Document ID: SEC-2014-1165-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2014-07-14T04:00Z

[Federal Register Volume 79, Number 134 (Monday, July 14, 2014)]
[Notices]
[Pages 40830-40835]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-16363]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72554; File No. SR-ISE-2014-35

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Related to the Price Improvement Mechanism

July 8, 2014.
    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 June 25, 2014, International Securities Exchange, LLC (``Exchange'' 
or ``ISE'') 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its rules regarding the Price 
Improvement Mechanism (``PIM'').
    The text of the proposed rule change is available on the Exchange's 
Internet Web site at 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 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 this proposed rule change is to amend the Exchange's 
rules regarding the PIM functionality. The

[[Page 40831]]

Exchange proposes to make two changes to its PIM rules. The first 
change is based on a proposal recently submitted by NASDAQ OMX PHLX LLC 
(``PHLX''), and approved by the Commission,\3\ pursuant to which orders 
of any size may initiate the price improvement auction (``PIXL'') on 
PHLX at a price which is at or better than the national best bid or 
offer (``NBBO''), even in instances where PHLX has resting interest on 
the opposite side and thus not at least one cent better than PHLX's own 
best bid or offer as required in the past. The second change proposed 
in this filing relates to how responses are addressed in the PIM. With 
this proposed change, the manner in which response messages are treated 
will be similar to how they are treated in the price improvement 
auctions operated at other exchanges.\4\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 70654 (October 10, 
2013), 78 FR 62891 (October 22, 2013) (SR-PHLX-2013-76).
    \4\ See Securities Exchange Act Release No. 72009 (April 23, 
2014), 79 FR 24032 (April 29, 2014) (Notice of Filing of Amendment 
No. 1 and Order Granting Accelerated Approval of a Proposed Rule 
Change, as Modified by Amendment No. 1, To Adopt the MIAX PRIME 
Price Improvement Mechanism and the MIAX PRIME Solicitation 
Mechanism) (``MIAX Filing''). See also PHLX Rule 1080(n)(ii)(A)(6).
---------------------------------------------------------------------------

    The PIM is a process that allows Electronic Access Members 
(``EAM'') to provide price improvement opportunities for a transaction 
wherein the Member seeks to execute an agency order as principal or 
execute an agency order against a solicited order (a ``Crossing 
Transaction'').\5\ A Crossing Transaction is comprised of the order the 
EAM represents as agent (the ``Agency Order'') and a counter-side order 
for the full size of the Agency Order (the ``Counter-Side Order''). The 
Counter-Side Order may represent interest for the Member's own account, 
or interest the Member has solicited from one or more other parties, or 
a combination of both.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act No. 50819 (December 8, 2004), 69 
FR 75093 (December 15, 2004) (SR-ISE-2003-06).
---------------------------------------------------------------------------

    Currently under Rule 723, a Crossing Transaction must be entered 
only at a price that is better than the ISE best bid or offer (``ISE 
BBO'') and equal to or better than the national best bid or offer 
(``NBBO''). Under Supplementary Material .08 to Rule 723, when the ISE 
BBO is equal to the NBBO, a Crossing Transaction may be entered where 
the price of the Crossing Transaction is equal to the ISE BBO if the 
Agency Order is on the opposite side of the market from the ISE BBO. In 
this case, the Agency Order is automatically executed against the ISE 
BBO. If the Agency Order is not fully executed after the ISE BBO is 
fully exhausted and is no longer at a price equal to the Crossing 
Transaction, the PIM is initiated for the balance of the order as 
provided in Rule 723.
    The Exchange now proposes to modify PIM so that Members may enter a 
Crossing Transaction at a price that is at or better than the NBBO on 
either side of the Agency Order and better than the limit order or 
quote on the ISE order book on the same side of the Agency Order. 
Members are not required to improve the ISE BBO on the opposite side of 
the Agency Order to initiate a PIM. Any resting interest on the ISE 
order book on the opposite side of the Agency Order will participate at 
the end of the auction in accordance with Rule 723(d). With this 
proposed rule change, PIM will now operate similar to the PIXL 
functionality at PHLX in terms of the price at which a PIM can be 
initiated.\6\ The proposed change to the start price of a PIM will not 
impact the current execution priority. However, as discussed in detail 
below, the Exchange is also proposing to make PIM auctions blind. In 
addition, the Exchange is proposing that Member orders will no longer 
yield priority to non-Member orders.\7\
---------------------------------------------------------------------------

