Document ID: SEC-2017-1290-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq ISE, LLC
Posted Date: 2017-08-01T04:00Z

[Federal Register Volume 82, Number 146 (Tuesday, August 1, 2017)]
[Notices]
[Pages 35864-35867]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16108]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81212; File No. SR-ISE-2017-75]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Extend the 
Implementation Date in Rule 723(b)

 July 26, 2017.
    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 July 18, 2017, Nasdaq ISE, 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. 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 Exchange proposes to extend the implementation date set forth 
in Rule 723(b) from July 15, 2017 to August 15, 2017 for the systems-
based requirement to provide price improvement through the Price 
Improvement Mechanism for Agency Orders under 50 contracts where the 
difference between the NBBO is $0.01.\3\
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    \3\ The Commission notes that this proposed rule change is 
effective and operative as of July 18, 2017, the date of its filing. 
See text accompanying infra note 17 (granting waiver of the 30-day 
operative delay).
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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
    The Exchange is proposing to extend the implementation date set 
forth in Rule 723(b) from July 15, 2017 to August 15, 2017 for the 
systems-based requirement to provide price improvement through the 
Price Improvement Mechanism (``PIM'') for Agency Orders under 50 
contracts where the difference between the NBBO is $0.01.
    Rule 723 sets forth the requirements for the PIM, which was adopted 
in 2004 as a price-improvement mechanism on the Exchange.\4\ Certain 
aspects of PIM were adopted on a pilot basis (``Pilot''); specifically, 
the termination of the exposure period by unrelated orders, and no 
minimum size requirement of orders eligible for PIM. The Pilot expired 
on January 18, 2017.
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    \4\ See Securities Exchange Act Release No. 50819 (December 8, 
2004), 69 FR 75093 (December 15, 2004) (SR-ISE-2003-06).
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    On December 12, 2016, the Exchange filed with the Commission a 
proposed rule change to make the Pilot permanent, and also to change 
the requirements for providing price improvement for Agency Orders of 
less than 50 option contracts (other than auctions involving Complex 
Orders) where the National Best Bid and Offer (``NBBO'') is only $0.01 
wide.\5\ The

[[Page 35865]]

