Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 583 

6See Notice, 79 FR at 60209. 7See proposed Rule 4751(f)(5); see also Notice, 79 

FR at 60208. 8See proposed Rule 4751(f)(5); see also Notice, 79 

FR at 60209. The Exchange represents that the 

proposed functionality already exists on other 

trading venues. See Notice, 79 FR at 60208–09. 9 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

10 15 U.S.C. 78f(b)(5). 

11See Notice, 79 FR at 60208, 60210. 

12 Id. at 60210. 

13See Angel Letter, supra note 5. 

14 Id. 

15 Id. 

16 15 U.S.C. 78s(b)(2). 

17 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 73261 

(September 30, 2014), 79 FR 60226 (‘‘Notice’’). 

4See Securities Exchange Act Release No. 73614 

(November 17, 2014), 79 FR 69547 (November 21, 

2014). 

5See Letter from John Kinahan, Chief Executive 

Officer, Group One Trading, L.P., dated October 27, 

2014 (‘‘Group One Letter’’). 

6See Letter from Michael J. Simon, Secretary and 

General Counsel, International Securities Exchange, 

LLC, dated November 14, 2014 (‘‘ISE Response 

Letter’’). 

7 15 U.S.C. 78s(b)(2)(B). 

not execute immediately due to lack of 

contra-side liquidity that is equal to or 

greater than the designated minimum, 

the order will post to the NASDAQ 

order book as a Non-Displayed Order. 

Once posted, a MQO will execute only 

if an incoming order is marketable 

against the resting MQO and is equal to 

or greater than the minimum quantity 

set on the resting MQO. Once posted, 

multiple orders cannot be aggregated to 

meet the minimum quantity 

requirement of the Minimum Quantity 

Order. If a MQO executes partially and 

the number of shares remaining is less 

than the minimum quantity of the order, 

the minimum quantity of the order is 

reduced to the remaining share size. If 

a MQO is received that is marketable 

against a resting contra-side order with 

size that does not meet the minimum 

quantity requirement, the MQO will be 

posted on the book as a Non-Displayed 

Order at the locking price. 

The Exchange proposes to offer an 

optional order handling functionality 

that would permit an incoming MQO to 

forego executions where multiple 

resting orders could otherwise be 

aggregated to satisfy the minimum 

quantity designation. Under the 

proposed functionality, a MQO would 

only execute against a single contra-side 

order that would equal or exceed the 

minimum quantity designation of the 

MQO.6 In addition, if the minimum 

quantity designation of an incoming 

MQO could not be satisfied by a resting 

contra-side order, the MQO would be repriced one minimum price increment 

away from the resting liquidity and 

posted to the NASDAQ order book as a 

Non-Displayed Order.7 If an incoming 

MQO receives a partial execution, the 

remainder of the order would be 

cancelled if it would lock resting contraside liquidity that does not meet the 

minimum quantity designation.8

III. Discussion and Commission 

Findings 

After careful review, the Commission 

finds that the proposed rule change is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to a national 

securities exchange.9 In particular, the 

Commission finds that the proposed 

rule change is consistent with Section 

6(b)(5) of the Act,10 which requires, 

among other things, that the rules of a 

national securities exchange be 

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 of a free and 

open market and a national market 

system, and, in general, to protect 

investors and the public interest; and 

are not designed to permit unfair 

discrimination between customers, 

issuers, brokers or dealers. 

The Exchange represents that some 

market participants have indicated that 

they currently avoid routing larger 

orders to NASDAQ due to the concern 

that such orders may interact against 

small orders entered by professional 

traders, potentially resulting in more 

expensive transactions. The Exchange 

represents that the optional minimum 

execution size functionality proposed 

for MQOs should enhance the utility of 

such orders for market participants and 

should facilitate the entry of larger 

MQOs on the Exchange.11 Specifically 

the Exchange believes that the proposed 

functionality would provide market 

participants, including institutional 

firms that ultimately represent 

individual retail investors in many 

cases, with better control over MQOs, 

thereby enhancing the potential to 

improve execution quality.12

The Commission notes that a 

commenter expressed strong support for 

the proposal.13 In particular, the 

commenter states that the proposed rule 

change would benefit institutional 

investors, such as mutual funds that 

invest on behalf of retail investors, by 

minimizing their transaction costs.14

For example, according to the 

commenter, the proposed functionality 

would improve large investors’ ability to 

manage their orders and thereby obtain 

better execution quality.15

The Commission believes that the 

proposal should provide market 

participants with enhanced capability to 

manage their order flow. For the reasons 

noted above, the Commission believes 

that the proposed rule change is 

consistent with the Act. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,16 that the 