    \6\ See PHLX Rule 1080(n).
    \7\ Priority Customer interest will continue to be executed 
first followed by Professional Orders and Member interest. See 
proposed Rule 723(d)(2).
---------------------------------------------------------------------------

    The Exchange believes the proposed rule change will allow a greater 
number of orders to receive price improvement that might not currently 
be afforded any price improvement. By auctioning the entire quantity in 
the PIM, the opportunity for price improvement over the prevailing NBBO 
is extended to the whole order, rather than only the portion that does 
not interact with the resting liquidity at the auction price level. As 
before, Priority Customers will continue to have priority at each price 
level in accordance with Rule 723(d). At each given price point, ISE 
will execute Priority Customer interest in a price/time fashion such 
that all Priority Customer interest which was resting on the order book 
is satisfied before any other interest that arrived after the PIM was 
initiated. After Priority Customer interest at a given price point has 
been satisfied, remaining contracts will be allocated among all 
Exchange quotes and orders in accordance with the execution rules set 
forth in Rule 723(d). Interest, whether resting prior to the 
commencement of the auction or arriving during the auction process, 
will continue to be executed in accordance with Rule 723(d).
    The Exchange believes using the allocation method that it currently 
does is a fair distribution because the Counter-Side Order provides 
significant value to the market. The EAM guarantees the Crossing 
Transaction price improvement, and is subject to market risk while the 
order is exposed to other market participants. The EAM may only improve 
the price where it stopped the agency side, and may not cancel its 
order once the PIM commences. Other market participants are free to 
modify or cancel their quotes and orders at any time during the 
auction. The Exchange believes that the EAM provides an important role 
in facilitating the price improvement opportunity for market 
participants.
    The following examples illustrate how the proposed rule change 
would operate: Example 1
    ISE BBO is 2.48-2.51 (60x30) (10 of the 30 on the offer is a 
Priority Customer; 20 of the 30 on the offer is a market maker (MM1); 
all 60 on the bid is a MM). NBBO is 2.48-2.51 (100x100). Under the 
proposed rule change, an Agency Order to buy may be entered into the 
PIM at any price between and including 2.49 and 2.51.
    Assume a Priority Customer or non-Priority Customer order to buy 
100 contracts is submitted into the PIM with a stop price of 2.51. The 
PIM auction will commence with a notification being sent to market 
participants. Assume, during the auction, two market makers (MM2 and 
MM3) respond. MM2 responds to sell 10 contracts at 2.50 and MM3 
responds to sell 20 contracts at 2.51. At the end of the auction, the 
agency side of the order will buy 10 contracts from MM2 at 2.50, 
leaving 90 to be allocated at the original order limit of 2.51. The 
allocation process would continue and 10 contracts will be allocated to 
the Priority Customer on the book at 2.51, leaving 80 contracts to be 
allocated among the Counter-Side Order at 2.51 and the two market 
makers offering at 2.51. The remaining 80 contracts will be allocated 
at a price of 2.51 with 40 contracts (40% of the original order 
quantity) being allocated to the Counter-Side Order, 20 contracts 
allocated to MM1 and 20 contracts allocated to MM3.
    The Exchange believes the proposed rule change will attract new 
order flow that might not currently be afforded any price improvement 
opportunity. Moreover, the Exchange notes that the Boston Options 
Exchange (``BOX'') currently has rules that allow it to commence its 
price improvement auction, called the Price Improvement Period 
(``PIP''), at a price equal to the

[[Page 40832]]

NBBO.\8\ When a PIP is initiated at a price equal to the NBBO, 
regardless of size, the resting quotes and orders on BOX are considered 
for allocation at the end of the auction. BOX executes interest that 
existed on the BOX order book prior to the commencement of a PIP before 
executing any interest which joined during the auction. This behavior 
aligns with the BOX standard trade allocation rules as they employ a 
price/time allocation algorithm.
---------------------------------------------------------------------------