Commission approved this proposal on January 18, 2017.\6\
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    \5\ See Securities Exchange Act Release No. 79530 (December 12, 
2016), 81 FR 91221 (December 16, 2017) (SR-ISE-2016-29). The 
Exchange notes that, on April 3, 2017, International Securities 
Exchange, LLC was re-named Nasdaq ISE, LLC to reflect its new 
placement within the Nasdaq, Inc. corporate structure in connection 
with the March 9, 2016 acquisition by Nasdaq of the capital stock of 
U.S. Exchange Holdings, and the indirect acquisition all of the 
interests of the International Securities Exchange, LLC, ISE Gemini, 
LLC and ISE Mercury, LLC. See Securities Exchange Act Release No. 
80325 (March 29, 2017), 82 FR 16445 (April 4, 2017) (SR-ISE-2017-
25). ISE Gemini, LLC and ISE Mercury, LLC were also renamed Nasdaq 
GEMX, LLC and Nasdaq MRX, LLC, respectively. See Securities Exchange 
Act Release No. 80248 (March 15, 2017), 82 FR 14547 (March 21, 2017) 
(SR-ISEGemini-2017-13); Securities Exchange Act Release No. 80326 
(March 29, 2017), 82 FR 16460 (April 4, 2017) (SR-ISEMercury-2017-
05).
    \6\ See Securities Exchange Act Release No. 79829 (January 18, 
2017), 82 FR 8469 (January 25, 2017) (SR-ISE-2016-29).
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    In modifying the requirements for price improvement for Agency 
Orders of less than 50 contracts, ISE proposed to amend Rule 723(b) to 
require Electronic Access Members to provide at least $0.01 price 
improvement for an Agency Order if that order is for less than 50 
contracts and if the difference between the NBBO is $0.01.
    ISE adopted a member conduct standard to implement this requirement 
during the time pursuant to which ISE symbols were migrating from the 
ISE platform to the Nasdaq INET platform. At the time it proposed the 
member conduct standard, ISE anticipated that the migration to the 
Nasdaq platform would be complete on or before July 15, 2017. 
Accordingly, Rule 723(b) stated that, for the period beginning January 
19, 2017 until a date specified by the Exchange in a Regulatory 
Information Circular, which date shall be no later than July 15, 2017, 
if the Agency Order is for less than 50 option contracts, and if the 
difference between the NBBO is $0.01, an Electronic Access Member shall 
not enter a Crossing Transaction unless such Crossing Transaction is 
entered at a price that is one minimum price improvement increment 
better than the NBBO on the opposite side of the market from the Agency 
Order, and better than any limit order on the limit order book on the 
same side of the market as the Agency Order. This requirement will 
apply regardless of whether the Agency Order is for the account of a 
public customer, or where the Agency Order is for the account of a 
broker dealer or any other person or entity that is not a Public 
Customer.
    To enforce this requirement, ISE also amended Rule 1614 (Imposition 
of Fines for Minor Rule Violations). Specifically, ISE added Rule 
1614(d)(4), which provides that any Member who enters an order into PIM 
for less than 50 contracts, while the National Best Bid or Offer spread 
is $0.01, must provide price improvement of at least one minimum price 
improvement increment better than the NBBO on the opposite side of the 
market from the Agency Order, which increment may not be smaller than 
$0.01. Failure to provide such price improvement will result in members 
being subject to the following fines: $500 for the second offense, 
$1,000 for the third offense, and $2,500 for the fourth offense. 
Subsequent offenses will subject the member to formal disciplinary 
action. The Exchange will review violations on a monthly cycle to 
assess these violations. This provision is in effect for the period 
beginning January 19, 2017 until a date specified by the Exchange in a 
Regulatory Information Circular, which date shall be no later than 
until September 15, 2017.\7\
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    \7\ While ISE anticipated that the migration of ISE symbols to 
the Nasdaq INET platform would be complete by July 15, 2017, and its 
member conduct standard could be eliminated accordingly by that 
time, ISE Mercury, LLC (now Nasdaq MRX, LLC) also filed a rule 
change that adopted a similar member conduct standard for its price 
improvement rule, and that referenced proposed ISE Rule 1614(d)(4) 
as the means for enforcing its member conduct standard. See 
Securities Exchange Act Release No. 79841 (January 18, 2017), 82 FR 
8452 (January 25, 2017) (order approving SR-ISEMercury-2016-25). The 
Nasdaq MRX re-platforming is scheduled to occur after the ISE re-
platforming is complete. Accordingly, ISE proposed that the date for 
eliminating Rule 1614(d)(4) shall be specified by the Exchange in a 
Regulatory Information Circular, which date shall be no later than 
until September 15, 2017. Given that the Nasdaq MRX re-platforming 
is scheduled to occur after the ISE re-platforming is complete, and 
that the Nasdaq MRX member conduct references the Exchange's Rule 
1614(d)(4), the date for eliminating Rule 1614(d)(4) remains 
unchanged by this proposal.
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    In adopting a member conduct standard, the Exchange represented 
that it would conduct electronic surveillance of PIM to ensure that 
members comply with the proposed price improvement requirements for 
option orders of less than 50 contracts. Specifically, using an 
electronic surveillance system that produces alerts of potentially 
unlawful PIM orders, the Exchange will perform a frequent review of 
member firm activity to identify instances of apparent violations. Upon 
discovery of an apparent violation, the Exchange will attempt to 
contact the appropriate member firm to communicate the specifics of the 
apparent violation with the intent to assist the member firm in 
preventing submission of subsequent problematic orders. The Exchange 
will review the alerts monthly and determine the applicability of the 
MRVP and appropriate penalty. The Exchange is not limited to the 
application of the MRVP, and may at its discretion, choose to escalate 
a matter for processing through the Exchange's disciplinary program.\8\
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    \8\ See Securities Exchange Act Release No. 79530 (December 12, 
2016), 81 FR 91221 (December 16, 2017) (SR-ISE-2016-29).
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    In adopting the price improvement requirement for Agency Orders of 
less than 50 contracts, the Exchange also proposed to amend Rule 723(b) 
to adopt a systems-based mechanism to implement this requirement, which 
shall be effective following the migration of a symbol to the Nasdaq 
INET platform. Under this provision, if the Agency Order is for less 
than 50 option contracts, and if the difference between the National 
Best Bid and National Best Offer (``NBBO'') is $0.01, the Crossing 
Transaction must be entered at one minimum price improvement increment 
better than the NBBO on the opposite side of the market from the Agency 
Order and better than the limit order or quote on the ISE order book on 
the same side of the Agency Order.
    Subsequent to the approval of the rule change adopting the price 
improvement requirement and the member conduct standard, the Exchange 
determined that the migration of symbols to the Nasdaq INET platform 
would be complete on or before July 31, 2017.\9\ This new migration 
schedule was developed to enable the Exchange to conduct additional 
systems testing prior to symbol migration. Given the updated migration 
schedule, the Exchange proposes to extend the effective period of the 
member conduct standard accordingly. The Exchange therefore proposes 
that the member conduct standard will be in effect until a date 
specific by the Exchange in a Regulatory Circular, which shall be no 
later than August 15, 2017.\10\
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    \9\ See Data Technical News #2017-14 (May 25, 2017).
    \10\ While the Exchange anticipates that the re-platforming will 
be complete by July 31, 2017, it proposes to extend the 
implementation date of the systems-based requirement to August 15, 
2017 in the unlikely event of a roll-back of one or multiple symbols 
to the current ISE platform.
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    The Exchange notes that the migration of ISE symbols commenced on 
June 12, 2017, and that symbols that have already migrated to the 
Nasdaq INET platform are already subject to the systems-based 
mechanism. As such, this extension will affect only those symbols that 
have not yet migrated to the Nasdaq INET platform.
    Once all symbols have migrated to the Nasdaq INET platform and the 
member conduct rule is no longer necessary, the Exchange will file a 
proposed rule change deleting the relevant portion of Rule 723(b).