proposed rule change (SR–NASDAQ– 

2014–095) be, and it hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.17

Brent J. Fields, 

Secretary. 

[FR Doc. 2014–30895 Filed 1–5–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

Release No. 34–73973; File No. SR– 

ISE–2014–43] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Order Instituting Proceedings To 

Determine Whether To Approve or 

Disapprove a Proposed Rule Change 

Amending its Information Barrier Rules 

December 31, 2014. 

I. Introduction 

On September 15, 2014, International 

Securities Exchange, LLC (‘‘Exchange’’ 

or ‘‘ISE’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’), 

pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a 

proposed rule change amending its 

information barrier rules. The proposed 

rule change was published for comment 

in the Federal Register on October 6, 

2014.3 On November 17, 2014, the 

Commission extended the time period 

in which to either approve the Proposal, 

disapprove the Proposal, or institute 

proceedings to determine whether to 

approve or disapprove the proposed 

rule change to January 2, 2015.4 The 

Commission received one comment 

letter regarding the proposed rule 

change 5 and one response letter from 

ISE.6 This order institutes proceedings 

under Section 19(b)(2)(B) of the Act 7 to 

determine whether to approve or 

disapprove the proposed rule change. 


tkelley on DSK3SPTVN1PROD with NOTICES
584 Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 

8According to ISE Rule 805(b)(1)(ii), market 

makers may only have orders on the order book in 

option classes to which they are not appointed. 

9See Notice, supra note 3, 79 FR at 60226. 

10See Group One Letter, supra note 5. 

11See ISE Response Letter, supra note 6. 

12See Group One Letter at 1, supra note 5. 

13 Id. 14 Id. 15 Id. at 2. 16 Id. 17 Id. 18 Id. 19 Id. 20See ISE Response Letter at 1, supra note 6. 

21 Id. 

22 Id. 

23 Id. 

24 Id. 

25 Id. at 2. 

26 15 U.S.C. 78s(b)(2)(B). 

27Section 19(b)(2)(B) of the Act provides that 

proceedings to determine whether to disapprove a 

proposed rule change must be concluded within 

180 days of the date of publication of notice of the 

filing of the proposed rule change. The time for 

conclusion of the proceedings may be extended for 

up to an additional 60 days if the Commission finds 

good cause for such extension and publishes its 

reasons for so finding or if the self-regulatory 

organization consents to the extension. 

II. Description of the Proposal 

The Exchange proposes to amend ISE 

Rules 810 (Limitations on Dealings) and 

717 (Limitations on Orders) governing 

information barriers. Specifically, the 

Exchange proposes to amend Rule 810 

to permit information to flow to a 

member’s Electronic Access Member 

(‘‘EAM’’) unit, which handles the 

customer/agency side of the business, 

from its affiliated Primary Market Maker 

(‘‘PMM’’) and/or Competitive Market 

Maker (‘‘CMM’’) (jointly, ‘‘market 

makers’’) unit. As amended, ISE Rule 

810 will allow EAMs to know where, 

and at what price, their affiliated market 

makers are either quoting or have orders 

on the order book 8 and to use that 

information to influence routing 

decisions. The Exchange represents that 

it currently provides guidance to its 

members that ISE Rule 810 is to be 

interpreted as a two-way information 

barrier between the EAM unit and its 

affiliated market maker unit.9

The Exchange also proposes to amend 

ISE Rule 717, Supplementary Material 

.06 to specify that the orders of a EAM 

unit and its affiliated PMM and/or CMM 

unit may interact within one second 

without violating the ISE Rule 717(d) 

and (e) order exposure requirements 

when the firm can demonstrate that: (1) 

