Document ID: SEC-2014-0865-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2014-05-28T04:00Z

[Federal Register Volume 79, Number 102 (Wednesday, May 28, 2014)]
[Notices]
[Pages 30672-30674]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-12222]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72204; File No. SR-ISE-2014-12]

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Amending Rule 1614

May 21, 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 May 8, 2014, the International Securities Exchange, LLC (the 
``Exchange'' or the ``ISE'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which items have been prepared by the 
Exchange. The Exchange has filed the proposal as a ``non-
controversial'' proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(6) thereunder.\4\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend ISE Rule 1614 (Imposition of Fines 
for Minor Rule Violations) to incorporate violations of ISE Rules 803 
(Obligations of Market Makers) and 804 (Market Maker Quotations) into 
the Minor Rule Violation Plan (``MRVP'') and to delete obsolete rule 
text. 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 Rule 1614 
to: (1) Separate violations of the quotation spread parameters from one 
violation into two: One for pre-opening quotation spread parameters and 
one for post-opening quotation parameters, as set forth in ISE Rule 803 
(Obligations of Market Makers); (2) incorporate violations for failing 
to meet the Exchange's continuous quoting obligations, as set forth in 
ISE Rule 804 (Market Maker Quotations); and (3) to delete obsolete rule 
text.
    The Exchange believes most of these violations are inadvertent and 
technical in nature. Processing these routine violations under the MRVP 
would decrease the administrative burden of regulatory and enforcement 
staff, as well as, that of the Business Conduct Committee. In addition, 
staff would be able to more expeditiously process routine violations 
under the MRVP.
    Quote Spread Obligations (Rule 803). The MRVP currently combines 
pre-opening and post-opening quote spreads into one MRVP violation and 
defines an instance as one quote violation. Under the current plan, if 
a member has over forty (40) instances of quote spread violations, the 
matter must be handled outside of the MRVP and a formal action must be 
brought. Given these limitations, the Exchange has never been able to 
use the MRVP for quote spread violations since Members average millions 
of quotes per day. Therefore, the Exchange is now proposing to split 
the quote spread

[[Page 30673]]

