Document ID: SEC-2017-0529-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2017-03-31T04:00Z

[Federal Register Volume 82, Number 61 (Friday, March 31, 2017)]
[Notices]
[Pages 16084-16086]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-06334]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80316; File No. SR-ISE-2017-28]

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Delay the Implementation of Functionality Associated With 
Stock-Option Orders

March 27, 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 March 21, 2017, the International Securities Exchange, LLC (``ISE'' 
or ``Exchange'') 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 Exchange. 
ISE filed the proposal 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 delay the implementation of functionality 
associated with Stock-Option Orders \5\ in connection with a system 
migration to Nasdaq INET technology.
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    \5\ A stock-option order is an order to buy or sell a stated 
number of units of an underlying stock or a security convertible 
into the underlying stock (``convertible security'') coupled with 
the purchase or sale of options contract(s) on the opposite side of 
the market representing either (A) the same number of units of the 
underlying stock or convertible security, or (B) the number of units 
of the underlying stock necessary to create a delta neutral 
position, but in no case in a ratio greater than eight-to-one 
(8.00), where the ratio represents the total number of units of the 
underlying stock or convertible security in the option leg to the 
total number of units of the underlying stock or convertible 
security in the stock leg. See ISE Rule 722(a)(2).
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    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
    Today, ISE accepts complex orders, including Stock-Option Orders 
that contain a stock component. Today, complex orders, including Stock-
Option Orders, are permitted to: (1) Leg into the regular market where 
they may trade against bids and offers for the individual legs pursuant 
to Rule 722(b)(3)(ii) and (iii) (``legging''); \6\ or (2) execute 
against another order within the complex order book.
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    \6\ Supplementary Material .02 to Rule 722 also contains 
provisions relevant to the legging of Stock-Option Orders 
specifically.
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    The Exchange proposes to delay the implementation of legging 
functionality for Stock-Option Orders in connection with a migration to 
the INET platform. INET is the proprietary core technology utilized 
across Nasdaq's global markets and utilized on The NASDAQ Options 
Market LLC (``NOM''), NASDAQ PHLX LLC (``Phlx'') and NASDAQ BX, Inc. 
(``BX'') (collectively, ``Nasdaq Exchanges''). The migration of ISE to 
the Nasdaq INET architecture would result in higher performance, 
scalability, and more robust architecture. With this system migration, 
the Exchange intends to adopt certain trading functionality currently 
utilized at Nasdaq Exchanges.\7\
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    \7\ See Securities Exchange Act Release No. 80075 (February 21, 
2017), 82 FR 11975 (February 27, 2017) (SR-ISE-2017-02) (Notice of 
Filing of Proposed Rule Change to Amend Various Rules in Connection 
with a System Migration to Nasdaq INET Technology).
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    The Exchange desires to delay the implementation of the legging 
functionality for Stock-Option Orders on INET at this time and rollout 
this functionality within one year of the date of the filing of this 
proposal. The Exchange is staging the re-platform to provide maximum 
benefit to its Members while also ensuring a successful rollout. This 
delay in implementing the legging functionality for Stock-Option Orders 
will provide the Exchange additional time to test and implement this 
functionality on the INET platform.

[[Page 16085]]

    The Exchange filed a proposal to begin a system migration to Nasdaq 
INET in Q2 of 2017.\8\ The migration will be on a symbol by symbol 
basis as specified by the Exchange in a notice to Members.\9\ The 
Exchange is proposing to implement this rule change on the INET 
platform as the symbols migrate to that platform. The legging 
functionality for Stock-Option Orders will be available until the 
symbol migrates to the INET platform. Once the symbol migrates to INET 
the legging functionality for Stock-Option Orders will not be 
available. However, Stock-Option Orders will continue to be executed 
against other Stock-Option Orders in the complex order book. The 
Exchange will issue an Options Trader Alert to all Members notifying 
them that legging functionality for Stock-Option Orders will no longer 
be available with the symbol migration to INET. The Exchange proposes 
to launch the legging functionality on the INET platform within one 
year from the date of filing of this rule change to be announced in an 
Options Trader Alert.
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    \8\ Id. This proposal is not approved.
    \9\ The Exchange will issue an Options Trader Alert prior to the 
migration and will specify the dates that symbols will migrate to 
the INET platform.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\10\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\11\ 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 because the Exchange desires to rollout the legging 
functionality for Stock-Option Orders at a later date to allow 
additional time to rebuild this technology on the new platform.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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    By delaying the implementation of functionality with the symbol 
migration to INET, the Exchange will have additional time to test and 
implement this functionality. The Exchange will provide Members with 
ample notice of the turn-off of this functionality and note within that 
notice that Stock-Option Orders will continue to be executed against 
other Stock-Option Orders. The Exchange will continue to provide 
notifications to Members to ensure clarity about the availability of 
this functionality with the symbol migration. The Exchange will issue 
an Options Trader Alert indicating when the legging functionality will 
become available on the INET platform.
    The Exchange does not anticipate any significant impact with 
respect to execution quality. The priority rules will continue to apply 
with respect to these Stock-Option Orders respecting Priority Customer 
Orders.\12\ The Exchange notes that Phlx does not offer legging 
functionality for Stock-Option Orders.\13\
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    \12\ See ISE Rule 722(b)(2).
    \13\ See Phlx Rule 1098.
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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 
that the proposed rule change will impact the intense competition that 
exists in the options market. Members will be able to continue to 
execute complex orders on ISE, except that Stock-Option Orders will 
only be permitted to trade with other Stock-Option Orders in the 
complex order book as the symbol migrates to INET. The Exchange does 
not believe that the proposed rule change will impose any burden on 
intra-market competition because all Members uniformly will only be 
permitted to trade with other Stock-Option Orders in the complex order 
book as the symbol migrates to INET.
    The Exchange proposes to launch the legging functionality on the 
INET platform within one year from the date of filing of this rule 
change to be announced in an Options Trader Alert.

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 \14\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \15\ 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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    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-2017-28 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-2017-28. 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

[[Page 16086]]

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-2017-28 and should be submitted on or before April 
21, 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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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-06334 Filed 3-30-17; 8:45 am]
BILLING CODE 8011-01-P