The customer order was marketable 

when routed; (2) the EAM was not 

handling the affiliated market maker 

quote/order; and (3) the affiliated 

market maker quote/order was in 

existence at the time the customer 

order(s) were entered into the ISE 

system. In combination, the proposed 

amendments to ISE Rules 810 and 717 

will make it possible for an EAM to 

route a customer order to the ISE to 

immediately interact with the quote or 

an order of an affiliated market maker, 

but only subject to the conditions stated 

above. 

III. Comment Letter and ISE’s Response 

As noted above, the Commission 

received one comment letter 10 opposing 

the proposed rule change.11 The 

commenter asserts that the proposed 

one-way information barrier would 

introduce a conflict of interest which 

could result in EAMs routing orders 

based on self-interest as opposed to the 

customer’s interest.12 The commenter 

disagrees with the Exchange’s premise 

that the proposal would not 

compromise market integrity or cause 

customer harm.13 The commenter also 

indicates that although other exchanges 

may interpret their rules to permit the 

sharing of information between the 

various units of a firm, such sharing 

only weakens a customer’s chance of 

best execution. 

The commenter believes there are two 

specific scenarios where a costumer 

may be harmed under this proposed 

rule change. First, the commenter states 

that EAMs could route customer orders 

to an affiliated market maker’s quote at 

an exchange’s best bid or offer rather 

than to an exchange with a better fill 

rate or price improvement 

mechanism.14 Second, the commenter 

argues that an EAM holding a large 

customer order that could influence the 

price in the underlying could opt to 

route away from the quote of its 

affiliated market maker to avoid the 

potential risk of the trade and deprive 

the customer of a fill they were 

otherwise entitled to.15

The commenter indicates that these 

routing scenarios are not ‘‘mere 

conjecture’’ as broker-dealers ‘‘openly 

admit’’ that numerous factors are built 

into routing decisions that are primarily 

beneficial to broker-dealers.16 The 

commenter also notes that there are 

litigation and academic studies that 

suggest that routing decisions are 

negatively impacted by conflicts of 

interest. The commenter believes that 

the erosion of information barriers 

would increase the likelihood that 

customer orders are routed based on the 

firm’s best interest as opposed to duty 

of best execution owed to the 

customer.17 The commenter concludes 

that two-way information barriers are 

the ‘‘only way to truly guard customer 

interests and protect against the misuse 

of material non-public information,’’ 

and a shift to a one-way information 

barrier would not provide any benefits 

EAM customers.18 The commenter also 

believes that exchange rules should be 

written and interpreted in a way that 

prevents conflicts of interest from ever 

arising, and a two-way information 

barrier takes the potential conflict of 

interest out of the equation.19

The ISE responds that the commenter 

did not raise any new issues and its 

concerns were addressed in the Notice. 

20 The ISE states that nothing in the 

proposed rule change would relieve 

members of their best execution 

obligation to obtain the most favorable 

terms reasonably available for customer 

orders.21 The Exchange notes that, as a 

national securities exchange, it has a 

comprehensive surveillance program to 

monitor member compliance with 

applicable securities and regulations, 

including best execution.22 ISE also 

represents that it would continue to 

monitor for abnormalities in interaction 

rates between members, and investigate 

and take appropriate regulatory action 

against members that fail to comply 

with their best execution obligations.23

ISE believes that its surveillance tools 

will allow it to fulfill its regulatory 

responsibilities.24 ISE also suggests that 

the filing is a competitive imperative as 

other options exchanges currently 

interpret their information barrier rules 

to be one way barriers that permit 

members to make routing decisions 

based on the quotes and orders of 

affiliated business units.25

IV. Proceedings To Determine Whether 

To Approve or Disapprove SR–ISE– 

2014–43 and Grounds for Disapproval 

Under Consideration 

The Commission is instituting 

proceedings pursuant to Section 

19(b)(2)(B) of the Act 26 to determine 

whether the proposed rule change 

should be approved or disapproved.27

Institution of such proceedings is 

appropriate at this time in view of the 

legal and policy issues that are raised by 

the proposal and are discussed below. 

