investor confusion by making certain technical corrections to ISE rules that are either obsolete or outdated, as described in more detail below.

#### 1. Order Type Cleanup

                    The Exchange adopted Customer Participation Orders in August 2005 in order to facilitate members providing access to the Price Improvement Mechanism (“PIM”) [3]                                          to Public Customers.[4]                                          Upon the entry of a Crossing Transaction into the PIM,[5]                                          a broadcast message is sent to all members, who then have 500 milliseconds to enter orders that indicate the size and price at which they want to participate in the execution (“Improvement Orders”).[6]                                          The Customer Participation Order is an instruction to the member to enter an                           ( print page 74798)                        Improvement Order on behalf of a Public Customer. Specifically, a Customer Participation Order is a limit order on behalf of a Public Customer that, in addition to the limit order price in standard increments, includes a price stated in one cent increments at which the Public Customer wishes to participate in trades executed in the same options series in penny increments through the PIM.[7]                                          The Exchange no longer offers Customer Participation Orders and therefore proposes to remove this order type from its rules. Furthermore, the Exchange proposes to remove two obsolete references to Customer Participation Orders in other rules. Specifically, the Exchange proposes to remove references to Customer Participation Orders in Supplementary Material .06 to Rule 723, which explains when Improvement Orders can be entered with respect to a Customer Participation Order,[8]                                          and in Rule 723(d), which notes that the agency side of an order entered into the PIM may execute against Customer Participation Orders at the end of the exposure period.                

                    In September 2008, the ISE adopted rules to allow members to enter non-displayed orders and quotes in penny increments in designated options with a minimum trading increment greater than one cent (“non-displayed penny orders and quotes”).[9]                                          As proposed in that filing, a non-displayed penny order or quote is available for execution at its penny price but is displayed at the closest minimum trading increment that does not violate the limit price. The Exchange does not offer non-displayed penny orders or quotes and therefore proposes to delete references to this order type from its rules as described below. First, the Exchange proposes to delete Rule 715(b)(4), which defines non-displayed penny order. Second, the Exchange proposes to delete language in Rule 804(b)(1) and Rule 805(a) that permits market makers to enter non-displayed penny quotes and orders, respectively. Third, the Exchange proposes to delete language in Supplementary Material .06 to Rule 716 concerning split prices for non-displayed penny orders and quotes entered into the Facilitation and Solicitation Mechanisms. Finally, the Exchange proposes to delete language in Supplementary Material .03 to Rule 717 concerning the execution of non-displayed penny orders that an Electronic Access Member represents as agent against principal orders and orders solicited from other broker dealers.                

#### 2. No Bid Options/Limit Price

                    Rule 713(b), which deals with priority of orders, provides that if the lowest offer for any options contract is $0.05 then no member shall enter a market order to sell that series, and any such market order shall be considered a limit order to sell at a price of $0.05. This provision is intended to prevent members from submitting market orders to sell in no bid series, which would execute at a price of $0.00, and to instead convert those orders to limit orders with a limit price equal to the minimum trading increment,                     *i.e.,*                     $0.05 for most option classes.[10]                                          A “no bid” or “zero bid” series refers to an option where the bid price is $0.00. Series of options quoted no bid are usually deep out-of-the-money series that are perceived as having little if any chance of expiring in-the-money. For options that trade in regular nickel increments, a best offer of $0.05 corresponds to a best bid of $0.00,                     *i.e.*                     one minimum trading increment below the offer. However, option series may be no bid with other offer prices as well. For example, an option class would be considered no bid if it is quoted at $0.00 (bid)-$0.15 (offer). In order to avoid having these orders execute at a price of $0.00, the Exchange proposes to clarify that Rule 713(b) applies to all option classes that are quoted no bid, rather than just those option classes that have an offer of $0.05. Furthermore, on January 26th, 2007, the options exchanges commenced a pilot (the “Penny Pilot”) to quote and trade options in one cent increments, lowering the minimum trading increment from $0.05 in certain symbols.[11]                                          The Exchange therefore proposes to clarify in Rule 713(b) that it will put a limit price                     *equal to the minimum trading increment*                     on market orders to sell a no bid option series. For example, if the deep out-of-the-money SPY December $230.00 call, which is traded in penny increments, is quoted at $0.00 (bid)-$0.03 (offer), a market order to sell would instead be treated as a limit order to sell at a price of $0.01.                

