Document ID: SEC-2016-0138-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2016-01-26T05:00Z

[Federal Register Volume 81, Number 16 (Tuesday, January 26, 2016)]
[Notices]
[Pages 4347-4349]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01392]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76936; File No. SR-ISE-2016-02]

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Relating to Back-Up Primary Market Makers

January 20, 2016.
    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 January 6, 2016, the International Securities Exchange, LLC 
(the ``Exchange'' or the ``ISE'') filed with the Securities and 
Exchange Commission the proposed rule change, as described in Items I, 
II, and III 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.
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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 ISE proposes to correct, and clarify, .03 of Supplementary 
Material to Rule 803, Obligations of Market Makers, which describes the 
responsibilities and privileges of a Back-Up Primary Market Maker 
(``Back-Up PMM'') that takes the place of a Primary Market Maker 
(``PMM'') when that PMM fails to have a quote in the system. This 
amendment will specify the PMM responsibilities and privileges that do 
not apply to Back-Up PMMs. 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 this proposed rule change is to make corrections to, 
and clarify, .03 of Supplementary Material to Rule 803, Obligations of 
Market Makers, which describes the responsibilities and privileges of a 
Back-Up PMM that takes the place of a PMM when that PMM fails to have a 
quote in the system. This amendment will specify the PMM 
responsibilities and privileges that do not apply to Back-Up PMMs.
    In 2006, ISE adopted a rule change that permits Competitive Market 
Makers (``CMMs'') that are also PMMs on the Exchange to voluntarily act 
as Back-Up PMMs when the appointed PMM has technical difficulties that 
interrupt its participation in the market.\3\ Then, in 2015, the 
Exchange amended the process by which a Back-Up PMM is

[[Page 4348]]

chosen to replace a PMM that fails to have a quote in the System.\4\
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    \3\ Securities Exchange Act Release No. 34-53419 (March 6, 
2006), 71 FR 12758 (March 13, 2006) (SR-ISE-2005-50).
    \4\ Securities Exchange Act Release No. 34-76508 (November 30, 
2015), 80 FR 74826 (November 30, 2015) (SR-ISE-2015-42).
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    In these situations, a Back-Up PMM assumes the responsibilities and 
privileges of a PMM under ISE rules with respect to any class in which 
the appointed PMM fails to have a quote in the ISE System, except that 
a CMM does not become subject to the PMM's requirement in ISE Rule 
804(e)(1) to enter continuous quotations in all of the series of all of 
the options classes to which it is appointed. Instead, under ISE Rule 
804(e)(2), the CMM (or Back-Up PMM) is required to maintain continuous 
quotations in that class or series for 60% of the time the options 
class is open for trading on the Exchange, provided, however, that a 
CMM (or Back-Up PMM) is required to maintain continuous quotations for 
90% of the time the class is open for trading on the Exchange in any 
options class in which it receives preferenced orders.\5\ Additionally, 
while PMMs are required to quote LEAPS and adjusted series, a CMM that 
has been appointed as the Back-Up PMM is not subject to these 
requirements due to their initial status as a CMM.\6\
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    \5\ See Rule 804(e)(2)(iii).
    \6\ See .02 of Supplementary Material to Rule 804 (The CMM 
quoting obligation ``does not include adjusted option series, nor 
series with a time to expiration of nine (9) months or greater for 
options on equities and exchange-traded funds or with a time to 
expiration of twelve (12) months or greater for index options.'')
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    Currently, .03 to Supplementary Material to Rule 803 states that, 
when a PMM fails to have a quote in the System, a Back-Up PMM ``assumes 
all of the responsibilities and privileges of a'' PMM. Unlike the 
wording of this rule text, however, ISE's practice has always been to 
hold CMMs that are appointed as Back-Up PMMs to the above standards/
exceptions. ISE now proposes to amend .03 to Supplementary Material to 
Rule 803 to reflect ISE's longstanding standards/exceptions applicable 
to a CMM that has been appointed as the Back-Up PMM in a particular 
class.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act \7\ in general, and furthers the objectives of section 
6(b)(5) \8\ in particular, in that it is 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.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is consistent 
with the protection of investors and the public interest, and would 
remove impediments to and perfect the mechanism of a free and open 
market, because it makes a correction and clarifies ISE's rule text to 
more accurately reflect the responsibilities and privileges of a Back-
Up PMM. This will provide members with a better understanding of their 
responsibilities and privileges when acting as a Back-Up PMM in 
situations where a PMM fails to have a quote in the System. 
Additionally, Back-Up PMMs that are CMMs are not held to the heightened 
standards of PMMs for continuous quoting, LEAPS, and adjusted series 
due to the difficulty associated with meeting the standards for each on 
a short-term basis. For example, for continuous quoting, when a Back-Up 
PMM assumes responsibility for quoting a series or class, a Back-Up PMM 
could have problems meeting the continuous quoting requirement during 
such a short period of time. Similarly, a CMM that is a Back-Up PMM is 
not required to quote LEAPS because of the difficulty in pricing these 
options due their 9 month or greater time to expiration. Also, for 
adjusted series, the effect corporate actions have on certain 
underlying equity prices makes pricing these options challenging.

B. Self-Regulatory Organization's Statement on Burden on Competition

    This proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Exchange Act because ISE is correcting and clarifying its rule text 
to accurately reflect the responsibilities and privileges of a Back-Up 
PMM when a PMM fails to have a quote in the System.

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 significantly 
affect the protection of investors or the public interest, does not 
impose any significant burden on competition, and, by its terms, does 
not 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 \9\ and Rule 19b-
4(f)(6) thereunder.\10\ The Exchange provided the Commission with 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at least 
five business days prior to the date of filing the proposed rule 
change, or such shorter time as designated by the Commission, as 
required by Rule 19b-4(f)(6).
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of such 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 No. SR-ISE-2016-02 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-2016-02. 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 Commissions Internet Web site (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent

[[Page 4349]]

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 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-2016-02 and should be submitted by February 16, 
2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-01392 Filed 1-25-16; 8:45 am]
BILLING CODE 8011-01-P