Institution of proceedings does not 

indicate that the Commission has 

reached any conclusions with respect to 

any of the issues involved. Rather, as 

described in greater detail below, the 

Commission seeks and encourages 

interested persons to comment on the 

proposal, including the comments 

received and the Exchange’s response, 

and provide the Commission with 

additional comment to inform the 

Commission’s analysis whether to 

approve or disapprove the proposed 

rule change. 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 3 / Tuesday, January 6, 2015 / Notices 585 

28 15 U.S.C. 78f(b)(5). 

29 15 U.S.C. 78f(b)(5). 

30Section 19(b) (2) of the Act, as amended by the 

Securities Act Amendments of 1975, Pub. L. 94–29 

(June 4, 1975), grants the Commission flexibility to 

determine what type of proceeding—either oral or 

notice and opportunity for written comments—is 

appropriate for consideration of a particular 

proposal by a self-regulatory organization. See 

Securities Act Amendments of 1975, Senate Comm. 

on Banking, Housing & Urban Affairs, S. Rep. No. 

75, 94th Cong., 1st Sess. 30 (1975). 31 17 CFR 200.30–3(a)(57). 

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

2 17 CFR 240.19b–4. 

Pursuant to Section 19(b)(2)(B) of the 

Act, the Commission is providing notice 

of the grounds for disapproval under 

consideration. The Commission is 

instituting proceedings to allow for 

additional analysis of, and input from, 

commenters with regard to the proposed 

rule change’s consistency with Section 

6 of the Act, and in particular Sections 

6(b)(5).28 Section 6(b)(5) requires that 

the rules of an exchange be designed, 

among other things, to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system and, in 

general, to protect investors and the 

public interest; and are not designed to 

permit unfair discrimination between 

customers, issuers, brokers, or dealers.29

V. Procedure: Request for Written 

Comments 

The Commission requests that 

interested persons provide written 

submissions of their views, data and 

arguments with respect to the concerns 

identified above, as well as any others 

they may have with the proposal. In 

particular, the Commission invites the 

written views of interested persons 

concerning whether the proposed rule 

change is inconsistent with Section 6 or 

any other provision, of the Act, or the 

rules and regulations thereunder. 

Although there do not appear to be any 

issues relevant to approval or 

disapproval that would be facilitated by 

an oral presentation of views, data, and 

arguments, the Commission will 

consider, pursuant to Rule 19b-4, any 

request for an opportunity to make an 

oral presentation.30

Interested persons are invited to 

submit written data, views and 

arguments regarding whether the 

proposed rule change should be 

approved or disapproved by January 27, 

2015. Any person who wishes to file a 

rebuttal to any other person’s 

submission must file that rebuttal by 

February 10, 2015. 

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–2014–43 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–ISE–2014–43. 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 

publicly available. All submissions 

should refer to File Number SR–ISE– 

2014–43 and should be submitted on or 

before January 27, 2015. If comments are 

received, any rebuttal comments should 

be submitted by February 10, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.31

Brent J. Fields, 

Secretary. 

[FR Doc. 2014–30979 Filed 1–5–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73965; File No. SR–BATS– 

2014–056] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; Notice of Filing of a 

Proposed Rule Change To List and 

Trade Shares of the iShares U.S. Fixed 

Income Balanced Risk ETF of the 

iShares U.S. ETF Trust Under Rule 

14.11(i) 

December 30, 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 December 

19, 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 list and 

trade shares of the iShares U.S. Fixed 

Income Balanced Risk ETF (the ‘‘Fund’’) 

of the iShares U.S. ETF Trust (the 

‘‘Trust’’) under BATS Rule 14.11(i) 

(‘‘Managed Fund Shares’’). The shares of 

the Fund are collectively referred to 

herein as the ‘‘Shares.’’ 

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. 


tkelley on DSK3SPTVN1PROD with NOTICES