Document ID: SEC-2015-1849-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange
Posted Date: 2015-11-09T05:00Z

[Federal Register Volume 80, Number 216 (Monday, November 9, 2015)]
[Notices]
[Pages 69256-69258]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-28404]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76334; File No. SR-ISE-2015-35]

Self-Regulatory Organizations; International Securities Exchange; 
Notice of Filing of Proposed Rule Change To Comply With the 
Requirements of Rule 1004 of Regulation SCI

November 3, 2015.
    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 October 23, 2015, 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

    ISE proposes to designate all members that function as Primary 
Market Makers (``PMMs'') and Linkage Handlers (collectively 
``designated members'') as necessary for the maintenance of a fair and 
orderly market should business continuity and disaster recovery plans 
(collectively ``DR Plans'') be activated, and proposes to require 
designated members to participate in scheduled functional and 
performance testing of the operation of such DR Plans by amending amend 
Rules 803, Obligations of Market Makers, and 1903, Order Routing to 
Other Exchanges. 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 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 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
    Rule 1004 requires the establishment of standards for the 
designation of those members the Exchange reasonably determines are, 
taken as a whole, the minimum necessary for the maintenance of a fair 
and orderly market should the Exchange's business continuity and 
disaster recovery plans be activated. Rule 1004 also requires the 
Exchange to designate members pursuant to those standards and require 
participation by such members in scheduled functional and performance 
testing of the operation of such plans, in the manner and frequency 
specified by the Exchange, provided that such frequency shall not be 
less than once every 12 months. Therefore, in accordance with Rule 
1004, the Exchange proposes to designate all PMMs \3\ and Linkage 
Handlers,\4\ as the minimum necessary for the maintenance of a fair and 
orderly market should the Exchange's DR Plans be activated. This 
proposed rule also mandates participation by designated members in 
scheduled functional and

[[Page 69257]]