    \8\ See BOX Rules Chapter V, Section 18(e).
---------------------------------------------------------------------------

    Similar to BOX, the ISE proposed rule change will allow orders of 
any size to initiate an auction at a price which is equal to or better 
than the NBBO where ISE may have resting interest. ISE will execute a 
Crossing Transaction against any interest, resting prior to the 
commencement of an auction or interest which arrived during the 
auction, in accordance with the rules as stated and illustrated with 
the example above. While this is different than the allocation 
algorithm that BOX employs, this behavior is consistent with the ISE 
PIM rules in place today. This proposal will continue to afford the 
same price improvement opportunities for Priority Customer and non-
Priority Customer Crossing Transactions as is in operation today, but 
with the ability to initiate such price improving auctions at a price 
that is equal to the NBBO, and therefore permitting more of such orders 
to receive price improvement.
    Further, as noted above, under Supplementary Material .08 to Rule 
723, when the ISE BBO is equal to the NBBO, a Crossing Transaction may 
currently be entered where the price of the Crossing Transaction is 
equal to the ISE BBO if the Agency Order is on the opposite side of the 
market from the ISE BBO. However, with this proposed rule change, if a 
Crossing Transaction is entered at a price equal to the ISE BBO on the 
opposite side of the market, the Agency Order will no longer 
automatically execute and the Agency Order will trade against any 
interest, resting prior to the commencement of an auction or interest 
which arrived during the auction, in accordance with rule 723(d). The 
Exchange, therefore, proposes to delete Supplementary Material .08 to 
Rule 723.
    The second change proposed in this filing is to modify the PIM 
functionality so responses sent by Members during a PIM auction are not 
visible to other auction participants. With this proposed change, 
responses will be treated in the same way they are treated in price 
improvement auctions operated by other exchanges.\9\
---------------------------------------------------------------------------

    \9\ See supra note 4.
---------------------------------------------------------------------------

    Currently, upon entry of a Crossing Transaction into the PIM, a 
broadcast message that includes the series, price and size of the 
Agency Order, and whether it is to buy or sell, is sent to all Members. 
Members are then given 500 milliseconds to indicate the size and price 
at which they want to participate in the execution of the Agency Order 
(``Improvement Orders''). Improvement Orders may be entered by all 
Members for their own account or for the account of a Public Customer 
in one-cent increments at the same price as the Crossing Transaction or 
at an improved price for the Agency Order, and for any size up to the 
size of the Agency Order. During the exposure period, Improvement 
Orders cannot be canceled, but can be modified to (1) increase the size 
at the same price, or (2) improve the price of the Improvement Order 
for any size up to the size of the Agency Order. During the exposure 
period, the aggregate size of the best prices (including the Counter-
Side Order, Improvement Orders, and any changes to either) are 
continually updated and broadcast to all Members.
    Because the PIM permits Members to continually receive broadcast 
messages, the Exchange adopted rules pursuant to which EAMs and 
Exchange Market Makers are required to yield priority to all non-Member 
orders \10\ which the Commission found to be consistent with the 
requirements in Section 11(a) of the Act. At the time PIM was approved, 
although the ``effect versus execute'' exemption under Section 11(a) 
existed and was available to ISE Members, because of the manner in 
which the PIM was designed, ISE Members were not able to comply with 
that exemption. Instead, the PIM was designed to rely on yielding by 
Members to non-Member orders to be consistent with Section 11(a) of the 
Act. The Exchange notes it is now more than a decade since PIM was 
approved. The options markets have since greatly evolved and some 
options exchanges that have adopted a price improvement auction rely 
now on the ``effect versus execute'' exemption under Section 11(a) and 
yield execution priority to Priority Customers only. As a competitive 
response, the Exchange now proposes to delete relevant parts of Rule 
723 to modify the PIM functionality so that responses submitted during 
a PIM auction will no longer be continually updated and broadcast to 
all Members.\11\ Doing so will allow ISE Members to rely on the 
``effect versus execute'' exemption under Section 11(a) of the Act when 
utilizing the PIM.
---------------------------------------------------------------------------