[[Page 35866]]

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\11\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\12\ 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.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    The member conduct standard and its proposed duration were approved 
by the Commission and were adopted to reflect the migration of ISE 
symbols to the Nasdaq INET platform and its accompanying timetable. The 
symbol migration, which was initially anticipated to be complete by 
July 15, 2017, is now scheduled to be complete by July 31, 2017 to 
enable additional systems testing. The Exchange is therefore extending 
the duration of the member conduct standard accordingly, to August 15, 
2017. As noted above, symbols that have already migrated to the Nasdaq 
INET platform are subject to the systems-based requirement. For the 
symbols that remain subject to the member conduct standard, the 
Exchange continues to surveil members, as described above, to ensure 
compliance with the requirements of the Rule. The substantive 
requirements of the price improvement requirement are the same under 
the member-conduct standard and the systems-based functionality; the 
only difference between the member-conduct standard and the systems-
based functionality is the manner in which the price improvement 
requirement is implemented.

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 proposed extension of the 
member conduct standard reflects the revised timetable for migrating 
symbols to the Nasdaq INET platform. In extending the duration of the 
member conduct standard to August 15, 2017, the proposed change will 
apply equally to all members that trade in symbols that have not yet 
migrated to the Nasdaq INET platform. Moreover, the substantive 
requirements of the price improvement requirement are the same under 
the member-conduct standard and the systems-based functionality; the 
only difference between the member-conduct standard and the systems-
based functionality is the manner in which the price improvement 
requirement is implemented.

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 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) of the Act \13\ and Rule 19b-4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \15\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \16\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposed rule change may become operative upon filing. The Exchange 
believes that waiving the operative delay as of the date of filing will 
facilitate an orderly continued migration of symbols to the Nasdaq INET 
system and the corresponding implementation of the systems-based 
requirement for ensuring price improvement for Agency Orders of less 
than 50 contracts where the difference between the NBBO is $0.01. The 
Commission believes the waiver of the operative delay is consistent 
with the protection of investors and the public interest. Accordingly, 
the Commission hereby waives the operative delay and designates the 
proposed rule change operative upon filing.\17\
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    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 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-2017-75 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-2017-75. 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 such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments

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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-2017-75, and should be 
submitted on or before August 22, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-16108 Filed 7-31-17; 8:45 am]
 BILLING CODE 8011-01-P