performance testing of the operation of such DR Plans.
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    \3\ A PMM posts two-sided continuous quotations in all of the 
options classes to which it is appointed and undertakes special 
responsibilities for maintaining fair and orderly markets. PMM 
memberships are represented by PMM Trading Rights. The options 
classes trading on the ISE are divided into groups or ``bins'', each 
with one PMM. One PMM member may, however, represent more than one 
bin.
    \4\ A Linkage Handler is a broker that is unaffiliated with the 
Exchange with which the Exchange has contracted with to provide 
routing services, by routing certain orders, to other exchanges as 
agent in connection with the Options Order Protection and Locked/
Crossed Market Plan. See .03 to Supplementary Material to Rule 1901.
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Background
    On November 19, 2014, the Securities and Exchange Commission 
unanimously voted to adopt Regulation SCI, which is a set of rules 
designed to strengthen the technology infrastructure of the U.S. 
securities markets.\5\ Specifically, the rules are designed to reduce 
the occurrence of systems issues, improve resiliency when systems 
problems do occur, and enhance the Commission's oversight and 
enforcement of securities market technology infrastructure.\6\
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    \5\ See Securities Exchange Act Release No. 73639 (November 19, 
2014), 79 FR 72252 (December 5, 2014) (``SCI Adopting Release'').
    \6\ Division of Trading and Markets, Responses to Frequently 
Asked Questions Concerning Regulation SCI at https://www.sec.gov/divisions/marketreg/regulation-sci-faq.shtml.
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    Regulation SCI applies to ``SCI entities,'' a term which includes 
SROs such as ISE. Regulation SCI requires SCI entities to, among other 
things, (1) establish written policies and procedures reasonably 
designed to ensure that their systems have levels of capacity, 
integrity, resiliency, availability, and security adequate to maintain 
their operational capability; (2) mandate participation by designated 
members in scheduled testing of the operation of their business 
continuity and disaster recovery plans, including backup systems, and 
to coordinate such testing on an industry- or sector-wide basis with 
other SCI entities; (3) take corrective action with respect to ``SCI 
events'' (such as systems disruptions, systems compliance issues, and 
systems intrusions), and to notify the Commission of such events; (4) 
disseminate information about certain SCI events to affected members 
and, for certain ``major'' SCI events, to all members; and (5) review 
their systems by objective, qualified personnel at least annually, to 
submit quarterly reports regarding completed, ongoing, and planned 
material changes to their SCI systems to the Commission, and to 
maintain certain books and records.\7\
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    \7\ Id.
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Proposed Rule Change
    Rule 1004 of Regulation SCI requires the establishment of standards 
for the designation of those members ISE reasonably determines are, 
taken as a whole, the minimum necessary for the maintenance of a fair 
and orderly market should the Exchange activate its DR Plans. To comply 
with this rule, the Exchange proposes to amend .02 of Supplementary 
Material to Rule 803, Obligations of Market Makers, and .03 of 
Supplementary Material to Rule 1903, Order Routing to Other Exchanges, 
by designating all members that function as PMMs and Linkage Handlers, 
respectively.\8\
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    \8\ The Exchange notes that these designations are determined by 
the members' respective functions.
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    ISE believes PMMs (together with Linkage Handlers) meet the 
requirements of Regulation SCI because they are vital to maintaining a 
fair and orderly market. Among other things, PMMs compete with other 
market makers \9\ to improve the market in all series of options 
classes to which the PMM is appointed; make markets that are honored 
for the number of contracts entered into the Exchange's system in all 
series of options classes to which the PMM is appointed; update market 
quotations in response to changed market conditions in all series of 
options classes to which the PMM is appointed; and price option 
contracts fairly.\10\ If the DR Plans are activated, PMMs will ensure 
ISE's market continues to run smoothly. Similarly, Linkage Handlers 
meet the requirements of Regulation SCI because they route orders to 
other exchanges when ISE is not at the National Best Bid or Offer 
(``NBBO''). Should the DR Plans be activated, Linkage Handlers will 
ensure that investors receive the best price available across all 
exchanges for their orders.
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    \9\ Market makers refers to ``Competitive Market Makers'' and 
``PMMs'' collectively. See Rule 100(a)(25).
    \10\ See Rule 803.
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    Rule 1004 also requires that the Exchange mandate participation by 
designated members in scheduled functional and performance testing of 
the operation of such plans, in the manner and frequency specified by 
the Exchange, provided that such frequency shall not be less than once 
every 12 months. The Exchange now proposes that PMMs and Linkage 
Handlers are required to participate in scheduled functional and 
performance testing of such plans at least once every 12 months. This 
testing will prepare the designated members for certain SCI events, and 
enable the market to continue operating without major issues during 
such events.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act, and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of section 6(b) of the Act.\11\ In 
particular, the proposal is consistent with section 6(b)(5) of the 
Act,\12\ because it is designed to promote just and equitable 
principles of trade, remove impediments to and perfect the mechanisms 
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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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes the proposed rule is consistent with the 
Exchange Act because it complies with Regulation SCI's requirements. 
ISE's rule designates members it determines are necessary for the 
maintenance of a fair and orderly market if the Exchange's DR Plans are 
activated and mandates participation by designated members in scheduled 
functional and performance testing of the DR Plans at least once every 
12 months.
    The Exchange further believes the proposed rule change is 
consistent with the protection of investors and the public interest 
because ISE has designated PMMs, which maintain a fair and orderly 
market by making markets that are honored, competing with other market 
makers to improve the market, updating market quotations, and pricing 
option contracts fairly. Similarly, ISE has also designated Linkage 
Handlers, which route certain orders to other exchanges when ISE is not 
at the NBBO. This provides investors with the best price available 
across exchanges for their orders. Further, the proposed rule is 
consistent with the protection of investors and the public interest 
because, as proposed, these designated members are required to 
participate in functional and performance testing of the DR Plans. As a 
result, if the DR Plans are activated, the designated members and their 
systems will be prepared to handle a potential SCI event and ensure 
that investors can continue to trade during the event.

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 implementing the requirements of 
Regulation SCI.

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

    The Exchange has neither solicited nor received written comments on 
this proposed rule change. The Exchange

[[Page 69258]]

has not received any 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 \13\ and Rule 19b-
4(f)(6) thereunder.\14\ 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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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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-2015-35 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2015-35. 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 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. 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-
2015-35 and should be submitted by November 30, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-28404 Filed 11-6-15; 8:45 am]
BILLING CODE 8011-01-P