    \10\ See Securities Exchange Act No. 50819 (December 8, 2004), 
69 FR 75093 (December 15, 2004) (SR-ISE-2003-06). See also 
Securities Exchange Act Release No. 59287 (January 23, 2009), 74 FR 
5694 (January 30, 2009). In connection with the current proposal to 
make PIM auctions blind, the Exchange proposes to delete reference 
to non-Member Professional Orders from its rules.
    \11\ A number of exchanges currently operate price improvement 
auctions where responses submitted by a member are blind, i.e., not 
visible to other auction participants. For example, MIAX Rule 
515A(a)(2)(i)(E) notes that ``responses shall not be visible to 
other Auction participants.'' See Securities Exchange Act Release 
No. 72009 (April 23, 2014), 79 FR 24032 (April 29, 2014). 
Additionally, PHLX Rule 1080(n)(ii)(A)(6) similarly provides that 
``responses will not be visible to Auction participants.'' See PHLX 
Rule 1080(n)(ii)(A)(6).
---------------------------------------------------------------------------

    Section 11(a) of the Exchange Act prohibits any member of a 
national securities exchange from effecting transactions on that 
exchange for its own account, the account of an associated person, or 
an account over which it or its associated persons exercises discretion 
(``covered accounts''), unless an exception applies.\12\ Section 
11(a)(1) contains a number of exceptions for principal transactions by 
members and their associated persons. As set forth below, the Exchange 
believes that with the proposed change, the PIM rules are now 
consistent with the requirements in Section 11(a) and the rules 
thereunder.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78k(a)(1).
---------------------------------------------------------------------------

    In this regard, Section 11(a)(1)(A) provides an exception from the 
prohibitions in Section 11(a) for dealers acting in the capacity of 
market makers. With respect to Market Makers on the Exchange, the 
Exchange believes that orders sent by them for covered accounts to the 
proposed PIM would qualify for this exception from Section 11(a).
    In addition to this Market Maker exception, Rule 11a2-2(T) under 
the Exchange Act, known as the ``effect versus execute'' rule, provides 
exchange members with an exception from Section 11(a) by permitting 
them, subject to certain conditions, to effect transactions for covered 
accounts by arranging for an unaffiliated member to execute the 
transactions on the exchange.\13\ To comply with the ``effect versus 
execute'' rule's conditions, a member: (i) Must transmit the order from 
off the exchange floor; (ii) may not participate in the execution of 
the transaction once it has been transmitted to the member performing 
the execution; \14\ (iii) may not be affiliated with the member 
executing the transaction on the floor through the

[[Page 40833]]

facilities of the Exchange; and (iv) with respect to an account over 
which the member has investment discretion, neither the member nor its 
associated person may retain any compensation in connection with 
effecting the transaction except as provided in the rule.\15\ The 
Exchange believes that orders sent by Members for covered accounts to 
the proposed PIM would qualify for this ``effect versus execute'' 
exception from Section 11(a), as described below. In this regard, the 
first condition of Rule 11a2-2(T) is that orders for covered accounts 
be transmitted from off the exchange floor. The ISE trading system and 
the PIM receives all orders electronically through remote terminals or 
computer-to-computer interfaces. The Exchange represents that orders 
for covered accounts from Members will be transmitted from a remote 
location directly to the PIM auction by electronic means. In the 
context of other automated trading systems, the Commission has found 
that the off-floor transmission requirement is met if a covered account 
order is transmitted from a remote location directly to an exchange's 
floor by electronic means.\16\ The second condition of Rule 11a2-2(T) 
requires that the member not participate in the execution of its order 
once the order is transmitted to the floor for execution.\17\ The 
Exchange represents that, upon submission to the PIM, an order will be 
executed automatically pursuant to the rules set forth for the 
mechanism. In particular, execution of an order sent to the mechanism 
depends not on the Member entering the order, but rather on what other 
orders are present and the priority of those orders. Thus, at no time 
following the submission of an order is a Member able to acquire 
control or influence over the result or timing of order execution.\18\ 
Rule 11a2-2(T)'s third condition requires that the order be executed by 
an exchange member who is unaffiliated with the member initiating the 
order. The Commission has stated that the requirement is satisfied when 
automated exchange facilities, such as the PIM, are used, as long as 
the design of these systems ensures that members do not possess any 
special or unique trading advantages in handling their orders after 
transmitting them to the exchange.\19\ The Exchange represents that the 
PIM is designed so that no Member has any special or unique trading 
advantage in the handling of its orders after transmitting its orders 
to the mechanism. Rule 11a2-2(T)'s fourth condition requires that, in 
the case of a transaction effected for an account with respect to which 
the initiating member or an associated person thereof exercises 
investment discretion, neither the initiating member nor any associated 
person thereof may retain any compensation in connection with effecting 
the transaction, unless the person authorized to transact business for 
the account has expressly provided otherwise by written contract 
referring to Section 11(a) of the Act and Rule 11a2-2(T) 
thereunder.\20\ The Exchange recognizes that Members relying on Rule 
11a2-2(T) for transactions effected through the PIM must comply with 
this condition of the Rule.
---------------------------------------------------------------------------