#### 3. Linkage Rules

                    On April 18, 2013 the Commission approved a proposed rule change that modified the ISE's linkage handling procedures under the Options Order Protection and Locked/Crossed Market Plan (the “Plan”).[12]                                          Prior to this rule change Primary Market Makers (“PMMs”) were responsible for routing orders to away markets when necessary to comply with the Plan. Under the current rules, however, the ISE has contracted with unaffiliated broker dealers to route orders to other exchanges when necessary to comply with the linkage rules (“Linkage Handlers”). Since PMMs no longer perform linkage handling, the Exchange proposes to move related language in Rule 803, which concerns the obligation of market makers, to Chapter 19. In particular, the Exchange proposes to move Supplementary Material .04 and .05 to Rule 803 to the Supplementary Material to Rule 1901, which contains provisions relevant to linkage handling. In connection with this change, the Exchange also proposes to correct incorrect internal cross references to “paragraph (c)(2)” in this Supplementary Material. Prior to the proposed rule change described above, paragraph (c)(2) of Rule 803 contained language concerning a PMM's linkage handling function. As away market routing is now handled by Linkage Handlers pursuant to the Supplementary Material to Rule 1901, the Exchange proposes to reference these rules instead.                

#### 4. Supplementary Material

                    Finally, the Exchange notes that certain supplementary material is mistakenly labelled as “supplemental” material in the Exchange's rulebook.[13]                                          In order to achieve consistency with how other rules are labelled, the Exchange proposes to change these to instead refer to “supplementary” material.                

#### 2. Statutory Basis

                    The Exchange believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities                           ( print page 74799)                        exchange, and, in particular, with the requirements of Section 6(b) of the Act.[14]                                          In particular, the proposal is consistent with Section 6(b)(5) of the Act,[15]                                          because is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest. As explained in more detail below, the Exchange believes it is appropriate to make the proposed technical corrections to its rules so that members and investors have a clear and accurate understanding of the meaning of the ISE's rules.                

#### 1. Order Type Cleanup

As explained above, the Exchange does not offer Customer Participation Orders or non-displayed penny orders or quotes, and thus proposes to remove obsolete definitions and other outdated references to these order types. The Exchange believes that these changes will eliminate investor confusion regarding order types available for trading on the ISE to the benefit of members of investors.

#### 2. No Bid Options/Limit Price

                    The ISE, along with other options exchanges, currently operates a pilot program to permit designated options classes to be quoted and traded in increments as low as one cent. The Exchange is proposing to amend Rule 713(b) to account for the fact that option classes selected for inclusion in the Penny Pilot are permitted to trade in penny increments. For penny classes that are quoted no bid, the Exchange will convert a market order to sell to a limit order with a price of one cent. In addition, the proposed rule change clarifies that Rule 713(b) applies to all series with a bid of $0.00, and not just those series that also have an offer of $0.05. The proposed rule change is necessary to account for options trading in multiple trading increments, including under the Penny Pilot, and will ensure that market orders to sell are not inadvertently executed at a price of zero. The Exchange believes that these changes more accurately reflect the intent of Rule 713(b), as described above, and will eliminate investor confusion with respect to the operation of this rule by more accurately describing the functionality provided by the Exchange. Moreover, the Exchange notes that other exchanges have similar rules whereby a market order to sell a no bid series is treated as a limit order with a limit price equal to the minimum trading increment for the series.[16] 

#### 3. Linkage Rules  

The proposed changes to the linkage rules are non-substantive and intended to reduce investor confusion by moving rules concerning linkage handling to the appropriate chapter of the Exchange's rulebook. As explained above, since PMMs previously conducted the linkage handling function, these rules were located in Chapter 8 of the rulebook. With the introduction of away market routing by Linkage Handlers, the Exchange believes that these rules are more appropriately located in Chapter 19. In addition, the Exchange notes that it is correcting related internal cross references.

#### 4. Supplementary Material

The proposed change to label supplementary material correctly is non-substantive and is intended to achieve consistency in how these rules are labelled to the benefit of members and investors.

### 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 that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change makes technical, non-substantive, amendments to the Exchange's rules in order to eliminate investor confusion, and is not designed to have any competitive impact.