violations into two categories. One category would apply to pre-opening 
quote spread violations, and one category would apply to post-opening 
quote spread violations. Additionally, we are proposing to change the 
application of the MRVP from applying to each ``instance'' of a quote 
spread violation to each ``offense.'' For purposes of the MRVP, an 
``offense'' will apply to any given month within a 24-month rolling 
period.
    Given the proposal to split the quote spread violations into two 
categories, e.g., pre-opening quote spreads and post-opening quote 
spreads, the Exchange is proposing to move violations of Rule 
805(b)(1)(i), which addresses order spreads, from Rule 1614(d)(5) to 
both 1614(d)(6)(a) and 1614(d)(6)(b). This proposed change ensures that 
violations of both quote spreads and order spreads that occur either 
pre-open or post-open will be aggregated for the purposes of 
determining the number violations under the MRVP.
    Continuous Quote Obligations (Rule 804). The Exchange is proposing 
to add violations of the continuous quotation rule to the MRVP. These 
are routine types of violations and the added flexibility of including 
these matters in the MRVP will help streamline our surveillance and 
enforcement program.
    For violations of Rule 1614(d)(6)(a) and (b) and proposed 
1614(d)(11) the Exchange is proposing to consider violations that occur 
in any given month within a 24-month rolling period as an ``offense.'' 
The Exchange is also proposing to change the applicability of the MRVP 
for violations of Rule 1614(d)(6)(a) and (b) from violations occurring 
within one calendar year to violations that occur within a rolling 
twenty-four month period. Since the Exchange is proposing to aggregate 
the violations that occur within a month and sanction the violations as 
a single offense, the Exchange believes it is appropriate to consider 
offenses that have occurred within the past twenty-four month rolling 
period, as opposed to a calendar year, to determine the amount to fine 
a firm and when to proceed with formal disciplinary action.
    The Exchange is proposing that the first offense would result in a 
letter of caution, the second offense would result in a $1,000 fine, 
the third offense would result in a $2,500 fine, the fourth offense 
would result in a $5,000 fine and a fifth offense would result in 
formal disciplinary action. With respect to violations of Rule 
1614(d)(6)(a) and (b), the Exchange is proposing to change the fine 
amounts to those discussed above from a letter of caution for the first 
1 to 10 violations, $200 fine for 11 to 20 violations, $400 fine for 21 
to 30 violations, $800 fine for 31 to 40 violations and formal 
disciplinary actions for more than 40 violations. The Exchange believes 
it is appropriate to charge a higher fine amount because the Exchange 
is aggregating violations that occur in a month and sanction the 
violations as a single offense. Given that the Exchange believes that 
the proposed fine amounts are appropriate for violations of quote 
spread parameters (proposed Rule 1614(d)(6)(a) and (b)), the Exchange 
also believes that these same fine amounts should apply to violations 
of the continuous quote spread parameters (proposed Rule 1614(d)(11)).
    As with other violations covered under the Exchange's Minor Rule 
Violation Plan, any egregious activity may be referred to the 
Exchange's Business Conduct Committee.
    Additionally, the Exchange is proposing to delete the reference to 
Rule 717(a) and (f) in Rule 1614(d)(5) as those sections were rescinded 
and to delete the sentence stating that each paragraph of Rule 717 
subject to this Rule shall be treated separately for purposes of 
determining the number of cumulative violations because this Rule now 
only applies to sections (d) and (e) of Rule 717. Violations of 
Sections (d) and (e) of Rule 717 will be aggregated for the purposes of 
determining the number of violations under the MRVP because both 
sections of the rule address order exposure requirements. The Exchange 
is also proposing to rescind (d)(4) (Conduct and Decorum Policies) of 
Rule 1614 as it is inapplicable to ISE's market structure as ISE is an 
electronic exchange and this provision seems to relate to conduct and 
decorum on floor-based exchanges.
    By promptly imposing a meaningful financial penalty for such 
violations, the MRVP focuses on correcting conduct before it gives rise 
to more serious enforcement action. The MRVP provides a reasonable 
means of addressing rule violations that do not necessarily rise to the 
level of requiring formal disciplinary proceedings, while also 
providing a greater flexibility in handling certain violations. 
Adopting a provision that would allow the Exchange to sanction 
violators under the MRVP by no means minimizes the importance of 
compliance with these rules. The Exchange believes that the violation 
of any of its rules is a serious matter. The addition of a sanction 
under the MRVP simply serves to add an additional method for 
disciplining violators of the additional rules. The Exchange will 
continue to conduct surveillance with due diligence and make its 
determination, on a case by case basis, whether a violation of these 
additional rules should be subject to formal disciplinary proceedings.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \5\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act \6\ in particular, because it 
is designed to prevent fraudulent and manipulative acts and practices, 
and 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, allowing the Exchange to have consistency between its 
Minor Rule Violation Plan and the Minor Rule Violation Plan of other 
SROs. Many other options exchanges administer violations for their 
quotation spread rules and continuous quoting rules under their 
MRVP.\7\ The Exchange believes that the proposed such change furthers 
the objectives of Section 6(b)(1) \8\ of the Act to enforce compliance 
by its Members of the Exchange's Rules, Section 6(b)(6) \9\ of the Act 
to appropriately discipline Members for violations of Exchange Rules, 
and Section 6(b)(7) \10\ of the Act to provide a fair procedure of 
disciplining Members as the proposal will strengthen its ability to 
carry out its oversight responsibilities as a self-regulatory 
organization and reinforce its surveillance and enforcement functions. 
Processing these routine violations under the MRVP would decrease the 
administrative burden of regulatory and enforcement staff, as well as, 
that of the Business Conduct Committee. In addition, staff would be 
able to more expeditiously process routine violations under the MRVP.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
    \7\ See Chicago Board Options Exchange Rule 17.50, C2 Rule 
17.50, NYSE Arca Rule 10.12, BATS Exchange Rule 8.15, Nasdaq Options 
Market rule, Chapter 10, Section 7, Boston Options Exchange Rule 
12140 and Miami International Securities Exchange Rule 1014.
    \8\ 15 U.S.C. 78f(b)(1).
    \9\ 15 U.S.C. 78f(b)(6).
    \10\ 15 U.S.C. 78f(b)(7).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Since this rule change is merely allowing the Exchange to process 
certain rule violations through its MRVP that other exchanges already 
process

[[Page 30674]]

through their MRVP, this filing does not implicate the burden analysis.

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) \11\ of the Act and Rule 19b-
4(f)(6) \12\ thereunder. 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.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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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 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-ISE-2014-12 on the subject line.

Paper Comments

     Send paper comments in triplicate to the Secretary, 
Securities and Exchange Commission, 100 F Street NE., Washington, DC 
20549-1090.

    All submissions should refer to File Number SR-ISE-2014-12. 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-ISE-2014-12 and should be 
submitted on or before June 18, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-12222 Filed 5-27-14; 8:45 am]
BILLING CODE 8011-01-P