Document ID: SEC-2017-0339-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: ISE Gemini, LLC
Posted Date: 2017-03-02T05:00Z

[Federal Register Volume 82, Number 40 (Thursday, March 2, 2017)]
[Notices]
[Pages 12374-12376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-04034]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80106; File No. SR-ISEGemini-2017-07]

Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Regarding Cancel 
and Replace Orders

February 24, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 24, 2017, ISE Gemini, LLC (``ISE Gemini'' or ``Exchange'') 
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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to define the manner in which cancel and 
replace orders will be handled with the transition of the Exchange's 
technology migration to INET.
    The text of the proposed rule change is available on the Exchange's 
Web site at 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 Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to amend Supplementary Material .02 to 
Rule 715 to memorialize the manner in which the trading system will 
handle cancel and replace orders in connection with the Exchange's 
technology migration to INET.
    By way of background with respect to cancel and replace orders, a 
Member has the option of either sending in a cancel order and then 
separately sending in a new order which serves as a replacement of the 
original order (two separate messages) or sending a single cancel and 
replace order in one message (``Cancel and Replace Order''). Sending in 
a cancel order and then separately sending in a new order will not 
retain the priority of the original order on the current ISE Gemini 
system and on the INET system.
    Today, ISE Gemini does not treat all Cancel and Replace Orders as 
new orders. For example, a Cancel and Replace Order which reduced the 
size of the original order from 600 to 300 contracts would not be 
treated as a new order. A new order would be subject to price or other 
reasonability checks,\3\ which this order today on ISE Gemini would not 
be subject to as a result of decreasing the size of the order. This 
order would continue to retain its time priority in the system.
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    \3\ Price or other reasonability checks consider the current 
market at the time of the Cancel and Replace Order.
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    With the migration to INET, a Cancel and Replace Order will result 
in the original order being cancelled, provided the original order was 
not already filled partially or in its entirety.\4\ A Cancel and 
Replace Order which reduced the size of the original order from 600 to 
300 contracts would be treated as a new order and receive a price or 
other reasonability check on INET. This order would also retain its 
time priority in INET. With INET all Cancel and Replace Orders would 
receive price or other reasonability checks as a result of being viewed 
as new orders as compared to the manner in which these orders are 
treated on ISE Gemini today. Both in ISE Gemini today and in the INET 
system, the replacement order will retain time [sic] the priority of 
the cancelled order, if the order posts to the Order Book,\5\ provided 
the price is not amended, the size is not increased \6\ or in the case 
of Reserve Orders, size is not changed.\7\ The manner in which ISE 
Gemini treats priority with respect to Cancel and Replace Orders is not 
changing, but simply being memorialized. With respect to Reserve 
Orders, any change in size will result in the original order becoming a 
new order and receiving a new timestamp, which impacts priority.
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    \4\ For example, in both the current ISE Gemini system and INET, 
the original order is automatically canceled or reduced by the 
number of contracts that were executed depending on the volume of 
the original order that was filled.
    \5\ During an exposure period a Cancel and Replace Order will 
retain priority if the order posts to the Order Book, provided price 
is not changed, size is not increased or, for a Reserve Order, size 
is not changed.
    \6\ Decrementing the volume will not result in a change in 
priority, as is the case today with ISE Gemini.
    \7\ A Reserve Order is a limit order that contains both a 
displayed portion and a non-displayed portion. See ISE Gemini Rule 
715(g).
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Implementation
    The Exchange intends to begin implementation of the proposed rule 
change in Q1 2017. The migration will be on a symbol by symbol basis, 
and the Exchange will issue an alert to members in the form of an 
Options Trader Alert

[[Page 12375]]

to provide notification of the symbols that will migrate and the 
relevant dates.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\9\ in particular, in that it is designed 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. 
The Exchange believes that its proposal to memorialize the manner in 
which Cancel and Replace Orders will be handled by the trading system 
with the transition to INET will add transparency to the rules.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    Specifically, with respect to Cancel and Replace Orders the 
Exchange believes that it is consistent with the Act to treat such 
orders as new orders which will be subject to price or other 
reasonability checks. The Exchange believes that conducting price or 
other reasonability checks for all Cancel and Replace Orders will 
protect investors and the public interest by validating the order 
against the current market conditions prior to proceeding with the 
request to modify the order. The manner in which ISE Gemini treats 
priority with respect to Cancel and Replace Orders is not changing. The 
ISE Gemini system currently assigns a new priority to the order when 
the price is changed, size is increased or the size of a reserve order 
is changed. Hence, the priority of the original order would continue to 
not be retained in the same manner with respect to the original order. 
The Exchange believes that allowing Cancel and Replace Orders, where 
the size is reduced, to retain the priority of the original order is 
consistent with the manner in which the Exchange treats partially 
executed orders, which similarly apply the priority of the executed 
portion of the order to the remaining portion of the order. Other 
exchanges today permit an order to retain priority if only the size was 
decremented.\10\ The Exchange believes that permitting size to 
decrement and allowing the order to retain priority is consistent with 
the Act because the reduced change in size does not impact the terms of 
the order materially. The reduced size of the order would have priority 
on the Order Book with the original order.
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    \10\ See NASDAQ PHLX, LLC Rule 1080(b)(i)(A).
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    The Exchange believes that it is consistent with the Act to treat 
Reserve Orders differently than other order types by giving these 
orders a new priority if size is amended in any way, including a 
decrement in size, with a Cancel and Replace Order because unlike other 
order types, Reserve Orders have both a displayed an non-displayed 
portion. The Exchange believes that any change to the original order 
should be treated as a new order because the size of a Reserve Order is 
specifically defined as part of that order type. A Member must specify 
the displayed and total volume, a portion of which is non-displayed, 
when the order type is entered into the system. Treating this order 
type as a new order if size is amended is consistent with the Act 
because the terms of the original order would modify the total size of 
the order, including potentially displayed and non-displayed portions 
which the Exchange believes should result in a new order as it changes 
a material portion of the order.
    The Exchange believes that memorializing the Cancel and Replace 
Order handling will add transparency and specificity to the Rules 
thereby protecting investors and the public interest by reducing the 
potential for investor confusion.

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 not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not believe 
conducting price or other reasonability checks for all Cancel and 
Replace Orders imposes an undue burden on competition because all 
Cancel and Replace Orders will uniformly be subject to this additional 
protection based on the current market conditions. Permitting all 
market participants to reduce their exposure without penalty does not 
impose an undue burden competition, rather it promotes competition by 
allowing participants the ability to change their orders in a changing 
market, provided the order was not already filled. The Exchange 
believes that not permitting Reserve Orders to retain priority if size 
is amended does not create an undue burden on competition because all 
Members will be treated in a uniform manner with respect to Cancel and 
Replace Order handling.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or 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 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)(iii) of the Act \11\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \13\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \14\ 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 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, as 
subjecting modified orders to price or other reasonability checks may 
help protect investors and the public interest by validating such 
orders against current market conditions. The Commission also notes 
that the Exchange is not otherwise changing how its system handles 
modified orders. Accordingly, the Commission hereby waives the 
operative delay and designates the proposal operative upon filing.\15\
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    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if

[[Page 12376]]

it appears to the Commission that such action is: (i) Necessary or 
appropriate in the public interest; (ii) for the protection of 
investors; or (iii) 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-ISEGemini-2017-07 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-ISEGemini-2017-07. 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 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-ISEGemini-2017-07 and should 
be submitted on or before March 23, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-04034 Filed 3-1-17; 8:45 am]
BILLING CODE 8011-01-P