### 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: (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) of the Act [17]                                          and Rule 19b-4(f)(6) thereunder.[18] 

                    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the Act [19]                                          normally does not become operative for 30 days after the date of its filing. However, Rule 19b-4(f)(6)(iii) [20]                                          permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Exchange believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest because the proposed rule change makes non-substantive, technical changes to the ISE's rules. The Exchange believes that these changes should take effect on filing as they increase the clarity of the ISE's rules to the benefit of members and investors that trade on the Exchange. With respect to the provisions regarding no bid options, the Exchange believes the proposed rule change will update and clarify those rules consistent with treatment on other options exchanges. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest, as it will enhance the clarity of the ISE's rules and will reduce investor confusion with respect to the operation of the ISE's rules. Therefore, the Commission hereby waives the operative delay and designates the proposed rule change operative upon filing.[21] 

                    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                           ( print page 74800)                        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-ISE-2014-54 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-2014-54. 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 such 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-2014-54, and should be submitted on or before January 6, 2015.                

                        For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.[22] 

Kevin M. O'Neill,

Deputy Secretary.

# Footnotes

1.                             15 U.S.C. 78s(b)(1).                    
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2.                             17 CFR 240.19b-4.                    
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3.                             The PIM is a process by which an Electronic Access Member can provide price improvement opportunities for a transaction wherein the Electronic Access Member seeks to facilitate an order it represents as agent, and/or a transaction wherein the Electronic Access Member solicited interest to execute against an order it represents as agent (a “Crossing Transaction”).                         *See*                         Rule 723(a).                    
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4.                                                     *See*                         Securities Exchange Act Release No. 52364 (August 31, 2005), 70 FR 53403 (September 8, 2005) (SR-ISE-2005-41). The term “Public Customer” means a person or entity that is not a broker or dealer in securities.                         *See*                         ISE Rule 100(a)(38).                    
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5.                             A Crossing Transaction is comprised of the order the Electronic Access Member represents as agent (the “Agency Order”) and a counter-side order for the full size of the Agency Order (the “Counter-Side Order”). The Counter-Side Order may represent interest for the Member's own account, or interest the Member has solicited from one or more other parties, or a combination of both.                         *See*                         Rule 723(b).                    
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6.                                                     *See*                         ISE Rule 723(c)(1).                    
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7.                                                     *See*                         Rule 715(f).                    
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8.                             Although Customer Participation Orders are no longer available, members will continue to be able to enter Improvement Orders for the account of Public Customers.                    
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9.                                                     *See*                         Exchange Act Release No. 58486 (September 8, 2008), 73 FR 53298 (September 15, 2008) (SR-ISE-2008-36).                    
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10.                             Symbols not included in the Penny Pilot (discussed below) generally trade in $0.05 increments if the options contract is trading at less than $3.00 per option, and $0.10 increments if the options contract is trading at $3.00 per option or higher.                         *See*                         Rule 710.                    
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11.                                                     *See*                         Exchange Act Release No. 55161 (January 24, 2007), 72 FR 4754 (February 1, 2007) (SR-ISE-2006-62) (Approval Order); 54603 (October 16, 2006), 71 FR 62024 (October 20, 2006) (SR-ISE-2006-62) (Notice).                    
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12.                                                     *See*                         Securities Exchange Act Release No. 69396 (April 18, 2013), 78 FR 24273 (April 24, 2013) (SR-ISE-2013-18).                    
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13.                                                     *See*                         “Supplemental” Material to Rules 717, 809, 810, and 1615.                         *See*                         also references in Rule 721(a)(3) to “Supplemental” Material .01 to Rule 717, in Rule 1903 to “Supplemental” Material .02 and .03 to Rule 1901, and in Rule 2011 to the “Supplemental” Material to Rule 2001.                    
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14.                             15 U.S.C. 78f(b).                    
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15.                             15 U.S.C. 78f(b)(5).                    
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16.                                                     *See e.g.*                         Securities Exchange Act Release No. 59475 (February 27, 2009), 74 FR 9840 (March 6, 2009) (SR-BX-2009-014) (Notice); 59742 (April 9, 2009), 74 FR 17701 (April 16, 2009).                    
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17.                             15 U.S.C. 78s(b)(3)(A).                    
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18.                             17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 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 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 requirement.                    
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19.                             17 CFR 240.19b-4(f)(6).                    
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20.                             17 CFR 240.19b-4(f)(6)(iii).                    
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21.                             For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation.                         *See*15 U.S.C. 78c(f).                    
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22.                                 17 CFR 200.30-3(a)(12).                        
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[FR Doc. 2014-29363 Filed 12-15-14; 8:45 am]

BILLING CODE 8011-01-P