    \13\ 17 CFR 240.11a2-2(T).
    \14\ The member, however, may participate in clearing and 
settling the transaction. See Securities Exchange Act Release No. 
14563 (March 14, 1978), 43 FR 11542 (March 17, 1978).
    \15\ 17 CFR 240.11a2-2(T).
    \16\ See, e.g., Securities Exchange Act Release Nos. 59154 
(December 23, 2008), 73 FR 80468 (December 31, 2008) (SR-BSE-2008-
48); 57478 (March 12, 2008), 73 FR 14521 (March 18, 2008) (SR-
NASDAQ-2007-004 and SR-NASDAQ-2007-080); 49068 (January 13, 2004), 
69 FR 2775 (January 20, 2004) (SR-BSE-2002-15); 15533 (January 29, 
1979), 44 FR 6084 (January 31, 1979) (``1979 Release''); 14563 
(March 14, 1978), 43 FR 11542 (March 17, 1978) (``1978 Release'').
    \17\ The description above covers the universe of the types of 
Members (i.e., Market Makers, EAMs).
    \18\ The Exchange notes that a Member may cancel or modify the 
order, or modify the instructions for executing the order, but that 
such instructions would be transmitted from off the floor of the 
Exchange. The Commission has stated that the non-participation 
requirement is satisfied under such circumstances so long as such 
modifications or cancellations are also transmitted from off the 
floor. See 1978 Release (stating that the ``non-participation 
requirement does not prevent initiating members from canceling or 
modifying orders (or the instructions pursuant to which the 
initiating member wishes to be executed) after the orders have been 
transmitted to the executing member, provided that any such 
instructions are also transmitted from off the floor'').
    \19\ In considering the operation of automated execution systems 
operated by an exchange, the Commission noted that, while there is 
not an independent executing exchange member, the execution of an 
order is automatic once it has been transmitted into the system. 
Because the design of these systems ensures that members do not 
possess any special or unique trading advantages in handling their 
orders after transmitting them to the exchange, the Commission has 
stated that executions obtained through these systems satisfy the 
independent execution requirement of Rule 11a2-2(T). See 1979 
Release.
    \20\ See 17 CFR 240.11a2-2(T)(a)(2)(iv). In addition, Rule 11a2-
2(T)(d) requires a member or associated person authorized by written 
contract to retain compensation, in connection with effecting 
transactions for covered accounts over which such member or 
associated persons thereof exercises investment discretion, to 
furnish at least annually to the person authorized to transact 
business for the account a statement setting forth the total amount 
of compensation retained by the member in connection with effecting 
transactions for the account during the period covered by the 
statement which amount must be exclusive of all amounts paid to 
others during that period for services rendered to effect such 
transactions. See also 1978 Release (stating ``[t]he contractual and 
disclosure requirements are designed to assure that accounts 
electing to permit transaction-related compensation do so only after 
deciding that such arrangements are suitable to their interests'').
---------------------------------------------------------------------------

2. Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act'') \21\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act \22\ 
in particular, in that it is designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
for a free and open market and a national market system, and, in 
general, to protect investors and the public interest by creating 
positive, beneficial incentives for EAMs to provide price improvement 
opportunities to market participants. With the proposed change to the 
start price of a PIM auction, Members will not be required to improve 
the ISE BBO on the opposite side of the Agency Order to initiate a PIM. 
Further, any resting interest on the ISE order book on the opposite 
side of the Agency Order will now participate at the end of the 
auction. As a result, the proposed rule change will remove impediments 
to and perfect the mechanism for a free and open market and will result 
in more orders being executed in the PIM, thus providing an increased 
probability of price improvement for all orders, regardless of their 
size. With this proposed rule change, market participants would be 
incentivized to introduce more orders to the PIM for the opportunity to 
receive price improvement. Furthermore, Priority Customers will 
continue to have priority at each price level in accordance with ISE 
Rule 723(d). While currently non-Member Professional Orders are 
executed after Priority Customer interest and before Member interest, 
with this proposal, which in part amends ISE rules to make PIM a blind 
auction, all Professional Orders will now be at par with Member 
interest and will be executed after Priority Customer orders are 
executed. The Exchange believes it is appropriate to give Professionals 
Orders the same priority that is given to broker-dealer orders because 
professional customers and broker-dealers essentially behave the same, 
i.e., the type of trading professional customers engage in largely 
resembles that of a broker-dealer. The Exchange believes it is 
appropriate to treat these market participants at par with one another.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In particular, the Exchange believes that using the same allocation 
process as is used today for Crossing Transactions is fair and 
equitable because of the value the EAM brings to the marketplace.

[[Page 40834]]

Specifically, by stopping the Crossing Transaction at or better than 
the NBBO, the EAM facilitates a process that protects investors and is 
in the public interest by providing an opportunity for price 
improvement. The Exchange believes the proposed rule change generally 
will benefit investors by offering more opportunities for orders to 
receive price improvement. For these reasons, the Exchange believes 
that the proposal is fair, reasonable and equitable for all market 
participants.
    The Exchange believes its proposal to amend the manner in which 
responses in the PIM auction are addressed is consistent with Section 
6(b) of the Act. The proposal to make responses in the PIM blind to 
other auction participants and the corresponding change to the priority 
rules for the PIM are similar to existing priority rules that 
distinguish between Priority Customers, Market Makers, and Professional 
interest in a manner that will help ensure a fair and orderly market by 
maintaining priority of orders and quotes while still affording the 
opportunity for price improvement is both reasonable and appropriate.
    The Exchange believes the proposed rule change is appropriate in 
the [sic] price improvement auctions are widely recognized by market 
participants as invaluable, both as a tool to access liquidity, and a 
mechanism to help meet their best execution obligations. The proposed 
rule change will further the ability of market participants to carry 
out these strategies. Finally, as noted above, the proposed changes are 
a competitive response to how price improvement auctions on other 
exchanges currently operate and with this proposal, the Exchange will 
be on a more equal footing to compete with other exchanges for orders 
to be executed in the PIM.

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's proposal to 
amend its rules regarding the start price of a PIM auction will not 
impose a burden on competition because it will increase the number of 
orders that may be executed in the PIM and thereby receive price 
improvement opportunities that were not previously available to them. 
Further, the Exchange's proposal to make PIM a blind auction will allow 
ISE to compete with other options exchanges that already have blind 
auctions which most options exchanges that operate a price improvement 
auction do. Finally, the Exchange's proposal to amend the execution 
priority rules will not be a burden on competition because the proposed 
change will allow the Exchange to compete with other options exchanges 
that operate a price improvement auction and whose rules already permit 
its members to rely on the ``effect versus execute'' exemption when 
utilizing the price improvement auction of those markets. The changes 
proposed to Rule 723 will offer opportunities found on other options 
exchanges and create systems that embolden market participants to seek 
out price improvement opportunities for customers. Accordingly, the 
proposed rule change will have no impact on competition other than to 
strengthen competition among the options exchanges that provide price 
improvement opportunities.

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: (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)(ii) of the Act \23\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\24\
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \24\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of the 
Exchange's 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 of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    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 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 Number SR-ISE-2014-35 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-2014-35. 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 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 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-2014-35 and should be 
submitted on or before August 4, 2014.

[[Page 40835]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
---------------------------------------------------------------------------

    \25\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
 Deputy Secretary.
[FR Doc. 2014-16363 Filed 7-11-14; 8:45 am]
BILLING CODE 8011-01-P